International Creditors Concerned With France's Respect of Investor Rights in Orpea Restructuring Raise Questions Over Attempt at Stealth Nationalization
The Support Club, comprised of investors with combined AUM of over $62 billion and holding ?497m of Orpea's unsecured claims, urge other creditors to vote against the proposed restructuring and stealth nationalization of France's largest health care provider on 16th June. They argue the proposal tramples on ?1.9bn of unsecured creditors who are not supporting the plan, arbitrarily favors and enriches the French State's investment vehicle Caisse des dépôts et consignations (the CDC) and certain (primarily French) creditors over most others and threatens France's sustainability for foreign investments. Instead, they call on Orpea to engage with the Support Club and other stakeholders, and to consider an alternative restructuring proposal by Concert'O, which has been ignored by Orpea and its favored creditors to date. Concert'O's proposal delivers better value to stakeholders, equivalent to a 35% day-1 recovery on unsecured creditors' claims over CDC's proposal and offers all shareholders the chance to participate in Orpea's future value creation.
In the event the creditor classes don't vote in favor of the plan, the Support Club anticipates the French state will pursue a cross class cram down via the Board of Orpea, a group of French banks, and the CDC. This would force all creditors to give economics in Orpea to the CDC at a significant undervaluation (take a haircut). This should not be sanctioned without the consent of all classes and the group argues it would breach at least two French laws. Firstly, nationalization has to follow due process to maximize the value of the company; Concert'O and the Support Club have been willing to put in more euros for less equity, but their proposal has been ignored by Orpea's Board. Secondly, other creditors, under pre-emption rights, should have the opportunity ? enshrined in French law ? to subscribe to any equitization, which so far they have been denied. In the case of a cross-class cram down, the Support Club argues it and the other unsecured creditors should be allowed to subscribe to the second capital increase.
Orpea's unsecured creditors are being made three times the victim in this case. First, Orpea was operationally and financially mis-managed leading to a financial restructuring in the summer of 2022. Secondly, in the 2022 restructuring, the Company did not even consult its unsecured creditors and instead favored a group of overwhelmingly French banks to their detriment. Now, for the third time, unsecured creditors are being treated unfairly.
From the very beginning and throughout the process, the Board of Orpea has issued misleading statements on the progress of, and support for, the restructuring. Most concerning of which, the Board claimed to have reached an agreement on the restructuring with ?about 50%' of the unsecured creditors of Orpea, when this cannot have been the case.
Members of the Support Club are currently taking legal steps before the French and German Courts to challenge the two-step actions of Orpea to give preferred status to a group of secured creditors (French banks) and then to unfairly sweeten the deal for some but not all unsecured creditors. They hold a blocking position in the convertible bonds and are also seeking to vote down the proposed restructuring through the French safeguard process. Without broader resistance by creditors and shareholders, the Support Club is concerned that unfavored creditors will be crammed-down and deprived of rightful value, which will instead accrue to French creditors and the CDC, which will take the company by stealth.
The Support Club says: "The flagrant disregard and refusal for months to engage on any alternative restructuring proposal, particularly one which is more favorable to all Orpea's stakeholders, and the unwillingness of Orpea's Board to consider it, forces one to question France's desire to be seen as a suitable and safe destination for foreign investment. France has recently enacted a new bankruptcy law which is meant to implement a European directive aimed at encouraging cross-border investments by reducing inconsistencies between insolvency rules across the region. The Orpea restructuring plan sets a terrible precedent for unsecured creditor treatment as the first major case under the new law. We do not want to see France go in the same direction as other nation states which have egregiously ignored creditor rights. Following Brexit, Europe is supposed to be open for business, but this attempt at stealth nationalization of a privately owned and financed care provider, which was and remains a viable profitable business, gives a contrary message.
"The care home sector will require a huge amount of private investment and debt financing in the years ahead to support an aging population in France and Europe, and the Board and CDC's attempts to force a cross-class cram down are harmful to investor confidence.
"We strongly urge all creditors to vote against the restructuring cooked up by the French-state backed investor CDC and the Board of Orpea on 16th June. Furthermore, we are pursuing legal options to litigate the matter."
About Support Club
The Support Club is a group of funds managed by Fortress Investment Group, Kite Lake Capital, Kyma Capital, LMR Partners and Whitebox Advisors who are unsecured creditors of Orpea SA (a French healthcare provider), representing ?497m of Orpea's unsecured claims and managing over $62 billion in AUM.
Support Club's financial advisor is Gleacher Shacklock LLP, and French legal advice is provided by Lantourne & Associés.
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