Opening of an Amicable Conciliation
Procedure Towards ORPEA S.A Aiming at Renegociating Its Debt With
Its Financial Creditors
Anticipated Asset Impairments at 31 December
2022 Associated With the Ongoing Strategic Review and Currently
Estimated at Between €2.1 and €2.5 Billion Before Tax1
Presentation on 15 November of the
Transformation Plan, Benefitting Patients, Residents, Their
Families, and Employees
Regulatory News:
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the full release here:
https://www.businesswire.com/news/home/20221025006174/en/
Appendix 1 – Gross financial debt
maturity profile (Graphic: Business Wire)
ORPEA S.A (Paris:ORP):
The highly inflationary economic environment and the
consequences of the strategic and financial review conducted,
currently being finalized by the new management team since the
Company’s last publications, have led the Company in a situation
requiring to renegotiate its debt, including the covenants
contained in many of its financing lines, which may not be met as
they stand at 31 December 2022. In addition, the current context
also impacts the asset disposal program as envisaged in the
financing plan agreed with the main banking partners in May of this
year, which aimed at ensuring the Group's liquidity. The amount of
gross debt due as of 31 December 2023 (as calculated as of 30 June
2022, pro forma for drawings made as of 27 September 2022) is
€2.439 billion.
ORPEA S.A therefore received yesterday approval regarding the
opening of an amicable conciliation procedure2 by the President of
the Nanterre specialized Commercial Court. The purpose of this
procedure is to enable ORPEA S.A to engage in discussions with its
financial creditors on the restructuring of its financial debt, to
obtain new financial resources and to adjust its covenants, within
a stable and legally secure framework. The conciliation procedure
only concerns the financial debt of ORPEA S.A as legal entity and
will not involve operational creditors (such as suppliers). It will
have no impact on operations, employees, patients, residents and
their families.
This new step, which has the Board of Directors’ unanimous
approval and support, is a prerequisite for the implementation of
ORPEA's transformation plan that will be presented on 15
November.
Following the suspension on 24 October 2022, the trading of
all financial instruments (shares, debt securities and related
securities) issued by ORPEA will resume on this Wednesday 26
October 2022, at the market opening.
Laurent Guillot, Chief Executive
Officer, said:
“The new management team and all the ORPEA teams are fully
mobilized on our main priorities: safety and working conditions for
our employees; quality of care and support for our residents,
patients and their families; ethical and responsibility principles
inherent to our mission.
We have taken many decisions to restore good practices
throughout the Company, in a spirit of 'zero tolerance'. This has
already led us to dismiss managers and employees who have behaved
unethically, to implement reinforced control measures and to take
an active approach to transparency, particularly financial
transparency, in order to provide an accurate and sincere picture
of ORPEA's situation.
The malfeasance and ethical misconduct, combined with the
excessive real estate and international development undertaken by
the previous management team, have seriously affected ORPEA's
financial situation. All the elements relating to these acts have
been and will continue to be brought to the attention of the Public
Prosecutor, further to the complaint already filed by the Company
in April 2022, and in a nominative manner when appropriate.
In order to ensure the implementation of the transformation plan
that I will present on 15 November, in a challenging macroeconomic
context that has impacted operating performance as well as the
asset disposal program, and in view of the risk of depreciation on
certain assets, I have requested the opening of an amicable
conciliation procedure benefitting the ORPEA SA legal entity. This
procedure allows us to better manage discussions with our financial
creditors in the context of a restructuring of the Group’s
financial debt and to obtain new financial resources, while
ensuring the Company can operate normally.”
Guillaume Pepy, Chairman of the Board
of Directors stated on his part:
“The Board of Directors unanimously supports the Chief Executive
Officer’s decision to request the opening of an amicable
conciliation procedure and expresses full confidence in ORPEA's
ability to transform itself and ensure the best support and quality
of care for the most vulnerable.”
Unaudited financial information
concerning the Group's debt structure as of 30 September
2022:
Gross Debt
€9 527 M
Cash position
€854 M
Secured Debt
€4 477 M
Unsecured Debt
€5 050 M
Unsecured Debt incurred by ORPEA S.A
€4 403 M
Debt subject R1/R2 covenants
€3 342 M
The gross financial debt maturity profile, as published on 28
September 2022, is set forth in Appendix
1 of this press release.
Evolution of financial
covenants
Given the highly inflationary economic environment and the
consequences of the strategic review currently being finalized,
ORPEA must amend the "R1" and "R2" covenants (see definition
recalled in Appendix 2) contained in
many of the Group's financing lines (representing, together and to
date, an outstanding amount of €3.3 billion).
Indeed:
- With regard to the R1 ratio: the downward trend in the
activities’ financial performance observed in the first half of
2022 is continuing in the second half of the year, in particular
due to the significant increase in the Group's purchasing costs,
particularly for energy and catering; and
- With regard to the R2 ratio: the new business plans drawn up by
the operational teams at facility level as part of the strategic
review suggest, to date and on the basis of unaudited internal
works carried out, significant impairments of certain assets
recorded in the Company's balance sheet, with a decrease estimated
at:
- Between €0.8 and €1.0 billion before tax, of the value of the
revalued real estate assets subject to an independent annual
appraisal, and estimated at €5.8 billion at 31 December 2021. The
total value of the real estate assets reported, including the part
not revalued by independent experts, amounted to €8.1 billion on
the same date; this decrease in the value of the real estate assets
is solely the result of the evolution of the business plans,
excluding any other parameter (real estate yields, etc.)3 and will
be recorded mainly as a reduction in equity;
- Between €1.3 and €1.5 billion before tax, of the value of
intangible assets corresponding to goodwill and operating licenses
that represented €4.7 billion on the balance sheet at 31 December
2021. This decrease in the value of intangible assets results both
from the evolution of business plans and from the upward revision
of the risk-free rate to 2.5% (compared to 0.2% previously).
- These figures are unaudited and will be reviewed by the
statutory auditors as part of their audit of the accounts to 31
December 2022.
Furthermore, in the context of the preparation of its financial
statements for the year to 31 December 2022, the Company may be led
to recognize impairments in addition to those mentioned above. The
latter could result from changes in certain calculation parameters
not considered as of today in the approach used for the valuation
of real estate and intangible assets (e.g. cost of capital, yield
on real estate assets, etc.). As an indication, an increase of
0.25% in the yield on real estate assets would result in a decrease
of approximately €240 million in the value of the real estate
assets revalued by the independent experts. These additional
impairments could also result from future work that the Company
will carry out on the unappraised portion of the real estate assets
held and on the value of financial receivables relating to
partnerships, depending on the progress of negotiations undertaken
with a view to their settlement. As a reminder, the amount of these
financial receivables was €697 million at 30 June 2022.
Failure to comply with the "R1" and "R2" covenants could result
in the acceleration of repayment of the relevant financing
lines.
Financing plan and real estate
disposals
The financing plan, agreed with the main banking partners in May
this year and formalized in June 2022 by the approval of a
conciliation protocol (protocole de conciliation), included the
achievement of a property disposals program. A first transaction
involving assets in the Netherlands was announced in July 2022 for
an amount of €126 million and resulted in an initial receipt of €94
million in September.
Meanwhile, the recent context and the resulting wait-and-see
attitude in the real estate transaction market are jeopardizing the
continuation of this program within the specified timeframe and
necessarily impact the liquidity conditions of such assets.
In this respect, the Company's main commitments, made in June
2022, are set forth in Appendix 3.
Conciliation procedure and contemplated
financial restructuring
ORPEA has obtained yesterday the opening by the President of the
Nanterre specialized Commercial Court of an amicable conciliation
procedure. The purpose of this preventive procedure is to reach
amicable solutions with ORPEA S.A's main financial creditors, under
the aegis of a conciliator, in order to achieve a sustainable
financial structure by drastically reducing its debt and securing
the liquidity necessary to continue its activity.
At this stage, options under consideration include equity
conversion of ORPEA S.A's unsecured debt, amounting €4.3 billion,
amendment of the "R1" and "R2" financial covenants contained in
multiple financing agreements not impacted by the conversion of
debt into equity, and certain modifications to existing secured
debt to facilitate the injection of new sources of financing,
notably in the form of new secured debt on assets of the group free
of any security interests and capital increase.
Creditors holding unsecured financial debt of ORPEA S.A are
invited to organize themselves in order to facilitate future
discussions with the Company. The appointed conciliator, Maître
Hélène Bourbouloux (FHB), invites the financial creditors concerned
to come forward at the following e-mail address
(orpea@aetherfs.com). They are requested to provide, among
others proof of debt holding at that time and sign a non-disclosure
agreement in order to participate in a meeting scheduled for 15
November 2022, the logistical details of which will be communicated
later.
The Company has appointed Rothschild & Co and Perella
Weinberg Partners as financial advisors and White & Case LLP
and Bredin Prat as legal advisors.
The Company will continue to keep the market informed of
progress of the ongoing discussions through its corporate
communication, in compliance with its legal and regulatory
obligations.
Presentation of the transformation plan
and financial calendar
The presentation of ORPEA's transformation plan by the new
management team will take place on Tuesday 15 November 2022.
Details on how to participate will be communicated at a later
stage.
Third quarter 2022 revenue will be announced on 8 November 2022
after market close.
Following the suspension on 24 October 2022, the trading of all
financial instruments (shares, debt securities and related
securities) issued by ORPEA S.A will resume on this Wednesday 26
October 2022 at the market opening.
Appendix 2 – Reminder
of the methods for calculating covenants “R1” and
“R2”
The Company reminds readers that bilateral bank loans as well as
borrowings made under German law, Schuldschein, as well as certain
bond issues are subject to the following contractually agreed
covenants, tested on a half-yearly basis:
R1 =
consolidated net financial debt
(excluding net real estate debt)
, and
(EBITDA excluding IFRS164 – 6 % x
net real estate debt)
R2 =
consolidated net financial
debt
Equity + quasi equity5
As of 30 June 2022, these two ratios amounted to 3.58 and 1.87,
respectively. The applicable contractual limits are 5.5 for R1 and
2.0 for R2.
Notes to the table of Appendix 3: (4) As of September,
27th 2022, €94m of gross asset value disposals have been achieved
(5) Real estate assets disposal commitments do not prevent the
group from becoming tenant for these assets
About ORPEA ORPEA is a leading global player, expert in
the care of all types of frailty. The Group operates in 22
countries and covers three core businesses: care for the elderly
(nursing homes, assisted living, home care), post-acute and
rehabilitation care and mental health care (specialized clinics).
It has more than 71,000 employees and welcomes more than 255,000
patients and residents each year.
https://www.orpea-group.com/
ORPEA is listed on Euronext Paris (ISIN: FR0000184798) and is a
member of the SBF 120, STOXX 600 Europe, MSCI Small Cap Europe and
CAC Mid 60 indices.
___________________________ 1 Unaudited figures 2 The
conciliation is a procedure, so-called amicable or preventive, for
dealing with business difficulties. It is provided for in the
Commercial Code. The negotiations, which take place under the aegis
of a conciliator appointed by the President of the Commercial
Court, are confidential. The conciliator's mission is to encourage
the conclusion of an amicable agreement between the debtor and its
creditors, who are called upon to do so, aimed at putting an end to
the company's difficulties and ensuring its continuity. 3 The
breakdown of this decline in value between the impact on profit or
loss and the impact on equity is currently being determined in
accordance with the accounting rules in force. 4 Calculation based
on last twelve months. 5 Deferred tax liabilities linked to the
valuation of intangible operating assets under IFRS in the
consolidated financial statements.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221025006174/en/
Investor Relations ORPEA Benoit Lesieur Investor
Relations Director b.lesieur@orpea.net
Investor Relations NewCap Dusan Oresansky +33 (0)1
44 71 94 94 ORPEA@newcap.eu
Media Relations ORPEA Isabelle Herrier-Naufle
Media Relations Director +33 (0)7 70 29 53 74
i.herrier-naufle@orpea.net
Image 7 Charlotte Le Barbier +33 (0)6 78 37 27 60
clebarbier@image7.fr
Toll free tel. nb for shareholders: +33 (0) 805 480 480
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