Capital Senior Living (NYSE: CSU) is moving forward with its plan to raise up to $ 153 million through a private placement of convertible shares with subsidiaries of Conversant Capital. The transaction is necessary to meet immediate working capital needs and ensure the company’s future stability, according to documents filed this week.
The Dallas-based operator also spoke of activist investor Ortelius Advisors’ efforts to block the recapitalization, saying the investment firm did not have a viable plan to compete with Conversant deals.
Capital filed a definitive proxy statement with the Securities and Exchange Commission on Tuesday, setting the date of October 12 for the shareholder vote on the issuance of 150,000 preferred shares to Conversant; and to amend the certificate of incorporation of the company to increase the number of common shares to 15 million shares.
Capital also announced a September 10 launch date for a $ 70 million common stock rights offering, backed by $ 42.5 million of preferred stock purchased by Conversant. Rights will expire at 5 p.m. ET on October 18, 2021, unless extended by the company.
Capital is moving forward with Conversant transactions as it operates in a “limited cash environment” for the past 15 months, threatening its status as a going concern, CEO Kim Lody said on earnings call of the company’s second quarter 2021. The company reiterated this in the August 31 letter to shareholders.
“The Transactions are the only viable way forward and have a strong strategic and financial sense for our shareholders, in particular by offering them the possibility of participating in the Transactions by means of the offer of rights”, indicates the letter.
Earlier this month, Ortelius, which controls shares equal to 13.7% of the common stock, filed a proxy statement with the SEC detailing the conversations she had with Capital to discuss redemption options for debt, opportunities to extend debt and payment maturities, and for Ortelius to express reservations with Conversant transactions.
Managing partner Peter DeSorcy argues that the deal dilutes shareholder value and that Capital had other options to deal with its financial pressures.
Against a backdrop of steadily declining share prices over the past few years, Capital Senior Living has pursued other options, including selling the entire company, a August 31 letter to shareholders said.
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Various sale rumors have circulated about potential deals in recent years, including reports from 2019 that Capital Senior Living rejected several offers from private equity firm TPG. About two years earlier, in a joint venture, TPG had acquired a portfolio of 183 communities operated by Enlivant.
More recently, between January 2021 and July 2021, Capital Senior Living’s transactions committee contacted 33 potential investors, three of whom have submitted proposals, according to Tuesday’s letter. The Conversant deal was the only viable transaction to emerge.
Capital urged shareholders to vote in favor of the deal and denounced the lack of an alternative.
“[Ortelius] is engaged in a misguided campaign to solicit votes against the Transactions, but has not provided any guidance or vision for shareholders on how the business can survive (much less grow and prosper) in the absence of the Transactions, ”states the letter.
Recent Capital deposits highlight the immediate financial pressures of the business. The operator has $ 72 million in mortgage debt maturing with recourse provisions due December 2021, and $ 37 million in non-recourse mortgage debt maturing in April and May 2022.
In addition, Capital defaulted on $ 31.5 million of partial recourse mortgage debt held by Fifth Third Bank at the end of the first quarter of 2021. The bank issued a notice of default indicating that the loan is repayable, and the two parties have been in talks to resolve the issue. .
Meanwhile, Capital and BBVA have agreed to a one-year extension of a $ 40.5 million bridge loan that will mature on December 10, 2021.
In its most recent letter, Capital says it has an immediate need for $ 15 million in working capital. Otherwise, the company would not have the working capital to continue to finance occupancy and revenue collection, while meeting the terms of the amended BBVA payment plan.
Ortelius Advisors had not responded to a request for comment from Senior Housing News at the time of this article’s publication.