As we get closer to the voting date for shareholders to approve of the recapitalization proposal of Capital Senior Living by Conversant Capital, with the full support of Cap Senior’s management and board, at long last an alternative plan has been put forward. We didn’t think that Ortelius Advisors had much of a leg to stand on in their proxy fight without any alternative for shareholders to consider. Now we have one, as loosey-goosey as it may be.
Ortelius has proposed a new equity rights offering, which they will backstop and subscribe to well beyond their current pro rata holdings of about 12.7%. They believe that raising up to $70 million of new equity capital will be a realistic way for Cap Senior to deal with its near-term liquidity problems. They also believe that a cross-section of current as well as prospective shareholders will have an interest in participating in such a rights offering.
Ortelius also claims that other well-capitalized investors, including Caliga Partners LP, “would be interested” in participating as a backstop for the rights offering. But these would all be subject to standard due diligence, so no certainty of completion. In addition, they received a term sheet from a credit-focused asset management firm, with more than $10 billion in capital, for a $46 million bridge loan, subject only to “confirmatory” due diligence. The interest rate and terms are less burdensome than those of the Conversant loan.
Obviously, Cap Senior’s management is going to claim that these proposals and investors and lenders are merely speculative with nothing actually committed. That is true. But it is also true that the Conversant proposal is very expensive and very dilutive to current shareholders. Now that there is at least something else on the table, as loose as it may be, it is time for the parties concerned to sit down and hammer out a deal that will help the company survive and grow, and provide a chance for those shareholders who do believe in the company’s future to participate in a more economically rational transaction. Tick tock.
