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Capital Senior Living Says Conversant Deal ‘Only Viable Path,’ Pushes for Shareholder Support

Capital Senior Living (NYSE: CSU) is moving forward with its plan to raise up to $153 million via a private placement of convertible stock to affiliates of Conversant Capital. The transaction is necessary to meet immediate needs for working capital and secure the future stability of the company, according to documents filed this week.

The Dallas-based operator also addressed the efforts of activist investor Ortelius Advisors to block the recapitalization, claiming the investment firm does not have a viable plan to compete with the Conversant transactions.

Capital filed a definitive proxy statement with the Securities and Exchange Commission on Tuesday, setting an Oct. 12 date for shareholders to vote on issuing 150,000 shares of preferred stock to Conversant; and to amend the company’s certificate of incorporation to increase common stock to 15 million shares.

Capital also announced a Sept. 10 launch date for a $70 million common stock rights offering, backstopped by $42.5 million in preferred stock purchased by Conversant. The rights will expire at 5pm ET on Oct. 18, 2021, unless extended by the company.

Capital is moving forward with the Conversant transactions because it has been operating in a “constrained cash environment” for the past 15 months, threatening its status as a going concern, CEO Kim Lody said during the company’s Q2 2021 earnings call. The company reiterated this in the Aug. 31 letter to shareholders.

“The Transactions are the only viable path forward and make strong strategic and financial sense for our shareholders, including providing them with the ability to participate in the Transactions through the rights offering,” the letter read.

Earlier this month, Ortelius, which controls shares equal to 13.7% of common stock, filed a proxy statement with the SEC detailing conversations it had with Capital to discuss debt repayment options, opportunities to extend debt maturities and payment due dates, and for Ortelius to express reservations with the Conversant transactions.

Managing Partner Peter DeSorcy argues that the deal dilutes shareholder value, and that Capital had other options to address its financial pressures.

Amid steady declines in its share price over the last several years, Capital Senior Living did pursue other options, including a sale of the whole company, an Aug. 31 letter to shareholders states.

Various sale rumors have circulated over potential deals in recent years, including 2019 reports that Capital Senior Living had rejected multiple bids from private equity firm TPG. About two years earlier, in a joint venture, TPG had acquired a 183-community portfolio operated by Enlivant.

More recently — between January 2021 and July 2021 — Capital Senior Living’s transaction committee contacted 33 potential investors, of which three 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 called out the lack of an alternative.

“[Ortelius] is engaged in a misguided campaign to solicit votes against the Transactions yet has not provided any path or vision to shareholders about how the company can survive (much less grow and thrive) in the absence of the Transactions,” the letter said.

Recent filings by Capital highlight the company’s immediate financial pressures. The operator has $72 million of maturing mortgage debt with recourse provisions due in December 2021, and another $37 million of non-recourse mortgage debt maturing in April and May of 2022.

Additionally, Capital defaulted on $31.5 million in partial recourse mortgage debt held by Fifth Third Bank at the end of Q1 2021. The bank issued a notice of default letter indicating the loan is callable, and the two parties have been in discussions to resolve the issue.

Meanwhile, Capital and BBVA agreed to a one-year extension of a $40.5 million bridge loan set to mature on Dec. 10, 2021.

In its most recent letter, Capital claims it has immediate need for $15 million in working capital. Otherwise, the company would not have the working capital to continue funding occupancy and revenue recovery, while serving the terms of the amended BBVA payment plan.

Ortelius Advisors had not responded to a request for comment to Senior Housing News at the time this story was published.

The post Capital Senior Living Says Conversant Deal ‘Only Viable Path,’ Pushes for Shareholder Support appeared first on Senior Housing News.

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