Another investor in Capital Senior Living (NYSE: CSU) has proposed an alternative to the provider’s plan to raise up to $154.8 million through a transaction with Conversant Capital.
Invictus Global Management on Tuesday provided term sheets to Dallas-based Capital Senior Living for a $150 million financing transaction, which it claims is at market value and at terms “far superior” to those offered by Conversant.
Based in Austin, Invictus specializes in debt financing and private credit and focuses on smaller companies not on the radar of larger private equity firms.
Invictus suggests the capital can be used to extend Capital Senior’s maturing debt while the company continues to recapture occupancy and revenues strained by the Covid-19 pandemic.
Details involve an immediate $25 million bridge loan, which would refinance the $25 million accordion loan Capital Senior received from Conversant, as well as provide working capital. The loan’s terms carry a 10% interest rate in cash, or 12% in-kind, with a one-year maturity date and a 3% structuring fee.
Invictus’ proposal calls for a $75 million senior secured term loan, issued upon completion of an appraisal of Capital Senior Living’s real estate assets, and carrying a loan-to-value ratio of no more than 75%. The loan would be secured by a first lien on all unencumbered collateral and a junior lien on all encumbered collateral, and would be used to refinance Capital’s existing BBVA and Fifth Third Bank loans.
Capital 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. This includes $31.5 million in partial recourse mortgage debt held by Fifth Third Bank, which it defaulted on at the end of the first quarter of 2021. The company and BBVA agreed to a one-year extension of a $40.5 million bridge loan set to expire on Dec. 10, 2021.
In addition to the term sheets, the firm sent a letter to Capital Senior Living President and CEO Kim Lody contending that the Conversant transactions, which amended the terms of the deal last week while also involving major shareholders Arbiter Partners and Silk Partners, remains onerous for the majority of stockholders in the company.
Specifically, Invictus Partner Amit Patel argues that the terms Conversant is offering Capital are more akin to those seen in distressed companies, instead of one with strong upside potential.
“Although the recently amended transaction is better for shareholders, it is still off market and far from what shareholders deserve, given the high-quality asset base and strength of CSU’s underlying business,” he wrote.
Invictus is the second investor in Capital Senior Living to object to the Conversant transactions, which were first announced in July.
Ortelius Advisors has expressed its concerns with the agreement, similarly arguing that the terms are weighted heavily in Conversant’s favor and undervalue a company that has reported six consecutive months of occupancy gains.
Last month, the New York City-based private equity firm announced its own counteroffer to provide up to $70 million through backstopping an equity rights offering, on the condition that it is decoupled from the other proposed transactions in the Capital-Conversant agreement.
Additionally, Ortelius received a non-binding term sheet for a $46 million bridge loan for the company, at interest rates and terms it deems more favorable to the Conversant transactions.
On Tuesday, Ortelius announced its continued opposition to the amended Conversant deal, arguing that the changes were agreed upon specifically to gain the support of Arbiter Partners and Silk Partners, at the expense of remaining shareholders.
“Stockholders should not be forced to suffer through the amended transactions simply because the board signed away its right to expeditiously run a post-announcement market check and negotiate with other viable capital providers,” Ortelius Managing Partner Peter DeSorcy wrote.
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