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Ortelius Advisors Threatens to Block $153M Capital Senior Living-Conversant Capital Deal

An activist investor has emerged in Capital Senior Living’s (NYSE: CSU) plan to raise up to $152.5 million through a private placement of convertible preferred stock to affiliates of the private investment firm Conversant Capital.

The investor, Ortelius Advisors, sent a letter Monday to Capital’s board of directors opposing the plan, claiming that it seriously undervalues the company while turning control to Conversant.

Ortelius Managing Partner Peter DeSorcy believes some other stockholders agree with him and would be willing to provide short-term capital to help the Dallas-based company achieve its maximum potential. Furthermore, the letter accuses Capital’s board of breaching their fiduciary duty.

“We do not believe that CSU had an immediate need for the interim financing, and even if it did, based upon conversations with investment bankers and those who have knowledge of the company’s financing needs, we contend that the board had numerous alternatives available to it to address any capital requirements at year end,” he said.

Based in New York City, Ortelius is one of Capital’s largest shareholders, with holdings equal to 11.7% of outstanding common stock, according to its most recent Schedule 13D filing with the Securities and Exchange Commission.

Ortelius declined further comment.

The agreement with Boston-based Conversant proposes a common stock rights offering to existing shareholders, partially backed by the investor. Additionally, Conversant will provide Capital with a $25 million accordion — a new tranche of debt typically used to increase the revolving credit facility commitments under an existing loan — subject to certain conditions.

Proceeds will be earmarked to repay debt and provide working capital.

Capital Senior Living also intends to use a portion of the proceeds to strategically expand its portfolio through accretive acquisitions, President and CEO Kim Lody told Senior Housing News last month.

The company did not respond to a request for comment from SHN for this article.

Since the deal was announced on July 22, Capital Senior Living stock has fallen 40% in trading, and is currently valued at $25.99 per share, which DeSorcy notes in his letter is a discount to the company’s underlying assets.

Other issues he raises with the agreement include:

  • A $17.3 million promissory note provided by Conversant as interim debt is attached with a headline interest rate of 15% and approximately $2.3 million earmarked to pay Conversant’s costs and expenses, and with a payment premium to give Conversant a capital return of 1.05x to 1.20x on top of accrued interest.
  • The accordion provided by Conversant is to be funded through the issuance of additional preferred stock to Conversant.
  • If the agreement is approved, Conversant will have the right to designate a pro rata number of directors (rounded to the nearest whole number) for nomination to the board, and for so long as the company beneficially owns at least 20% of the common stock on an as-converted basis, will be entitled to designate the board’s chairperson.

Ortelius believes that Capital is not acting in the best interests of all stockholders, especially as Lody stressed to investors during its Q1 2021 earnings call that pressures stemming from Covid-19 are easing, and the company is well-positioned for growth through new programs and rate growth in its communities.

“We believe there are other stockholders like Ortelius who not only oppose this transaction, but also stand ready, willing and able to assist the Company with its near-term capital needs and other strategic initiatives in light of the Company’s tremendous long-term potential,” he said.

One shareholder that is in favor of the agreement with Conversant is Arbiter Partners Capital Management, which owns almost 14% of common stock. The New York City-based firm indicated it intends to vote in favor of the capital raise, and subscribe in the rights offering.

As of July 22, Capital’s portfolio includes 75 communities in 18 states, serving over 7,000 seniors.

The post Ortelius Advisors Threatens to Block $153M Capital Senior Living-Conversant Capital Deal appeared first on Senior Housing News.

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