Scandal-hit care home group Orpea has reached a deal to restructure its heavy debts by bringing in new investors led by French state-linked financial group Caisse des Depots & Consignations.
The deal, which gives the CDC consortium a majority stake and control of the board, is a key part of Orpea’s efforts to recover from the financial and reputational fallout from the publication last year of a book called The Gravediggers by journalist Victor Castanet.
His documentation of the mistreatment of elderly residents, including the rationing of food and incontinence products, and alleged fraud by executives led to criminal investigations, the sacking of managers, regulatory reviews and also wiped more than 90 per cent off the value of Orpea’s once high-flying shares.
The scandal made the group’s roughly €9bn in debt unsustainable as profits fell and some families took relatives out of their homes.
In response, the group’s new chief executive Laurent Guillot announced a second debt restructuring in November, after the first one in the summer fell short, and a new strategy built around hiring more staff to improve conditions in care homes and exiting overseas markets.
But it has taken months to negotiate the specifics with creditors because of the complexity and size of the deal, lawyers said, and also because Orpea is one of the first cases to go through France’s new bankruptcy regime that took effect last year. The new rules bring France more in line with US and UK standards by removing the requirement to win shareholder approval.
A consortium led by the CDC, along with two French co-operative insurers, including one that represents nurses, will inject €1.5bn in cash into Orpea via a capital increase. This will give them 50.2 per cent of the share capital and seven of 13 seats on the board.
Separately, €3.8bn of unsecured debt at Orpea will be swapped into equity, which will give those creditors roughly 49.4 per cent of the group’s shares. Current shareholders will in effect be diluted to hold only 0.4 per cent.
A group of six banks has also agreed a new loan that could total about €600mn once finalised.
Orpea said the restructuring would help reduce debt by about 60 per cent to a net debt-to-ebitda ratio of 6.5 times in 2025.
Guillot said it was a key part of his strategy to overhaul Orpea. The investment in additional staff will lead to a fall in profit margins from about 25 to 20 per cent, the company said in November.
“The plan aims to set up an ethical, virtuous and quality business model that meets the major challenges of supporting the fragile people” who depend on Orpea, the chief executive said in a statement.
The CDC-led group of investors also supports these aims and has backed the reduction in margins. “The goal of our investment is that the elderly in Orpea’s homes are well treated and the company behaves ethically,” said Olivier Sichel, CDC’s deputy chief executive.
People close to the deal said the involvement of the CDC should not be seen as the state bailing out or taking control of Orpea. The CDC operates like a sovereign fund, is not owned by the government and sets its own investment strategy, albeit under the oversight of the French parliament.
Its main role is to deploy the billions that French savers put in “Livret A” state-regulated savings accounts, financing the construction of low income housing and other projects in the public interest.
In that capacity, the CDC already invests some €400mn a year in financing non-profit care homes for the elderly and other similar institutions.
Castanet, the author who revealed the problems at Orpea, said in a tweet that the involvement of the CDC could be a “turning point” for the group and the sector. “If the CDC sticks to its promises the demands for profitability will abate, which should eventually improve conditions in the care homes,” he said.
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