Embattled Orpea Gets $1.8 Billion Financing as Debt Looms

Albertina Torsoli
Fri, May 13, 2022



(Bloomberg) -- Orpea SA, the embattled retirement-home operator at the heart of a scandal in France, secured 1.73 billion euros ($1.8 billion) of financing from banks as the company faces increasing costs and debt maturities.

The company aims to sell 3 billion euros of assets by end of 2025 to reduce debt, Orpea said in a statement Friday. It won’t pay a dividend this year because of the expenses it faces to overhaul its operations in the wake of the scandal, in which it was accused of stinting on care for the elderly to boost profits. The stock slumped as much as 7.9%, only to reverse losses and gain as much as 4%.

The financing agreement, with banks including BNP Paribas SA, Credit Agricole SA and Societe Generale SA, includes a commitment to maintain at least 300 million euros of cash on hand. The syndicated facility is a response to “the current period of uncertainty,” access to financial markets that’s been closed off and a slowdown in the originally planned asset disposal program, it said. The average interest rate on the facility is higher than the company’s current cost of funding of 2.2%.

Orpea has “major financing challenges” due to investments amounting to about 900 million euros a year for the development of its real-estate portfolio in 2022 and 2023, the company said. It has 850 million euros of debt maturing in the second half of this year and 983 million euros in 2023. Orpea is setting up another “optional” syndicated facility for up to 1.5 billion euros, it said.

The company was thrust into the spotlight at end of January, when a book called “The Gravediggers” singled out its top managers for putting profits ahead of patient welfare, rationing items like food and adult diapers. Orpea shares have since lost about 60% of their value, and a string of government representatives -- including President Emmanuel Macron -- expressed shock and disgust over the revelations.

France to Bolster Nursing-Home Oversight After Orpea Scandal

A review into the allegations commissioned by Orpea pointed to chronic under-staffing and mishandling of public funds. France’s government in March filed a legal complaint, saying it wants Orpea to return millions of euros that it believes were misused.

Prosecutors last month expanded an investigation into the company following a referral by the government. The probe is looking into allegations of falsification of records and violation of labor rules through the abusive use of short-term contracts, according to prosecutors.

Orpea said Friday that net income slumped 59% last year to 65.2 million euros, with debt standing at 7.89 billion euros as of Dec. 31, up by 1.23 billion euros versus the previous year due to a “sustained” property development and acquisition strategy. Last year’s net income result includes 83 million euros of provisions for liabilities and charges linked to risks for the 2017-2021 period following investigations commissioned by the government, Orpea said.

“We remain pessimistic,” Yi Zhong, analyst at Alphavalue, wrote in a note to clients. “The ESG crisis weighed on Orpea’s FY21 results and its occupancy rate in France. The group has signed a sort of ‘emergency’ financing at nearly-doubled cost, showing a worrying liquidity outlook.” She sees the stock sinking another 39% over the next six months.

First-quarter sales climbed 9%, Orpea said. That’s in line with expectations, according to Jefferies International Ltd. analyst James Vane-Tempest. The company held a conference call with analysts at 2 p.m. Paris time to discuss the publication and denied access to reporters. Earnings calls typically are open to journalists. Orpea, which says it’s making efforts to bolster its transparency, declined to comment on the lack of media access.

The company expects operating profitability will be hurt this year by inflation, notably higher energy costs and salaries in certain countries. It’s also bracing for expenses related to the management of the scandal and its consequences.

The company plans a “major” overhaul, primarily in France, focused on the quality of care and well-being of residents, the strengthening of dialog with stakeholders, an improved human resources policy, stronger internal controls and promotion of its whistle-blowing policy for employees, it said.