Orpea - comment

Orpea issued a press release last night stating the negotiations between a consortium of potential new equity providers and a group of unsecured creditors have ended without any agreement. The expectations of the two groups differed significantly in relation to overall valuation, and therefore the negotiations have ceased. Orpea will continue conversations with the group of the unsecured creditors to implement the restructuring plan, which included the equitisation of €3.8bn of unsecured creditors and raise between €1.3-1.5bn of new equity.

Where to next? We have previously estimated cash will be tight as early as Q1 and we take the late-night negotiations as further evidence time is not on their side. The probability of Sauvegarde increases with this statement, but we would expect further negotiations in the coming days. Orpea still need the €1.5bn of new money and if CDC et al have walked away it only leaves creditors as the likely source. We are not convinced that creditors have the ability and are willing to double down with a further investment equal to their current mark-to-market value. Therefore, in order to not destroy value, creditors need CDC et al to return to the table. How creditors ensure this without losing negotiating power is unclear.

Separately, It would appear that Orpea did not disclose any further inside information to the creditor group and the release of the statement stating that negotiations have failed with the new equity providers (CDC) have cleansed the creditors. This is a surprise given the quantity of the new money requirement.