Creditors face Hobson’s choice when groups face default
French elderly care giant Orpea has been given four months to fix its finances and placate its creditors. Could it learn from GCC hospital group NMC’s similar experience?
London-listed NMC Health was floundering and facing liquidation last year, despite being fundamentally so interwoven into the fabric of the region’s healthcare system that it seemed integral to it. A combination of savvy management and clever administration managed to keep the business afloat despite allegations of mismanagement and financial irregularities.
The allegations against Orpea are quite different in nature. The recent debacle was initially triggered by accusations of abuse and malpractice, but the current situation does have parallels. Like NMC, trading in shares in the group ceased – albeit temporarily – and the groups share price also went into free fall.
Even by Orpea’s own admission, unless it renegotiates its debt, the covenants contained in many of its financing lines may not be met. Like NMC, Orpea is trying to cut a deal with its creditors. And this is not entirely a crisis of its own making – rising interest rates, spiralling energy costs, the war in Ukraine and fall out from that – have all not helped.
NMC was at least able to sell off some of its assets; Orpea faces less favourable market conditions. But the key learning for Orpea, perhaps, is that NMC presented its creditors with just three choices. One, watch us go into liquidation. Two, watch as we hold a distressed asset sale. Three, take ownership of the group. Somewhat reluctantly, its creditors took option three, and the business continues now in a leaner, but far healthier state.
What then of Orpea? One option is a debt/equity swap on £4.3bn of its unsecured debt. The debt to equity conversion would significantly dilute the groups share value. Would creditors accept this?
History shows with a take it or leave it offer, such a gamble can pay off, as NMC has proved – where the alternative for creditors is even less palatable.
We would welcome your thoughts on this story. Email your views to David Farbrother or call 0207 183 3779.
