Distressed debt ORPEA

any thoughts on ORPEA ?
I noticed that some lenders will convert their bonds into equity. The bond look very cheap, only 25 cents, I’m wondering if in case of bankruptcy a debt to equity deal could be enforced to all bondholders?

One thought on “Distressed debt ORPEA

  1. Hi –

    I’ll preface by saying I’m not close to Orpea, but I have looked at similar transactions in the past.

    To answer your question: Yes bondholders will be converted into equity.

    I would direct you to the announcement of the lock up agreement (effectively consenting holders are ‘locked up’ – they can’t sell their bonds, so they are now committed to making good on the proposed transaction): https://www.orpea-group.com/wp-content/uploads/2023/02/PR-ORPEA-Signature-LuA_ENG-FV.pdf

    The announcement details a fairly vanilla debt for equity swap. What caught my eye (& is perhaps the is source of your question) is the section on non-consenting holders. Non consenting holders will be moved to an SPV & converted into new debt issued by said SPV. The converted debt will then be equitized in accordance with the proposed transaction – so non-consenting holders have no way out of being converted to equity. The method is a little unconventional, I imagine there are some legal machinations which require the company to take this route.

    But in principal the outcome is unsurprising – as a debtholder the terms of your contract with the company is beholden to whatever a controlling stake of bondholders deem it to be, i.e. the contract can be amended if a majority of bondholders agree. This is particularly apparent in distressed situations (such as Orpea).

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