Hi,
The story:
Orpea is a medicalised retirement home operator that offered us both a reputational scandal and a financial surprise. The reputational one (in Jan-22) stemmed from the widespread mistreatment and abuse that patients received from the nurses and workers (following the publication of an investigative book and videos largely relayed by the press), and the financial one stemmed from the IRFS 16 norm that allowed the Company to manipulate their profitability numbers.
The reputational scandal started the lengthy decline of the stock, but it led the Company into financial turmoil when the decreasing value of equity brought debt to the forefront.
Indeed, to be simple, the IRFS 16 norm doesn’t differentiate financial leasing from simple rents. This is important since financial leasing allows the lessee to buy the asset at the end of the period for a agreed-upon lumpsum, whereas a rent can be rolled over indefinitely. The profitability was thus manipulated when reporting the financial statements.
Financials:
At 22H1, Orpea’s real estate assets were worth EUR 8,475m.
At 22Q4, Orpea’s net debt stood at EUR 8.9 bn.
Regarding its real financial liabilitiesWith IFRS 16, Orpea adds the rent amount multiplied by 9.3 (Orpea’s average rent lease time, in years) to their debt and leasing liabilities. Since the rent leases will be extended (since the Company needs the real estate to accommodate the clients and its personnel), we need to consider these leases as ‘infinite debt’. Orpea states that their right-of-use assets related to leases stood at EUR 3.5bn at 22H2, a quick estimation would bring this number to over EUR 13bn.
If we take into account these precisions, the Debt/EBITDA ratio would be equal to: 21,900 / 850 = 25.8, which is a ratio completely insane! Given a Company with a strong real estate component, a ‘normal’ ratio would be approx. 10.
Because of this, the State of France will intervene by bringing cash during the capital raises that will take place in the coming months pending shareholders’ votes regarding the plan.
Current shareholders will represent only 0.4% of the future share number.
The exit value per share is less than EUR 0.20, whereas the stock is still trading at around 2 EUR.
You’ll find below the restructuring plan and info on the debt.
Debt:
Restructuring info:
The story:
Orpea is a medicalised retirement home operator that offered us both a reputational scandal and a financial surprise. The reputational one (in Jan-22) stemmed from the widespread mistreatment and abuse that patients received from the nurses and workers (following the publication of an investigative book and videos largely relayed by the press), and the financial one stemmed from the IRFS 16 norm that allowed the Company to manipulate their profitability numbers.
The reputational scandal started the lengthy decline of the stock, but it led the Company into financial turmoil when the decreasing value of equity brought debt to the forefront.
Indeed, to be simple, the IRFS 16 norm doesn’t differentiate financial leasing from simple rents. This is important since financial leasing allows the lessee to buy the asset at the end of the period for a agreed-upon lumpsum, whereas a rent can be rolled over indefinitely. The profitability was thus manipulated when reporting the financial statements.
Financials:
At 22H1, Orpea’s real estate assets were worth EUR 8,475m.
At 22Q4, Orpea’s net debt stood at EUR 8.9 bn.
Regarding its real financial liabilitiesWith IFRS 16, Orpea adds the rent amount multiplied by 9.3 (Orpea’s average rent lease time, in years) to their debt and leasing liabilities. Since the rent leases will be extended (since the Company needs the real estate to accommodate the clients and its personnel), we need to consider these leases as ‘infinite debt’. Orpea states that their right-of-use assets related to leases stood at EUR 3.5bn at 22H2, a quick estimation would bring this number to over EUR 13bn.
If we take into account these precisions, the Debt/EBITDA ratio would be equal to: 21,900 / 850 = 25.8, which is a ratio completely insane! Given a Company with a strong real estate component, a ‘normal’ ratio would be approx. 10.
Because of this, the State of France will intervene by bringing cash during the capital raises that will take place in the coming months pending shareholders’ votes regarding the plan.
Current shareholders will represent only 0.4% of the future share number.
The exit value per share is less than EUR 0.20, whereas the stock is still trading at around 2 EUR.
You’ll find below the restructuring plan and info on the debt.
Debt:
Restructuring info: