Capital Senior Living President and CEO Kimberly S. Lody

Ortelius Advistors and Invictus Global Management have made “midsleading”claims about Capital’s Senior Living’s amended, restated investment agreement with Conversant Capital, the Dallas-based senior living company’s board said in an open letter to shareholders last week.

The board said that Capital Senior Living remains firm in its resolve that the proposed transaction with Conversant is the way to resolve the company’s state of being over-leveraged with no unencumbered assets. Without a significant capital raise, the board said, the company is likely to run out of cash before the end of the year. 

The board urged stakeholders to support the amended transitions by voting in the affirmative at a special meeting Oct. 22. Shareholders will be asked to approve plans to raise up to $154.8 million through a combination of the private placement of convertible preferred stock, common stock and warrants to Conversant Capital; an amended common stock rights offering to existing stockholders, with a revised subscription price of $30 per share; and an incremental $25 million accordion from Conversant for future investment at the company’s option, according to the letter.

The board claims that Ortelius and Invictus have made “numerous misleading claims regarding the company’s financial situation and the amended transactions.” Capital Senior Living contends that the claims misrepresent the availability of alternative capital.

“With regard to Ortelius, its purported capital commitment includes no disclosure around terms, source or conditionality. And this is after eight weeks of Ortelius publicly and aggressively opposing the proposed transactions and canvassing the markets for a capital source,” the board wrote. “Vague public ‘commitments’ are not a standard that shareholders should be willing to accept, particularly when the continued viability of your company is at stake.”

Regarding Invictis, the board said that in an Oct. 6 public letter from Invictus to Capital Senior Living, “Invictus explicitly states that its terms are subject to extensive diligence and conditions, including satisfactory appraisals, a maximum 75% LTV test and satisfactory evaluation and approval of a 13-week cash flow budget. Importantly, Invictus’ proposal of all debt financing would also be contingent upon affirmative consent of all the company’s existing lenders due to junior lien requirement (which we are highly unlikely to receive).”

Further, the board wrote, “In addition to being highly conditional, the Invictus proposal would also compound the already significant financial challenges of the company by incurring even more excess leverage.”