The GZO Creditor Group, which is invested in the distressed bonds of the Zürcher Oberland Health Organization (GZO) Wetzikon Hospital (totaling CHF 170 million), issued a media statement on Monday after returning from summer vacation. However, the story had already appeared a day earlier in the SonntagsZeitung.

The creditor group, which first emerged in July, presents an assessment of the GZO’s assets and concludes that they exceed the liabilities by far. The assets include "real estate valued at CHF 75 million, an operating business potentially worth up to 128 million francs, liquid assets of 67 million francs, and a new (though still unfinished) building valued by the company itself at 95 million francs."

Assets Significantly Greater than Liabilities?

The market value of these assets would exceed the outstanding debt of 240 million francs. "Given these substantial assets, it is unlikely that creditors will agree to a debt cut, as there are many alternative options to ensure full repayment," the creditor group asserts and predicts confidently that the thresholds required for a composition agreement and a debt cut (two-thirds of creditors by value and half by number) will not be met.

Should the composition agreement fail, the hospital would face liquidation. While creditors would likely «eventually recover 100% of their money», this would be a «terrible event» for the hospital, its patients, employees, and shareholder communities.

Extending the Term to Gain Time

The creditor group reiterates its previously stated proposal to extend the term of the bond, which has been due since June, by three years. This would allow the hospital to continue operations and give the board time to develop a refinancing and restructuring plan.

According to the GZO creditor group, they represent 6.6% of the bond capital. As anticipated, this allows them to meet the quorum of one-twentieth of the bond amount required to call a bondholders' meeting, which they had already requested in July.

Showdown Scheduled for October 25 at Wetzikon Hospital

For the meeting, which will take place on October 25 at Wetzikon Hospital, the creditor group is now seeking bondholder support through a letter. The letter also reveals that the creditor group consists of Clearway Capital Partners ICAV (an investment fund focusing on impact investing in European public markets), two Zurich-based firms Gregor Greber (known as an activist investor) and Markus Eberle, as well as the family office Atlas Global.

The letter to bondholders and the asset valuation presentation are available on the creditor group’s website. It also includes the GZO’s invitation to the bondholders' meeting in October, along with the creditor group’s detailed proposals and the debtor GZO’s reasons for rejecting them. The GZO fears that especially the gradual increase of the coupon would result in a «substantial financial burden.»

Will Bondholders Be Vindictive?

How will the dispute resolve? Bondholders are generally more conservative and might therefore trust the GZO's portrayal in doubtful situations. On the other hand, the GZO management has not won many friends with its handling of the situation, which ultimately led to the first domestic default on the bond market since Swissair in 2001.

One thing is clear: The relationship is severed. The creditor group no longer speaks of a "constructive exchange" with GZO Chairman Jörg Kündig as they did in July. The bonds, which were trading at 36% on the Swiss stock exchange in mid-June, are currently priced around 45%.