The subject of care continues to dominate the headlines; this week is no exception, as one of the country’s largest care home operators faces serious financial difficulties. This news comes only six years after one of the biggest companies at the time, Southern Cross, failed because of similar reasons.
So, why is the company facing such problems? Many are blaming the squeezed social budgets of local authorities whilst their overheads are being forced upward by rises in national wages. However, the main cause comes in the form of massive amounts of debt faced by the care provider who over-paid for the business back in 2012. Guy Hands’ equity firm paid £825m for Four Seasons, however, £500m of this sum was borrowed which resulted in high-interest payments. From the beginning, investors highlighted that this was a high-risk deal, particularly as the industry demonstrates a history of financial uncertainties.
Guy Hands went for the deal in a bid to invest an “asset-backed [industry]… in need of a fundamental change” according to this letter to the Economist in 2014. Hands was accused of being too flippant with his decision, particularly after the disaster of the music publisher EMI. However, by the end of that very year, the first problem arose. Hands responded by delivering his promise and investing two lots of £50m of capital into the business. The business was struggling to meet the interest rate payments of £26m that were due today when they only have £24.8m in cash to pay.
The regulator of the Care Quality Commission had to step in to persuade creditors to place a standstill on debt repayments so that the company does not fall into administration. The care home company has now won the reprieve that had threatened the future of the organisation, reaching an agreement with their biggest creditor, the US fund manager H/2 Capital Partners.
The care home currently looks after around 17,000 elderly and vulnerable citizens. The decision to reprieve the debt repayments has “ensure[d] continuity of care for Four Seasons’ residents” and the 25,000 workers.
Whilst this provides a bit of a respite for Four Seasons, the future of the company is still uncertain. People are predicting that opportunistic US hedge funds will buy out the company for junk bonds to buy at a discount price, which comes as a worry for many.
However, Andrea Sutcliffe, the chief inspector of the adult social care at CQC stated: “The Care Quality Commission has been consistently clear that people using any adult social care service, their families and carers, should be able to expect that the service will provide good quality care which can be sustained into the future.”
She added: “Through our market oversight function, we will continue to closely track progress with the ongoing restructuring discussions until such time that they are satisfactory concluded. Our market oversight regulatory responsibility is to advise local authorities if we believe that services are likely to be disrupted as a result of business failure.
I would like to confirm at this point in time we do not believe that services are likely to be disrupted as a result of business failure.”
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