Debt plan to avert sell-off

Aug 11 2009 by Jez Davison, Evening Gazette

FOUR Seasons Healthcare group, which has 12 homes and three specialist centres in Tees Valley, is gearing up for a possible sale if a restructuring exercise to cut its debt falls through.

But industry sources say the Cheshire-based firm is close to securing an agreement with its lenders and an announcement could be made later this week.

The restructuring will involve creditors swapping debt for equity as Four Seasons looks to halve its debt pile, understood to be around £1.5bn.

The current arrangement involves more than 30 lenders across 11 tiers of debt. Most of the lenders have agreed in principle to the new deal.

A source close to the company said: “We think that Four Seasons is very close to securing an agreement in principle for financial restructuring. This will reduce debt to a sustainable and serviceable level.”

Any sale would be unlikely to spark care home closures on Teesside, the source said, because much of the company’s value lay in the operation of its homes rather than their asset price.

“We expect that a new owner would want to maintain this value,” he said.

It is not known whether any bidders have thrown their hat into the ring. However, a debt restructuring that “delivers a robust capital structure” remains the group’s preferred solution.

The finances of care home operators have come under increasing pressure amid a slump in property values. According to Christie + Co’s Business Outlook 2009, average property values in the care sector have fallen by almost 17%.

Darlington healthcare operator Southern Cross has been hit by the recession and reported a fall in earnings and occupancy levels in its latest trading statement yesterday.

In the 14 weeks to July 5, the UK’s biggest care home operator saw a 9% year-on-year fall in adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) to £22.2m, while average mature occupancy levels dipped 2.6% to 87.5%.

But the company, which made an operating loss of £8.6m in the 29 weeks to March 29, said it expected a continued improvement in occupancy levels after they had bounced to 88.4% by August 7.

Analysts were upbeat about the company’s prospects after it said it had reduced net debt to £61.8m by August 7 - down from £74.4m on 29 March - and paid off 50% (£6.8m) of a bridging loan ahead of schedule.

UBS Investment Research’s 12-month share price target for Southern Cross is 197p. Yesterday’s share price closed at 140.25.