Four Seasons need £780m new money

8 February 2012

FOUR SEASONS ANNOUNCE NEED TO RAISE £780M NEW MONEY TO REPAY £780M DEBTS DUE IN SEPTEMBER ON 500 UK CARE HOMES

25,000 elderly and vulnerable people in the 500 care homes, their families, local councils and the 30,000 staff deserve to know how the finances of this company add up says GMB

GMB, the union for staff in Four Seasons' 500 care homes in the UK, responded to the company announcement today that they need to raise £230m from shareholders and £550m from other sources to repay £780m debts which fall due in September. See Note 1 below for the company statement in the media today. See GMB newsroom release 30th Jan for locations of all 500 homes,

Justin Bowden, GMB National Officer said“When Four Seasons took control of 140 care homes from shattered Southern Cross last autumn GMB warned that the residents and staff were jumping “from the frying pan into the fire” as Four Seasons were “in the red” with £780m debts and no obvious way to pay them.

After rubbishing GMB's claims as “scaremongering”, Four Seasons have now had to come clean and admit that they have too much debt to refinance and so need £230m from shareholders and another £550m of new loans to pay these debts.

All this is reminiscent of the months leading up to the collapse of Southern Cross when similar warnings by GMB were dismissed and ignored. Four Seasons are on a treadmill of debt, continually refinancing, taking on more debt and paying out tens of millions of pounds in fees to advisers. How long can this carry on until their debt bubble bursts?

GMB was not alone in knowing the weak financial state of Four Seasons. A report for the Association of Directors of Adult Social Services (ADASS) confirmed the GMB warnings yet Government and local councils allowed Four Seasons to take over these homes.

Four Seasons has rebuffed all attempts by GMB, representing the staff, to get to the bottom of the company's finances and accused GMB of scaremongering. With these new revelations from Four Seasons, 25,000 elderly and vulnerable people and their families, the local councils and the 30,000 staff all need to know how the finances of this company add up.

The company in a recent truculent statement said “We're not obliged to explain this to anybody”. Arrogance, belligerence and a head in the sand mentality didn't save Southern Cross and it is unlikely to help Four Seasons.

Four Seasons Healthcare audited accounts show net assets of £294.5m. Four Seasons claimed in the media that assets are valued at over £950m. Four Seasons give the impression that these assets are held in their ultimate offshore holding companies, FSHC (Guernsey) Holdings Ltd registered in Guernsey and FINO SeniorCo Ltd registered in the Cayman Islands. GMB have yet to see the accounts for these companies. GMB has called for legislation to outlaw care home companies who rely on public money for their income from holding assets in overseas tax havens.

Latest indications are that it does not have the assets to cover the £780m debt that must be repaid. Pete Calveley, Four Seasons Chief Executive, believes that the debt they have is still too much to refinance in the current weak debt market. GMB questions whether this is an admission that they do not have the quality assets available to cover the debts.

Royal Bank of Scotland, majority owned by UK taxpayers, has a 40% stake in Four Seasons and they will be called upon to get Four Seasons out of the serious situation it finds itself in. Last time, RBS, alongside other lenders, wrote off £800m of debt and they will be required to fund the anticipated shortfall in equity. It is anticipated that there will be a shortfall of up to £230m needed before September 2012.

Four Seasons have also written to staff transferring from Southern Cross to explain why some workers have had bank holiday pay cut despite management assurances to the contrary.

Four Seasons had written to GMB members last month warning that 2012 was expected to be “bleak”. “Four Seasons Health Care costs are rising significantly, mainly driven by the increase in the national minimum wage and relentless increases in food and energy prices,” the letter states.

It means workers will receive only normal pay for working all bank holidays except for Christmas, New Year and Easter. This is just the sort of measure that tells a tale all on its own. Whilst it will be a huge hardship for the staff affected it will be a drop in the ocean for the entourage of financial advisors involved in the debt refinancing.”

Notes:

Report in Financial Times 8th February 2012

Four Seasons races to refinance £780m in debt
By Simon Mundy

Four Seasons, the UK's largest care-home operator, will seek to raise up to £230m in new equity from existing shareholders and private equity groups, as it tries to refinance £780m in debt before a September deadline.

The company became the UK's market leader after the collapse last year of Southern Cross, taking 140 homes from its defunct rival. Unlike Southern Cross, Four Seasons owns most of its homes, which means it is less vulnerable to rent increases and pressure on fees. However, a similarly aggressive expansion strategy before the financial crisis left it burdened with debt of £1.6bn, which was halved in 2009 through a debt-for-equity swap.

The reduced net debt of £780m, which falls due in September, is still too much to refinance in the current weak debt market, said Pete Calveley, Four Seasons' chief executive. Although the company intends to pay off the existing debt in full and on time, it believes it will be able to raise only a significantly smaller amount of new debt.

“The amount of debt we raise will be somewhere between five and seven times our [2012] earnings – probably somewhere in the middle,” Mr Calveley said. “Inevitably, there will be a gap between the debt we can raise and the debt we need to refinance. How much the gap will be is determined by which debt solution we choose.”

Four Seasons recorded earnings before interest, tax, depreciation and amortisation of about £100m in 2011, Mr Calveley said, and expects that to rise to £110m this year – in part owing to the takeover of the homes formerly run by Southern Cross.

Four Seasons' anticipated raising of £550m-£770m in new debt means it needs to secure a new equity injection of £10m-£230m before September, depending on how much debt is raised. It will require support from shareholders including Royal Bank of Scotland, which took a 40 per cent stake in the company in exchange for writing off debt in 2009.

”We are making sure we're keeping more than one option open,” Mr Calveley said. ”We're now in detailed discussions with our shareholders, regarding whether they're interested in participating in bridging the gap.” The company was also in talks with other potential equity investors, including private equity groups, he said.

Healthcare analysts said that Four Seasons' management was highly regarded in the sector, and that its low proportion of rented homes was grounds for confidence. However, the new debt raised was likely to be towards the lower end of the company's target range, one analyst added.

The company, which is being advised by Rothschild and Gleacher Shacklock, expected to have agreed on a solution with investors and creditors within two months, and hoped to conclude the refinancing by July, Mr Calveley said.

A successful refinancing would conclude a lengthy saga of negotiations between Four Seasons and its creditors. The company came close to a forced sale in 2009 before striking an agreement on a debt-for-equity swap with lenders including Royal Bank of Scotland. A year later, a second round of negotiations ended with the maturity of the debt being extended for two years from September 2010.

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