When A Debt Restructuring Isn’t A Restructuring And Costs £1B+

Care homes company Four Seasons Health Care has been put into administration, according to Sky News.

This brings to an end one of the biggest, longest, most painful and most expensive deaths in UK property history.

Four Seasons owns and manages more than 250 care homes across the UK, making it the second-biggest care homes owner in the country. Its demise highlights the issues facing the sector in the UK: There is a growing need for care homes as the population ages, but government funding for the sector is declining and costs are rising. 

Investors have shied away from the sector, and the collapse of one of its biggest players is not likely to encourage more investors to enter, even though Four Seasons’ issues were fairly unique and a result of one major factor: debt. Depending on how much its existing lenders write down, Four Seasons could top £1B written off by its lenders in the past decade.

Four Seasons was bought by Guy Hands’ Terra Firma for £825M in 2012, in a deal that was hailed as a major restructuring triumph for one of the most complex and highly leveraged companies created during the previous property boom.

Four Seasons had been bought by the Qatar Investment Authority and Three Delta in 2006 for £1.4B, using £835M in debt.

But in 2008 the debt matured and could not be repaid. Interest payments and interest rate swaps ballooned the total debt to £1.6B, secured against a portfolio that had fallen in value to £950M.

Royal Bank of Scotland led a group of lenders who agreed to write off £800M of debt in exchange for ownership of the company, which they then sold to Terra Firma for £825M in 2012.

But that deal was undertaken using £525M of high-yield debt. Falling income at Four Seasons meant that the £55M of annual interest payments on this reduced debt pile could not be met.

Four Seasons is once again owned by its lenders. Its biggest lender is U.S. hedge fund H/2 Capital Partners, which has spent hundreds of millions of pounds on its debt, according to Sky News.

Four Seasons serves about 17,000 residents and patients and employs about 20,000 staff. Its facilities will carry on running through the administration process.

Late last year UK hospital property owner General Healthcare Group agreed a debt restructuring that saw its rent cut by £60M and the maturity on its £1.5B of debt extended to 2024.