Daniel Dunkley and Danny Fortson Published: 25 October 2015
BUYOUT BARON Guy Hands faces a battle for control of Four Seasons as hedge funds and creditors circle the loss-making care homes operator.
Four Seasons, which looks after more than 20,000 mostly elderly and vulnerable residents, is grappling with a steep drop in trading and huge interest bills on its £500m debt. It is understood that HCP, a key lender to the company, has recently drafted in City heavyweights Rothschild and Freshfields, the law firm, for crunch talks to restructure Four Seasons’ finances, sources said this weekend.
Negotiations have not yet begun, but industry sources said Hands could be wiped out if creditors push through a debt-for-equity swap. A number of American hedge funds have also begun buying into the company’s senior secured debt to position themselves for an expected shake-up.
Terra Firma, the private equity firm that tax exile Hands runs from Guernsey, bought Four Seasons for £825m in 2012, using £325m of its own cash. The deal was his biggest bet since he lost nearly £2bn on a disastrous takeover of EMI, home label to the Beatles.
Britain’s biggest care homes operator quickly ran into trouble after the takeover. The buyout firm was forced to inject £50m last year, and in December it persuaded lenders to soften the terms of their loans.
This summer, Four Seasons revealed quarterly losses of more than £25m and announced an emergency review of its finances. Four Seasons has blamed rising costs and falling income from local authorities for its poor financial performance. Its struggles come amid a wider crisis in the care homes sector. A lack of trained nurses is forcing operators to hire expensive agency staff, and local authority fees are not rising quickly enough, according to providers.
The government’s plan to introduce a national “living wage” is also likely to hit the care homes sector.
Four Seasons’ debt talks are likely to start soon. In December, the company will have to make a £26m interest payment that it could struggle to meet.
The company has earned £51.5m in the past 12 months. However, it has to spend £30m a year on maintenance and its annual interest bill amounts to a further £50m.
The company’s deteriorating finances will worry Whitehall after the controversial collapse of care homes giant Southern Cross in 2011.
Four Seasons said that its financial straits would not affect the care of its residents. It said: “The group has sufficient medium-term financial flexibility. We can envisage no scenario that would have any effect on the quality of care for the residents living in our homes, or patients in our specialist care units.”
Last week, Terra Firma and Four Seasons appointed Wall Street advisory firm PJT Partners to prepare for the showdown with creditors. Sources said HCP, a New York listed property investment trust, would consider taking an equity stake in Four Seasons after a restructuring. Terra Firma said it had not been contacted about a restructuring: “No discussions have taken place with any of the lending banks or debt holders with regard to a debt-for-equity swap in connection with Four Seasons and no such conversations are contemplated at this time.”
Four Seasons has struggled for several years. The company last year separated into three parts in the hope of being able to sell parts of the business. It was unable to refinance its debt.
Rating agencies downgraded Four Seasons’ debt further into junk status in the past year. In September, Moody’s warned that the company was creeping closer to defaulting on its debts.
Last week the credit agency said Four Seasons could try to raise cash by selling a division or offloading some properties, but warned such moves could damage its future profitability.
Moody’s said it would not rule out “alternative restructuring measures through which the debt burden might be reduced”.
This is not the only deal to take an unexpected turn for Hands, one of the City’s best-known dealmakers. Last week Terra Firma launched a takeover offer for Infinis, a green energy company that Hands floated two years ago.
Policy changes hamstrung its business, however. Hands’ 185p-a- share bid represents a near 30% discount to the 260p price at which he listed the company in 2013.
