Care homes giant under threat from debt row
BRITAIN’S biggest care home operator, Four Seasons Health Care, has been drawn into a bitter row with its lenders over debt guarantees, threatening attempts to shore up its unstable finances.
Four Seasons, owned by private equity tycoon Guy Hands’ firm Terra Firma, is battling in the High Court to overturn security obligations to lenders that it claims were accidentally imposed during an apparently botched legal process last year.
The Sunday Telegraph understands that Four Seasons, which has a debt pile of nearly £540m and has recorded losses of more than £60m so far in 2017, discovered it was missing a crucial document relating to its bonds.
According to court documents, the Magic Circle law firm Allen & Overy (A&O) was asked to recreate the missing document. In the proceedings, Four Seasons claims that lawyers mistakenly granted bondholders extra security over a share of its care homes for private patients. The assets include Brighterkind, a group of 71 private care homes.
Mr Hands only discovered what City sources described as a potentially “calamitous” error when Terra Firma sought to offer up extra security as part of restructuring talks with lenders earlier this year. Bondholders told the buyout firm they already owned what was on the table. Four Seasons has applied to the High Court to have the contractual obligations scrapped as an administrative error.
Mr Hands and Terra Firma are being fiercely opposed by a group of bondholders led by H/2 Capital Partners, a US hedge fund headed by Spencer Haber, the former Lehman Brothers banker. H/2 owns most of a £350m tranche of high-interest bonds due for repayment in 2019. They are fighting to retain the security guarantees, as fears mount that Four Seasons could go under. Sources close to the High Court dispute said the lenders believe the securities may have been vital to Four Seasons in getting recent accounts signed off by auditors KPMG.
Analysts have warned that the operator is drowning in debt and that it will require restructuring this year to avoid insolvency. Moody’s said it “will not be able to service material levels of cash to pay debt” and that a debt-for-equity swap between Terra Firma and lenders was likely. If there were to be restructuring, it is unlikely to go ahead while the High Court dispute is unresolved. The two sides met in a case management hearing last week that set a trial date for between April and June 2018.
A spokesman for Four Seasons said: “This is a technical process to clarify legal clauses within the 2016 financing documentation.” An A&O spokesman said: “We can confirm that we are acting for FSHC on the technical process to rectify legal clauses within financing documentation executed in 2016. FSHC and we remain confident that they will succeed with the rectification claim based on the evidence which has been provided to the courts.”
Four Seasons Health Care is owned by Guy Hands’ private equity company Terra Firma