Care homes gi­ant un­der threat from debt row

The Sunday Telegraph - Money & Business - - Front page - By Christo­pher Wil­liams

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

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