Hedge fund H/2 hands £70m lifeline to care home giant Four Seasons

6 February 2018, 18:27

An American hedge fund will this week hand Four Seasons Healthcare Group, Britain's biggest care home operator, a £70m lifeline even as the deadline for a long-term rescue deal is pushed back by two months.

Sky News has learnt that H/2 Capital Partners, which owns the majority of Four Seasons' bonds, has agreed to make the sum available in order to repay an existing loan to the company, as well as providing £30m of new interim funding.

The new financing arrangements will be announced on Wednesday morning by Four Seasons and H/2, according to City sources.

Insiders said the funding would provide breathing space to the care homes giant, which ‎looks after 17,000 predominantly elderly residents and employs about 25,000 people.

The H/2 term loan replaces an existing facility put in place last autumn by HPS, a US-based credit fund, they added.

Ministers at the Department of Health and Social Care and the Care Quality Commission are understood to have been notified of the latest developments‎.

Talks between Four Seasons and H/2 have been taking place for months, but have been complicated by a row between the hedge fund and Terra Firma Capital Partners, which has owned the healthcare group since 2012.

The latest announcement is expected to say that a provisional deadline for agreeing the outline of a restructuring deal between Four Seasons and H/2, which was set for Wednesday, has been pushed back to mid-April.

A target of formally concluding such a deal had been set for April 2 but will now be revised to June, according to people close to the deal.

Information disclosed last month by Four Seasons' parent company, Elli Finance (UK), ‎showed that the care homes group required £30m of interim funding "in order to ensure sufficient liquidity during the restructuring period to allow for unbudgeted restructuring costs".

The company also said that Brexit-related uncertainties were causing a continued shortage of nurses.

H/2's latest injection of capital into Four Seasons was a sign of its commitment to taking full control of the business by strengthening its position in the capital structure, a source said on Tuesday night.

‎Terra Firma, run by the financier Guy Hands, bought Four Seasons for £825m in 2012 and has lost an estimated £450m amid the deteriorating financial performance of the care homes industry.

The firm has been trying to hand the keys to Four Seasons to H/2 but is unwilling to relinquish its claim over 24 homes which are held within an entity called Brighterkind.

The dispute over the Brighterkind portfolio between H/2 and Terra Firma remains unresolved.

A debt forbearance agreement known as a standstill was agreed late last year, averting the imminent threat of administration.

That lasts until the end of next month, with the next new interest repayment due in June.

H/2 has lined up the crossbench peer Baroness Ford - who previously chaired Barchester, another care homes group - as Four Seasons' chairman.

Like other operators in the sector, Four Seasons has seen its financial performance suffer amid cuts in local authority funding and rising costs such as the national living wage.

Sky News revealed in November that EY, the accountancy firm, had been put on standby to handle an administration if the crisis at Four Seasons deteriorates further.

Were that to happen, it would be the industry's biggest financial failure since the collapse of Southern Cross in 2011.

Some minority bondholders are reported to oppose the terms of the restructuring deal being worked on by H/2 and Four Seasons.

None of the parties involved in the talks would comment on Tuesday.