Four Seasons, Britain’s second biggest care homes operator, has put forward proposals for a partial debt for equity swap as part of a major restructure aimed at putting the group on a secure financial footing.
The company, owned by City financier Guy Hands’s private equity vehicle Terra Firma, is in discussions over plans that would see its lenders take control of a 20% stake in the group in exchange for waiving some of their debt.
The company’s lenders are thought to include the US investment giant H/2 Capital Partners.
Four Seasons, which is struggling under £525 million of debt and faces interest payments of more than £50 million a year, is also proposing to restructure its borrowings.
Under the new scheme, not only will the group’s debt be reduced by £115 million, half of the interest payments on £350 million of its borrowings will have the option to be rolled up and paid as a lump sum in 2021.
This would give it breathing space in the intervening years to invest in the business.
Four Seasons would also bundle 24 profitable homes that it acquired into its core business in order to beef up the security on its loans.
The firm, which houses 17,000 elderly residents across 335 homes, has seen its financial performance deteriorate in recent years.
It has been stung by a cut in local authority fees, rising costs and the introduction of the national living wage and the group has continuously warned over its long term stability.
As part of efforts to ease the pressure, Four Seasons is also in discussions with landlords over lease renegotiations on some of its care homes.
Four Seasons chairman Robbie Barr said there will be “no impact” on operations – including for residents and staff – as a result of the announcement.
Justin King, the former Sainsbury’s chief executive who is now vice chairman of Terra Firma, said: “The proposals on debt, if agreed, will give the business the secure financial footing it needs to continue the good progress made by management in the last two years.
“This ultimately will provide stability for all stakeholders including, most importantly, residents and their families.”
Mr Hands is best known for his 2007 takeover of EMI, the record label that signed The Beatles. The deal ended in disaster when he was forced to hand the business over to lender Citigroup four years later.
Andrea Sutcliffe, chief inspector of adult social care the Care Quality Commission, said: “The announcement today will, I am sure, provoke some anxiety but is an important step in securing the long-term financial future of this company.
“Through our Market Oversight responsibilities, CQC is monitoring the situation closely and currently there is no reason to believe that the day-to-day provision of care within Four Seasons Health Care Group will adversely change as a result of today’s announcement.”