Four Seasons ‘The Son Of Southern Cross’ Warns Gmb

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A demonstrator in London in March condemns the coalition’s savage cuts to services
A demonstrator in London in March condemns the coalition’s savage cuts to services

SEVENTY-ONE former Southern Cross Care Homes in the UK were being transferred to new operator Four Seasons on Monday (31 October 2011).

These are the final wave of the total of 139 Southern Cross care homes transferring to Four Seasons Healthcare across the UK by 31st October 2011, said the GMB trade union.

The GMB added: ‘Before this transfer Four Seasons had over 17,000 beds in 349 care homes in the UK and employed 21,184 staff.

‘The 2010 accounts for Four Seasons show that the turnover per occupied bed was £31,800 per year which was £611 per week.

‘The accounts show that Four Seasons spent £8,408 per occupied bed on rents, other charges and interest payments on £790m loans.

‘The GMB has no access to the accounts of the holding companies registered off-shore in the Cayman Islands and in Guernsey.

‘The GMB is calling on government and the Care Quality Commission (CQC) establish how Four Seasons Healthcare has the financial stability to avoid being the “Son of Southern Cross”.

‘Fitch, the rating agency, said many operators do not have enough assets to post bonds to be used if they crash as may be required by government after collapse of Southern Cross.

‘Four Seasons Healthcare is from the same private equity background as Southern Cross which is due to go into administration at the end of October 2011.

‘In 2008 there was a debt for equity swap as the then owners QIA walked away. Royal Bank of Scotland took a stake just under 40 per cent and wrote off £300m in loans.

‘Overall, 30 lenders cut debts by over half to £780m which saved it from collapse.’

Justin Bowden, GMB Organiser for care staff in UK said: ‘The GMB wants to warn families across the UK that the scene is set for Four Seasons Healthcare, and some other operators, to go the way of Southern Cross which now goes into administration.

‘The GMB, the union for staff at homes that have transferred, fear that homes are “jumping from the frying pan into the fire” as Four Seasons Healthcare is saddled with debts of £790m and is taking £8,408 a year of the cash it gets from councils and residents to pay for care for residents to pay interest and rents instead.

‘Authorities must establish how Four Seasons can pay debts of £750m due to be repaid next September and why Four Seasons is using money meant to care for the residents to pay interests to offshore tax havens on these enormous debts instead.

‘Fitch, the rating agency, said many operators do not have enough assets to post bonds to be used if they crash as may be required by Government after collapse of Southern Cross.

‘The GMB is calling on all elected Councillors and MPs in the UK to defend the thousands of residents in Four Seasons care homes who have worked for and served this country all their lives.

‘Unless they do then history will repeat itself.

‘If Southern Cross was the original motion picture, Four Seasons are the sequel, and they’re coming soon to a town near you.’

The GMB noted that Four Seasons Healthcare Ltd annual accounts year ending 31 December 2010 revealed:

Total beds, 17,188; Occupancy rate, 87.60 per cent; Number of homes, 349; Turnover, £478.8m; Turnover per occupied bed, £31,800.

Earnings before interest, taxation, depreciation, amortisation, rent and management costs (EBITDARM), £126.6m; EBITDARM per occupied bed, 408.

Number of staff, 21,184; Staff costs, £290.8m.

Total assets less current liabilities, £328.1m.

Fitch Ratings reported on 14th October 2011: ‘Fitch Ratings says a scheme requiring care home providers to post capital to prove their financial viability is unlikely to work because several large care home providers do not have sufficient cash reserves to post capital.

‘The scheme is one option in a government discussion paper.

‘Care home providers have suffered during the crisis from a fall in revenues caused by government spending cuts.

‘At the same time, providers’ costs have increased in line with inflation.

‘Southern Cross defaulted because its revenues fell and its costs, particularly rents, increased.

Southern Cross was particularly exposed because it rented 100 per cent of the properties it used.

‘Other large care home providers typically rent between 25 per cent and 40 per cent of their properties.

‘Before the crisis, care home providers were sought after assets. The government-linked revenues were considered stable and robust and this made them ideal candidates for leveraged buyouts.

‘The stable revenues meant the companies could be sold at high multiples to their enterprise values and were able to raise a large amount of debt.

‘The drop in revenues and increasing uncertainty about future government policy has trigged a fall in the valuation of these companies and their ability to raise debt.’

The GMB noted that Four Seasons Healthcare was established by Scottish businessman, Robert Kilgour in 1989. His first care home was launched in Kirkcaldy’s former Station Hotel.

In 1997, he joined forces with Hamilton Anstead, MD of Takare PLC. In July 1999, Alchemy Partners, headed by Jon Moulton, built the group with the acquisition of CrestaCare and Four Seasons Health Care.

The deal was worth £133m in total with Alchemy providing £44.5m. Robert Kilgour left the company and Hamilton Anstead remained as sole Chief Executive.

In 2001, Alchemy provided an additional £5.4m to acquire additional care homes and in 2002, Alchemy provided an additional £25m to enable acquisition of Omega Worldwide and Principal Healthcare.

In August 2004, Four Seasons Healthcare was sold to Allianz Capital Partners for £775m.

This deal saw ten senior employees of Four Seasons get £30m. Alchemy made £200m.

In 2005, Hamilton Anstead left the business, Tony Heywood, former boss of Westminster Healthcare became Chief Executive.

In September 2006, the company was sold to Delta Commercial Property, an investment vehicle for Three Delta and backed by the Qatar Investment Authority, for £1.47bn, with £1.3bn of debt and £100m of equity.

In 2007, Dr Peter Calveley was appointed Chief Executive.

£1.24bn of senior debt was due on 2 September 2008. The QIA, unable to refinance the debt, wrote off the value of its equity holding (£100m), effectively walking away.

The banks that lent the money wrote off £800m. Hardest hit was RBS who led the consortium of 30 lenders who swapped the debt for a stake in Four Seasons.

In December 2009, a financial restructuring agreed to swap debt for equity. The entire share capital of parent company, Fino Propco Holdco Ltd was acquired by FSHC (Guernsey) Holdings Ltd via a direct Jersey subsidiary FSHC (Jersey) Holdings Ltd.

Currently £750m in debt, occupancy rate close to 90 per cent. A 2009 report by Four Seasons states £790m of debt and occupancy rate of 87.4%.

‘RBS and funds in which RBS participates are the largest shareholder with about 38 per cent of the group.’