Four Seasons care homes in likely creditor takeover

The credit ratings agency Moody’s has issued a stark warning that the financial position of the UK’s largest care home operator is unsustainable.

Four Seasons Health Care is in a perilous position after posting annual pre-tax losses of £264 million in late April 2016. The financial state of Britain’s biggest care home company is seen as indicative of the entire sector, which is predicted to face further hardship after workers aged 25 and over saw their wages increase to £7.20 per hour with the introduction of the National Living Wage at the start of April.

Tim Snow, a senior analyst at Moody’s, said the introduction of the National Living Wage has increased the costs of running the business and added that it was unclear if local councils would step in to leverage this additional cost by increasing the fees paid towards resident’s care. Furthermore, Mr Snow said that the firm’s ability to sell off property was dwindling.

Four Seasons currently has a portfolio of 440 care homes in the UK, housing approximately 18,500 residents. However, the distressed business is struggling to stay afloat with debts amounting to more than £500 million and interest payments of around £52 million last year.

The most likely outcome for the care home operator, according to Mr Snow, was that a debt-for-equity swap with lenders would come into play. These lenders include US investment companies HCP and H/2 Capital Partners. Robbie Barr, the chairman of Four Seasons, admitted that the company needed to restructure its finances in order to keep the care homes running.

For more background on the industry's problems, which has resulted in a rapid escalation of care home business insolvencies, read our May 2016 blog post.

View the latest healthcare businesses for sale.

See our guide on buying a care home out of administration.

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