Britain's biggest care home provider Four Seasons is financially 'unsustainable'

International credit agency Moody's has called the financial structure of Four Seasons Health Care (FSHC) unsustainable, a week after the company reported a 39 per cent fall in annual earnings to £38.7m.

The care provider, which has 440 care homes with 18,500 residents, has £525m of debt and must make interest payments of more than £50m a year.

Moody’s comment this week on the credit implications of FSHC’s Q4 and FY 2015 financial results, suggests that despite being owned by private equity firm Terra Firma’s business Elli Investments, Four Seasons is on financially shaky ground.

Local authority fees

Tim Snow, a senior analyst at Moody’s and co-writer of its report published this week, said: “Even though we understand that over 90 per cent of local authorities have opted to implement the full two per cent increase in 2016/17, it remains unclear both how this additional funding will be spent and to what extent the full precept will be raised in future years.

“We do not believe that there is significant scope to recover the effective underfunding of fee settlements from previous years and we do not therefore foresee a material positive transformation in EBITDA performance over the next 12-24 months.

Shortage of permanent nurses

“We also believe that against the backdrop of an industry wide shortage of permanently employed nurses there are further vulnerabilities associated with reliance on agency staff and wage costs more generally, albeit that we acknowledge the progress made around agency personnel.”

On 27 April, Elli Investments Ltd announced FSHC’s Q4 and FY2015 financial results, which revealed Four Seasons had suffered an operating loss of £263.6m in 2015.

Terra Firma bought Four Seasons for £825m, with help from two loans sold on to investors. One of the interest payments must be met this June. The company's lenders include US investment firms HCP (which invests primarily in property linked to the healthcare sector in the US) and H/2 Capital Partners which has former Lehman Brothers banker Spencer Haber as its CEO.

Debt burden of £55m a year

Tim Snow's report also commented on FSHC's high debt and referred to the group's plans to sell some care homes.

He said “We have reported previously our expectation that in the absence of disposals, FSHC’s cash resources would be depleted substantially towards the end of FY2015 and throughout the subsequent quarters primarily as a result of its high debt service burden, of around GBP55 million [per year].

”However, in our view the scope to realise proceeds from such properties is diminishing, such that should disposals at the rate seen in FY2015 continue it could include performing homes that would therefore have at least a commensurate impact on EBITDA and cash generation.”

Care home sales

Four Seasons sold off 18 care homes last year. The planned sale of the Garvagh Care Home in the county of Londonderry, Northern Ireland fell through at the start of this year leading to a decision to close the home this month.

Garvagh Care Home managed by care home manager Anne O’Kane, may be scheduled to close this month, but on 6 May staff were still waiting to find out the exact date of the closure.

The care home’s 60 residents have already moved out of the care home and been relocated to other homes.

UNISON has met with staff who were devastated with the prospect of redundancy. Speaking at the start of the year, UNISON regional organiser Brian Ferguson stated: “This news is even more traumatic, given that there was a potential buyer and residents believed their home was secure.”

UNISON had been in negotiations with the company and with the Northern Health Trust and the Health and Social Care Board in an attempt to the keep the care home from closing.

Robbie Barr, the chairman of FSHC, has said key stakeholders and their advisors are exploring a long term solution for the debt and capital structure of the group which he hopes to resolve during 2016.

Mr Barr said “Whatever the outcome, the group continues to have medium term finances for its needs and we don’t envisage this process having any effect on the day to day care provision in our homes, hospitals and specialist care centres.“