Four Seasons plan ‘sound’ but auditors have concerns

SENIOR creditors of Four Seasons Health Care are confident about the debt-laden company’s latest proposal for financial restructuring, a close source has said.

The Wilmslow-based care homes operator, which has a complex capital structure with many tranches of debt, has been in default of its £1.57bn of loans since September 2008.

It has agreed standstills with creditors on three occasions while negotiating terms for consensual financial restructuring.

If negotiations collapse the creditors – of which the Royal Bank of Scotland is the biggest – could push the company into insolvency. Four Seasons employs around 20,000 people, and operates more than 400 nursing and care homes.

But a source close to senior creditors has told TheBusinessDesk that the most recent proposals should save the day.

The source said: “The company’s proposals form a sound basis for a consensual restructuring”, but was unable to give a timescale for when agreement might be reached.

Despite this apparent breakthrough, holders of £60m, worth of PIK (Payment In Kind) and £165m junior PIK debt, could still prove problematic as they were not included in the most recent standstill agreements.

They could in theory enforce their rights over Four Season’s assets, plunging the group into fresh crisis.

A spokesperson for Four Seasons told TheBusinessdesk: “It is difficult to conceive of any commercial reason why they would do this as it would crystallise a significantly greater loss for the PIK lenders than in a consensual restructuring of the group.

“It is in the best interests of all lenders to continue the negotiations to achieve a consensual restructuring that will preserve the underlying value of the operating business.”

The company’s auditors have concerns about the company’s ability to continue as a going concern, newly filed accounts show.

In comments signed off on January 20, 2009 – the day the company renegotiated its third standstill agreement for the £1.36bn senior loan – auditors at KPMG said circumstances indicate the existence of a material uncertainty which may cast significant doubt about the company’s ability to continue as a going concern.

In notes to the accounts, the company’s directors said they believed it to be appropriate to prepare the financial statements as a going concern and a letter from parent company directors said: “Notwithstanding the events of the default, the directors confirm that the group has continued to trade as normal and continues to have adequate working capital for its operational needs.

“…The use of the going concern basis assumes that there will be a solvent recapitalisation of the group which will place the group on a viable footing for the future.”

The accounts for the year to the end of December 2007, show a turnover of £414.1m, compared to £368.8m in 2006.

Pre-tax profit on activities, before interest was  £6.77m, compared with £8.43m in 2006, rising to £10.8m after received interest (2006: £1.96m).

According to the group, preliminary results for the year ended December 31, 2008 show that EBITDA for the year stood at more than £100m and occupancy increased from 84% to 87% on a like-for-like basis.

In December 2008, Four Seasons rejected proposals for a merger with rival Priory Group in a favour of a financial restructuring.

The Company’s ultimate parent is Three Delta, a UK fund backed by Qatari investors, which bought Four Seasons for £1.4bn in summer 2006 from Allianz Capital.