The need for responsible investment
Four Seasons Health Care is the UK’s second-largest care home operator with around 16,000 vulnerable residents dependent on it for a place to live. For years, it attempted to function with a crippling
£625 million debt burden and consequent interest payments.
Earlier this year, it threw in the towel and went into administration and last month it unexpectedly withheld rent payments to the landlords of its freehold properties in what was seen by many as an aggressive move to negotiate swingeing rent cuts.
The landlords have reacted with understandable irritation, made worse by being presented with a proposal that, according to one source, “looks like it was put together in five minutes”. Some are suspicious that FSHC is setting them up to look like the villains of the piece.
Having said that, the landlords themselves have, up to now, done very nicely out of the FSHC debacle, collecting more than £100 million in rent over the past two years, a figure said to be considerably in excess of the market rate.
Meanwhile H/2 Capital Partners, FSHC’s largest creditor, has agreed to buy 185 homes, the vast majority of which are freehold, for £350 million in a debt for equity deal that has raised more than a few eyebrows.
That leaves around 135 leasehold properties which are now the subject of the previously mentioned shenanigans.
Some larger landlords are said to be considering handing over the homes to other operators with interest being expressed by companies such as Renaissance Care, owned by the founder of FSHC, Robert Kilgour.
The other option of course is for landlords simply to close the homes and rely on local authorities to organise alternative care for the displaced residents. With aggressive operators like the US-based Cerberus Capital Management reportedly involved, the prospect of financial expediency taking precedent over public relations concerns is far from remote. An enthusiastic purchaser of UK household debts, Cerberus was not dubbed a “hound of hell” this year by MPs for nothing.
The question on many lips this month will be how did 16,000 elderly people get caught up in this whole unedifying process and what are the lessons to be learnt?
Of course, the government’s refusal to address the long-term funding of adult social care has not helped things, the prevarication introducing uncertainty and low confidence to the state-pay sector. In some ways the FSHC debacle is what many smaller care home operators have experienced writ large. The revenue from local authorities is simply not enough to make ends meet. Add increased staff costs and a recruitment and retention crisis to the mix and it’s no surprise that care home owners are shutting up shop in record numbers.
But the elephant in the room is surely the degree to which FSHC was loaded with unsustainable debt by its owners. As we’ve discussed before in the pages of this magazine, an ethical and responsible investment strategy is surely now the moral sine qua non for any business operating in the health and social care sector.