The UK’s second-largest care homes business has reported a third-quarter loss of £27.5m, as it blamed local authority funding cuts and a Brexit-related shortage of nurses for its poor financial performance.
Debt-laden Four Seasons Health Care is the subject of restructuring talks that could see H/2 Capital Partners, a little-known US investment firm that owns most of its £540m debt, take control from Terra Firma, Guy Hands’ private equity group.
Its latest quarterly figures offered some insight into the extent of the financial difficulties faced by a company responsible for the care of 17,000 elderly and vulnerable people across 360 sites.
Four Seasons made an operating profit of £13.9m in the third quarter but fell deep into the red after spending nearly £32m on debt interest payments. Its debt problem has become harder to address due to the rising cost of recruiting temporary staff amid a nursing shortage, coupled with lower funding from cash-strapped councils.
Four Seasons said it had been forced to hire more expensive agency nurses, as uncertainty over the status of EU workers choked off the supply of qualified staff from the continent.
The company pointed to data showing a doubling in the number of EU nurses leaving the UK and an 89% drop in those joining, which it said contributed to a national shortfall of 17,000 nurses.
This led to a £3.8m rise in staff costs in the the year to September, adding to the £4.4m impact of the national minimum wage introduced in April.
Four Seasons also blamed a lack of funding for social care from local authorities under pressure from budget cuts. The chancellor announced £2bn of extra funding over three years for social care in the budget this year, but Four Seasons said this was not being passed on to care home operators facing increased costs.
“The sector reports little evidence of this money reaching the front line given the wider pressure on council finances,” it said.
The government has also allowed local authorities to increase council tax by up to 3% to meet the cost to the care sector of the national living wage.
But Four Seasons said it was yet to reach agreement with 22% of local authorities on plugging the funding gap, while 4% had made no offer in relation to fees paid to the company for looking after elderly and vulnerable patients.
Terra Firma and H/2 Capital disagree over the future ownership of the company, after it said earlier this year that it could not honour a £26m debt repayment due in December.
Four Seasons proposed a rescue plan last month but H/2 Capital, a privately-owned hedge fund and property investor based in Stamford, Connecticut, countered with an alternative proposal that will see it take over ownership.
One sticking point is the ownership of 24 homes valued at £135m that H/2 insists are part of the assets that would be transferred as part of the rescue plan. Terra Firma says the homes were mistakenly classified as security on the creditors’ loans, due to a clerical error by the law firm Allen & Overy.
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