From Ros Altmann:economist and pensions,
    investment and retirement policy expert

  • pensionsandsavings.com

    Social Care crisis – Four Seasons the latest casualty

    Social Care crisis – Four Seasons the latest casualty

    10 December 2017

    • Social care crisis deepens as Four Seasons healthcare drowns in debt
    • Debt burdens, rising staff costs, post-referendum nursing shortages and falling council payments have undermined Britain’s social care system
    • Regulator has demanded Four Seasons agreement in 48 hours but crisis remains
    • Hedge funds playing financial football while fate of elderly care home residents hangs on debt restructurings

    Four Seasons teetering on the brink as care crisis deepens: In 2016, the insolvency specialist Opus concluded ‘every part of the adult care system is in crisis’ and predicted at least a quarter of care homes would need financial rescue by 2019. In fact, the problem has hit even sooner than this as Four Seasons, the country’s biggest care homes operator – which looks after 17,000 elderly residents in around 350 care homes and employs 25,000 staff – is on the brink of bankruptcy.

    Four Seasons drowning in debt: Its massive borrowings are proving too onerous as the current owners struggle to reach a deal with the hedge funds that own their debts. The whole sector is vulnerable to financial collapse as most of the largest operators have been allowed to rely on debt-fuelled financing.

    Rising cost pressures have added to social care operators’ woes: Rising debt costs have been compounded by rising operating costs. Care home providers have had to absorb the rise in the national living wage and pension auto-enrolment costs, while Four Seasons reports that staff shortages in the past year have forced it to hire more agency nurses at much higher cost due to post-Referendum departures of EU staff and lack of new EU applicants coming over.

    Local authorities have reduced the amounts they are willing to pay for care home places: At the same time as costs or care provision have been rising, revenue has been hit by squeezed council budgets as local authorities are failing to pay operators enough to cover their costs. Even with £2billion additional Government funding, local authorities in many areas are having to cut provision.

    CQC has now stepped in to demand resolution: At last, the care regulator – Care Quality Commission (CQC) – has intervened and demanded a resolution to the Four Seasons problem by Monday 11th December. Hedge fund H-2 owns the majority of Four Seasons debt and is set to take over the company when it fails to meet its £26million December interest payment. However, there is a dispute about some care homes which Terra Firma claims are not part of the creditors’ loans.

    Four Seasons has a chequered history of failed financial restructuring: In 2006, Qatari investors Three Delta bought Four Seasons at the height of the UK property boom. After the financial collapse, in 2009 they walked away and handed the business to its lenders with £1.5billion of debt. Thus, Royal Bank of Scotland owned 40% of the company and the lenders carried out a debt for equity swap which halved the debt mountain. In 2011, Southern Cross collapsed under its debts and Four Seasons took over 140 of its care homes, while the remainder were swept into another business, HC-One. In 2012, Guy Hands’ Terra Firma bought Four Seasons for £825million and added more debt to the company. The business is now going back into the hands of its lenders as Four Seasons cannot meet its debt interest payments.

    Frail, elderly residents at risk as hedge funds play financial football:  The whole social care system is struggling with debt burdens and the rising cost pressures are destabilising the system. I am pleased that the CQC has stepped in, but these problems have been allowed to build up for over ten years and Government has simply stood by as a disinterested observer. Radical reform of social care is urgently needed and the fate of vulnerable elderly people should not be left in the hands of hedge funds playing financial football with their homes. Care providers fulfil a vital social purpose and closer scrutiny of their financial operating models is long overdue.

    Further reforms are needed urgently – not just waiting for a Green Paper next year: The Government has not risen to the challenge of dealing with the social care crisis. The current cohort of over-75s is very small, but once the babyboomers reach that age, the numbers are set to soar. Despite reviews and legislation, nothing has actually changed to ensure a sustainable system for elderly care. Political courage is needed and urgent reforms should include:

    • Integration of health and social care
    • Proper financial plans for public funding of future needs
    • New incentives to help families set aside private funds for future care needs
    • Engage employers in preparing for future care needs
    • A national insurance underpin for care.

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