For the past 18 months, FSHC has publicly stated that its capital structure is not appropriate for the long term stability and requirements of the business. Throughout that period, the holding company of FSHC has been engaged in discussions with Terra Firma and other stakeholders to bring about a consensual solution to the capital structure of FSHC.
Today’s announcement outlines the proposed restructuring of the business and invites stakeholders to feed back on the proposals, ahead of the anticipated launch of schemes of arrangement in November 2017. Both FSHC and Terra Firma believe the proposed restructuring will provide the right debt and capital structure to ensure the stability of the business for the long-term.
The key elements of the intended proposal are:
· Terra Firma will inject equity value by way of 24 homes outside of FSHC that they valued at £136m as at 31 December 2016. These homes contribute an EBITDA increase of £18.9m and a cash flow increase of £17.1m (each being last 12 months to June 2017)
· Proposed refinancing of the debt:
o Existing Senior Secured Notes (SSNs) of £350m will be exchanged for £350m of New SSNs. The interest will comprise a cash element and an element that accrues and is paid at maturity of the New SSNs. In addition, they will benefit from an extensive guarantee and first ranking security package granted by the restructured group
o The existing Senior Notes (SNs) of £175m will be exchanged for £60m of New SNs and 20% of the equity in the restructured group. In addition, there will be no payment of the existing Senior Notes £10.7m December interest
· A proposed rebasing of certain of the leasehold rents to market, as many homes are currently paying over market levels of rent
In addition, as of 16 October 2017, FSHC has separately refinanced the term loan facility with a new £40m term loan.
The restructuring will significantly improve the leverage of the business. The priority of the restructuring is to ensure a long-term sustainable outcome for the FSHC homes and hospitals, residents and their families and colleagues. To this end, the Care Quality Commission has been kept fully informed and is aware of the key terms of the proposed restructuring.
Today’s announcement and the subsequent launch of the proposed restructuring will not impact the day to day running of FSHC homes and hospitals.
Commenting on today’s announcement by Elli Finance (UK) Plc and Elli Investments Limited relating to Four Seasons Health Care, Andrea Sutcliffe, Chief Inspector of Adult Social Care said:
“People using any adult social care service, their families and carers, need to have confidence that the service provides good quality care which can be sustained into the future. The announcement today will I am sure provoke some anxiety but is an important step in securing the long-term financial future of this company.
“Through our Market Oversight responsibilities, CQC is monitoring the situation closely and currently there is no reason to believe that the day to day provision of care within Four Seasons Health Care Group will adversely change as a result of today’s announcement.
“To ensure there is continuity of care for people, CQC has a responsibility to advise local authorities if we believe that services are likely to be disrupted as a result of business failure. CQC does not believe this to be the case at this point in time.”