One of Britain’s biggest care home groups went into administration yesterday, leaving thousands of elderly residents and their families fearing closures.
Two holding companies behind Four Seasons Health Care, which operates 322 homes, collapsed under debts of around £625million owed to a US hedge fund.
Around 17,000 people live in Four Seasons care homes and the group employs more than 20,000 staff.
The care home sector is facing a £3.5billion funding shortfall, and there have been repeated warnings that operators are buckling under the pressure of rising costs and cuts to council funding (file image)
The firm insisted the decision by two of its holding companies to call in administrators did not mean its homes were earmarked for closure as the operating companies – which run the homes – have not collapsed.
Group medical director Dr Claire Royston said: ‘This does not change the way we operate or how our homes are run, or prompt any change for residents, families, employees and indeed suppliers.
‘Our priority remains to deliver consistently good care. It marks the latest stage in the group’s restructuring process and allows us to move ahead with an orderly, independent sales process.’
However, charities said the problems at Four Seasons were symptomatic of the social care crisis in Britain and called for urgent reform.
The care home sector is facing a £3.5billion funding shortfall, and there have been repeated warnings that operators are buckling under the pressure of rising costs and cuts to council funding.
Administrators will now seek to sell the business groups – Elli Finance (UK) and Elli Investments – which owe about £625million to US hedge fund H/2 Capital Partners, which previously ordered the sale of Four Seasons. The move to call in administrators was hailed as the biggest care homes failure since Southern Cross went bust in 2011.
Two holding companies behind Four Seasons Health Care, which operates 322 homes, collapsed under debts of around £625million owed to a US hedge fund
Unions accused the Government of ignoring the ‘reckless’ financing of care home companies by private equity groups while the GMB said the care system was ‘crumbling’ because of a lack of funding.
More than 400 UK care home operators have collapsed in the past five years, according to research by accountancy firm BDO, including 101 last year. Former pensions minister Baroness Altmann demanded better financial regulation of operators, claiming it was a ‘matter of life and death’ for frail and vulnerable residents whose health could deteriorate rapidly if faced with the stress of having to move to a new care home.
She said: ‘There should be proper scrutiny and regulation of the financial position of these companies. We need to change the requirements on people running care homes to ensure they have the financial security to offer a home for life.’
George McNamara of charity Independent Age said: ‘While private providers can walk away, it is families and local authorities who are left to pick up the pieces.’
Private equity bosses only care for profit
Commentary By Ruth Sunderland, Business Editor for the Daily Mail
The financial disaster at Four Seasons could not be a louder warning that care for the elderly is in deep crisis. It is the second time in less than a decade that tens of thousands have been plunged into uncertainty by a care home firm running aground.
In 2011 Southern Cross, then the biggest care group in the UK, collapsed when it was unable to pay a £250million annual rent bill. The downfall of that outfit – which like Four Seasons had spent a stint in the hands of private equity – caused a national outcry and prompted demands that lessons be learned.
Disgracefully, that has not happened and hundreds of care homes remain in a precarious financial position.
Four Seasons was until recently under the control of Guy Hands, a private equity baron based in Guernsey, via his firm Terra Firma. The fate of its residents is now in the hands of US hedge fund H/2, set up by a former executive at the collapsed Wall Street bank Lehman Brothers.
The downfall of Four Seasons is a textbook case of what has gone wrong in the industry. I use the word industry advisedly. Care, in the eyes of the hedge funders and private equity tycoons, is not altruistic but a commercial activity, given their business model is to squeeze maximum profit in minimum time, often by slashing costs and loading up with debt.
But there is another problem: Debt, with a capital D. In the case of Four Seasons there is a mountain of it, which has fatally undermined its finances
A week at a Four Seasons facility in the Wirral, for instance, would cost £715 for a resident not needing nursing care, or more than £1,000 if that is required. So how is it that firms can charge this much and still lose money?
Part of the answer is that homes have been hit by cuts in local authority fees which mean, they say, that they make a loss on each publicly funded resident.
They try to foist this on prudent middle-class people whose modest savings mean they are deemed well-off enough to pay for their own care. No wonder the bills for self-funding residents can lay to waste savings that have taken a lifetime to build.
But there is another problem: Debt, with a capital D. In the case of Four Seasons there is a mountain of it, which has fatally undermined its finances. In fairness to H/2 and Guy Hands, the firm was swamped long before either of them came on the scene. However, it still owes hundreds of millions of pounds and is groaning under an enormous interest bill.
Worryingly, Four Seasons is not the only care home group that is private-equity owned, nor is it alone in being burdened with debt. HC-One, the successor to Southern Cross, is owned by an investment consortium, including a private equity firm. Care UK, another big player, is owned by private equity operator Bridgepoint.
But it would be naive to pin the whole blame on financiers who have piled into care homes in the hope of making a fast buck. After all, that is what they do.
Far more culpable are politicians who failed to stop the private equity players in the hope of getting the problem off their own books. Instead, if those same politicians have any backbone whatsoever, they must set about a solution for looking after our grandparents, parents and eventually ourselves, as befits a civilised country.
There must be a recognition that private equity and hedge funds are not suitable owners of homes for the elderly and infirm. This is not because financiers are unalloyed villains who would sell their own granny rather than pay for her to be in a decent care facility. Mainly, it is because their business model doesn’t work.