Four Seasons, which is responsible for 17,000 people, has buckled under state funding cuts and shortage of EU nurses

This article is more than 2 years old

This article is more than 2 years old

Struggling care home provider Four Seasons, which is responsible for 17,000 elderly and vulnerable people, is set to be taken over by a US hedge fund in a complex rescue deal being closely monitored by regulators.

Four Seasons has buckled under the pressure of state funding cuts, a shortage of EU nurses since the Brexit vote, higher costs after the introduction of the national living wage and meeting repayments on a debt pile of £525m.

The UK’s second-largest care home provider, owned by multi-millionaire Guy Hands’ private equity group Terra Firma, put forward its own survival plan last month ahead of a £26m debt repayment due in December that it would have been unable to honour.

But H/2 Capital, a privately-owned hedge fund and property investor based in Stamford, Connecticut that has gradually bought up the majority of Four Seasons’ debt, countered with an alternative proposal that will see it take over ownership.

The proposals will leave Terra Firma sitting on a huge loss from an investment that this week’s Paradise Papers leaks reveal was designed to generate a near-£900m windfall via a complex system of loans facilitating legal tax avoidance.

Under H/2’s rescue plan, which has been welcomed by Terra Firma, the US firm will inject £135m of equity into the business, cancel £247m of debt and defer interest payments until March 2018.



Terra Firma will also inject £45m of new equity and will be left with just an 11% stake in the business.

H/2 also intends to spend £25m on refurbishing some of Four Seasons’ 335 care homes and its 25 hospitals and specialist care centres, and set up a £15m bonus scheme for its 25,000 staff.

It is not clear what experience the company has in running care homes. The “Strategy” section of its website focuses on investments in rental housing in the US.

But the company’s proposal offers a much-needed exit for Terra Firma from an investment that has been among the most disastrous in a portfolio that also included the collapse of EMI under its debts.

It bought Four Seasons for £825m in 2012 and has failed to turn it around despite £450m of investment, eventually being forced to write down the value of the business to a nominal sum.

Information revealed in the Paradise Papers reveals that Terra Firma hoped to extract £890m from the company by arranging costly loans from its own subsidiaries.

The private equity firm eventually had to write off the debt but interest payments have still proved unaffordable, amid a perfect storm of increased costs and lower funding from government.



The Brexit vote has added to Four Seasons’ woes as a 96% reduction in the number of nurses coming to Britain from the EU has forced it to turn to more expensive agency nurses.

Responding to H/2’s proposal, Terra Firma said: “We stand ready to agree the transfer of our interest [...] to the creditors for a nominal sum as part of this restructuring.”

Spencer B Haber, H/2 Capital’s chairman and chief executive, said: “We firmly believe that with the right stewardship, enterprises like Four Seasons best serve their investors when they best serve their residents. Responsible private capital understands the primacy of resident care and peace of mind for their families.

He said Four Seasons staff were “more than capable of setting an example here, right across the social care community. While we share a mission with these talented individuals, it is their role – and not ours – that holds the consequence and the challenge.

“We just need to do the easy part, which is to enable them by providing the bedrock of financial stability, aligned incentives, and a fair cost of capital that enables the Group to carry out the solemn responsibility of caring for 17,000 vulnerable people.”

The real estate company, which has no significant investments in healthcare or in the UK, is proposing to install Baroness Ford as Four Seasons chairman.



The cross-bench peer served as chairman of Grove Limited, the holding company of Barchester Healthcare, between 2012 and 2015.

She has also been a director of energy regulator Ofgem, the Scottish prison service and chaired the Olympic Park Legacy Company.

The Care Quality Commission, a division of the Department of Health that regulates and inspects health and social care services, said it was monitoring the situation closely.

Speaking last month, after Four Season’s original rescue plan was proposed, the CQC said the firm’s effort to refinance itself “would provoke some anxiety but is an important step in securing the long-term financial future of this company”.