Four Seasons debt talks may be extended - sources

By Tom Freke

LONDON, Jan 20 (Reuters) - Care homes operator Four Seasons Health Care is unlikely to strike a deal over its debt before a deadline expires on Thursday, two sources familiar with the situation said on Tuesday.

Lenders are expected to give the debt-ridden company more time to negotiate an agreement, the sources said. The talks have already been extended at least twice.

A debt-for-equity swap or a sale of the group, which is labouring under 1.5 billion pounds ($2.11 billion) of debt, were two of the most likely outcomes, the sources said.

Four Seasons declined to comment.

Talks with Four Seasons -- one of the UK's largest care home operators -- have dragged on for several months, complicated by both the large number of lenders and the unusual and multi-layered structure of its debts.

It has about 1.2 billion pounds of senior debt and 300 million of junior debt.

The company operates more than 400 care homes across the UK, caring for about 15,000 people and employing more than 20,000.

Four Seasons' balance sheet was loaded up with debt in a so-called whole business securitisation in December 2006.

That structure allowed acquirer Qatar Investment Authority (QIA) to take control of the company, while contributing less than 10 percent of the purchase cost.

After an earlier round of talks broke down, the QIA walked away from the company in August 2008, according to media reports, writing down the value of its investment, and no longer taking place in the discussions.

That left subsequent debt negotiations to be led by Hatfield Philips, the special servicer in the securitisation.

Four Seasons has been targeted by the Priory Group, the operator of rehabilitation clinics.

Priory Group is owned by Royal Bank of Scotland (RBS.L), a major creditor to Four Seasons. Newspapers have reported the bank is attempting to engineer a merger between the two.

Earlier this month, Four Seasons said it had rejected an acquisition approach by the Priory Group, and reaffirmed its commitment to a "consensual restructuring" of its debts.

At the time, the company said its earnings before interest, tax, depreciation and amortisation was about 100 million pounds a year, and that it was making an operating profit.

A number of private equity companies, including Blackstone (BX.N) and Advent ADV.L, have been named as possible bidders to acquire the company.

Experts estimate a sale price of about eight or nine times earnings, or about 800 million to 900 million pounds. (Reporting by Tom Freke; Editing by Simon Jessop and Andrew Macdonald)