December 7, 2017 / 1:38 PM / in a year

CORRECTED-Standoff at Four Seasons Health as interest payment looms

(Corrects last para to show Terra Firma has only lost control of EMI. Adds company comment in para 3. Amends details of court case in para 10.)

By Christopher Spink

LONDON, Dec 7 (IFR) - Four Seasons Health Care is unable to pay a £26m interest payment due on December 15, which will force creditors led by H/2 Capital Partners to take control of the UK care homes operator unless a deal can be agreed over the next week, according to a person close to the situation.

Four Seasons, which had net cash of £24.8m at the end of September, is owned by private equity investor Terra Firma. Terra Firma said on Monday that it was prepared to hand over the business to the company’s high-yield bondholders, accepting it no longer had an economic stake in the business.

It said it has not made a final decision on the interest payment.

“It’s in the interest of both sides to talk and reach an agreement,” the person said. “There is no money available to pay this interest. If a consensual deal can’t be reached then there will a non-consensual situation.”

H/2 Capital Partners owns most of the company’s two instruments, a £350m 8.75% secured note maturing in June 2019 and a £175m 12.25% unsecured note maturing in June 2020, but has yet to agree to such a transfer.

Instead last month H/2 said it wanted Terra Firma to retain an equity stake of up to a third in the company alongside itself as part of a wider £135m refinancing that would convert existing debt into equity but also leave Four Seasons with some new debt. Terra Firma has rejected that offer.

Additionally H/2 has said it is prepared to sign a standstill agreement, deferring the interest payment for three months.

“We have made three offers to Four Seasons to agree a standstill in 60 days and are totally focused on ensuring a transparent, fair and ultimately successful restructuring process for everyone involved,” said a spokesperson for H/2 Capital.

The positions have been complicated because of errors in the bond documentations. These were redrawn by the company’s lawyers Allen & Overy a year ago but the wrong set of security pledges, relating to 24 other homes owned directly by Terra Firma, were given to one of the bonds.

A process to correct this is currently before the High Court in London. Terra Firma outlined a restructuring on October 17. The court case is due to be heard in May.

Four Seasons is being advised by PJT Partners, Moelis is advising the bondholders, and Houlihan Lokey is advising leaseholders of Four Seasons.

The Care Quality Commission, which regulates care homes, is also monitoring the situation closely to ensure the operation of the homes continues satisfactorily during the potential restructuring.

The company, acquired by Terra Firma for £825m in 2012, runs 343 care homes which have 17,000 residents and 26,000 employees.

Terra Firma, run by former Nomura financier Guy Hands, lost control of EMI after its 2007 buyout of the music firm. In July the private equity firm refinanced residential property company Deutsche Annington. (Reporting by Christopher Spink)

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