Sir Jams Fishpaste (budfoxnews.com/2015 January 21, 2015) summarised the disasterous track record of Terra Firma, the company that took over Four Seasons nursing homes with the Tories blessing. (We wonder why?).
‘Terra Firma paid £4.2 billion ($8.3 billion at the time) in August 2007 to acquire EMI. Subsequently a number of artists left the label, a financial crisis hit, and EMI had too much debt to get through it all. By 2011, the owners had run out of options and were forced to relinquish control to the primary lender, Citigroup, wiping out all of the equity (and most of the debt). Terra Firma was reported to have lost a whopping £1.75 ($2.5) billion in the transaction (roughly one-third of investor capital) as well as more than 60% of Hands’ personal wealth (who chipped in along the way to try to keep it afloat’). (Mr Hands lost a fraud case against the US bank in New York in 2010 and the dispute is now set for the UK courts in 2016).
‘Although Terra Firma hasn’t been able to (and probably won’t ever again) raise even 50 pence of new investor capital since the EMI debacle, the firm had two active funds with about $2.8 billion left to invest in early 2011. Lucky for those investors, Hands & Co. got to work finding their next train wreck. They found it in Four Seasons, Britain’s biggest chain of homes for the elderly. Terra Firma acquired the business for £825 million ($1.3 billion) in mid-2012. … the debt burden is nonetheless proving hard to manage. Now, higher-than-expected nursing costs and lower-than-expected payments from local governments are putting the squeeze on … The investment isn’t headed toward a dirt nap just yet, but advisors have been hired which means this thing is circling the toilet bowl.
Some are questioning the motives for doing these deals and claim Terra Firma may just be swinging for the fences since they have no future anyway. As The Economist put it in a recent article’.
This refers to ‘Last hurrah, When buy-out funds throw good money after bad’, economist.com, Dec 6th 2014:
‘Could Four Seasons Health Care, Britain’s biggest chain of homes for the elderly, be the latest business backed by private equity to topple over? Terra Firma, the private-equity group that owns it, has called in the advisory arm of Blackstone, another private-equity outfit, to ponder its future (there is no suggestion that Four Seasons will cease to operate). An analysis of how Terra Firma’s ward got into trouble will undoubtedly focus on the debt that its owner piled onto it. But inducing the firms in which they invest to borrow sums they will struggle to repay is not the only way in which private-equity firms can be careless with other people’s money.
Terra Firma bought Four Seasons for £825m ($1.3 billion) in mid-2012 from RBS, a bank, which took control of the struggling business at the height of the financial crisis. It paid with £325m of the funds it manages on behalf of outside investors and with £500m it had borrowed. As is common in private-equity deals, the debt of Terra Firma’s fund was repaid using new loans taken out by Four Seasons. Higher-than-expected nursing costs and lower-than-expected payments from local governments, Four Seasons’s main customers, have since squeezed its earnings, leaving it struggling to service its debts.
If Four Seasons defaults and investors in the Terra Firma fund concerned (it has several) end up losing money on the deal, it will be a depressing vindication for those who questioned Terra Firma’s motives back in 2012. The deal was part of a last-minute shopping spree using money that, if not spent, would have had to be returned soon afterwards to investors in the fund. Some of them had asked Terra Firma not to spend the money, to no avail.
Some investors saw Terra Firma’s eleventh-hour investments in 2012 as a desperate bet. The purchase of Four Seasons has certainly not worked out, although the smaller acquisition of a chain of garden centres may still turn a profit. This means investors will suffer big losses: according to PitchBook, a data provider, the Terra Firma III fund’s internal rate of return this year is -8.8%, a shocking performance compared to similar funds such as Carlyle Europe Partners (9.3%) and Bridgepoint Europe (11.23%)’.
An article in wrp.org.uk (1 September 2015) gives a more political analysis of the Four Seasons ‘gamble’ by Terra Firma, and, I suggest, provides the only possible remedy for those frail, elderly mothers and fathers which were cast down into the dungeon of the care-for-profits system:
‘It now turns out that the brilliant business strategy employed by these private equity firms amounts to nothing more than buying up on the cheap and using massive loans to finance their speculation in the lucrative business of private healthcare.
This strategy has blown up in their face as Four Seasons struggles with debts of £500 million on which they have to pay £50 million a year in interest repayments, while its earnings last year only amounted to £51.5 million. Along with piling on debt to the companies it acquires, the other main plank of the speculators’ master plan for ‘turning around’ bankrupt companies like Southern Cross is simply to cut costs to the bone by restructuring and wage cutting – closing down unprofitable parts and relying on poverty level wages to keep the profits rolling in.
Last week Four Seasons joined with other major private health companies in writing to the Tory Chancellor, George Osborne, begging the government for money. Their letter moaned that the Tory pledge to introduce a national minimum wage next year will lead to the collapse of a major care provider within two years and force the closure of ‘hundreds’ of care homes run by these privateers, meaning ‘thousands of older people could be left without a home’ unless the government provides them with bucketfuls of extra money.
It now appears that we won’t have to wait two years before a major private care provider goes belly-up, as Four Seasons has calculated that its profits will take a further loss of £10 million as a result of being forced to pay even the derisory £7.20 an hour proposed by Osborne.
In response to this crisis Four Seasons is promising to close unprofitable homes – that is the vast majority of its 450 – and cut back on refurbishment of those remaining while it concentrates on its only profitable patients – the wealthy who can afford to pay the exorbitant charges levied on private patients.
For the thousands of elderly who rely on local council funding, which is not enough to keep these companies in profit and is being cut back all the time as a result of government cuts, they face being thrown onto the streets and left to die. Unlike in 2011 when Southern Cross collapsed, this time no private equity speculator will be willing to jump in and save the day after the failure of Four Seasons to rake in the profits they dreamed of by exploiting the old and infirm.
Shamefully the response of unions like the GMB has been to back the privateers’ call for ‘emergency funding’ to bail out these companies. The only answer to this crisis in care homes is not to beg the Tories for money to keep Four Seasons and the rest in profit but to organise a general strike to kick out the government and bring in a workers government that will expropriate all the privateers and the banks and provide the money to ensure a completely free health system as part of a socialist planned economy’.
Do you agree with the GMB, Mr. Corbyn? Is your master plan to prop up the failed enterprise of care-for-profit by giving it bail out funds? – so they can continue to dish out bread-and-water standards of care to those shackled in their dungeons. Is this an example of the ‘pragmatic realism’ that you have seemed to have adopted since your election?; this weasel term meaning nothing other than ‘socialist betrayal’.
If not, what exactly is your master plan for ‘unprofitable homes’?
NATIONALISE ALL NURSING HOMES THAT ARE PAID FOR BY LOCAL COUNCIL FUNDING.
lenin nightingale 2015