Southern Cross reprieve after rescue talks

 

Struggling care home group Southern Cross and its landlords, lending banks and officials from the Department of Health have sealed a last-ditch agreement to help the company stay afloat.

A Southern cross healthcare  care home

Cross words: Care home group thrashes out rescue deal

Southern Cross - hovering on the brink of bankruptcy unable to pay its £230m a year rent bill - last night said the deal would secure continuity and quality of care to the 31,000 residents living in its 750 homes.

In a joint statement, Southern Cross and the committee of its landlords said they would 'work towards a consensual solution' over the next four months.

A restructuring committee made up of people from Southern Cross and its landlords will oversee the rescue plans, while the day-to-day delivery of care and running of the business will continue to be handled by the Southern Cross board, its management team and staff.

The 80 landlords earlier this week approved a draft plan to break up the business and take control of some homes but thorny details including whether current management should be retained have yet to be decided.

The most likely outcome of the restructuring is that landlords take a rent cut and the group will be re-named and shrunk to just over half its current size.

Some landlords, including Four Seasons and Bondcare, are expected to take back homes and run them. Others will either appoint new operators or retain them in a smaller version of Southern Cross, which will operate under a new name.

The biggest landlord of 'Son of Southern Cross' is expected to be NHP, which owns 249 homes and is itself in difficult financial straits.

Blackstone, the former private equity owner of Southern Cross (down 0.25p at 8.75p), floated the company on the stock market in 2006 with a business model that was incapable of weathering the slump.

The private equity barons made £600m profit out of Southern Cross and NHP - also briefly owned by Blackstone before being sold to Royal Bank of Scotland and Loyds - between 2004 and 2007.

In a separate development, Blackstone was this week landed with a lawsuit in the US accusing it of siphoning $2.1bn in a 'tainted' leveraged buyout of Extended Stay America Inc that preceded the hotel chain's bankruptcy.

Blackstone teamed up with Citigroup in 2007 to sell the 680-hotel chain for $8bn to private equity investor David Lichtenstein, a 'mark' who was willing to pay too much, according to a lawsuit filed in a New York court brought by a trust trying to recover funds for creditors. Blackstone said the lawsuit was without merit.