Terra Firma to walk away from Four Seasons

Kenny Wastell
09 November 2017

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Terra Firma is to write off its remaining investment in Four Seasons Health Care after an alternative financing proposal was put forward by the company's major creditor.

Terra Firma had originally supported a company proposal in which the GP would have made a £136m cash injection that included an element of debt-for-equity. However, hedge fund H/2 said the proposal would have reduced the debt burden by an "inadequate" £77m and has instead proposed a counter-offer that would reduce the debt by £247m.

H/2's proposal gave Terra Firma the option of investing up to £45m as part of a £135m equity funding round that would reportedly see the GP retain an 11% stake. However, a statement by Terra Firma suggested the firm will not exercise the option and will instead transfer its remaining interest for a nominal sum.

According to a statement, H/2 holds "the substantial majority of the senior secured notes and more than 75% of the senior notes" in the business.

As part of the revised proposal, H/2 will inject £135m of equity financing into the business to reduce debt and will "assume other ownership responsibilities", according to a statement. Additionally, H/2 has offered to defer interest payments until March in order to facilitate the completion of the deal.

The creditor has proposed the injection of £25m to fund the refurbishment of Four Seasons' existing sites and £15m for a staff reward programme.

In the absence of a deal with its bondholders, Four Seasons will default on its debt in December, according to unquote" sister publication Debtwire. The company reportedly owes £525m on two bond tranches.

Terra Firma acquired Four Seasons in April 2012 from Royal Bank of Scotland and other banks in a deal valuing the business at £825m. The GP wrote down its investment in the group to a nominal value in 2015, according to the aforementioned statement, in recognition of "the challenges the business had faced".

In addition to its financial troubles, Four Seasons also faced a backlash in 2015 when the Care Inspectorate watchdog found a resident had been the subject of "highly inappropriate" and "unacceptable" treatment from members of staff.