-3x Short China Discussion Threads

[mavverick] 31/5/2011 14:28

unagreed rent holiday then..DoH gets a mention. This could still be the crucial bit even under the tories

[topinfo] 31/5/2011 14:02

DJ Southern Cross Healthcare Grp PLC Summer Platform Update

TIDMSCHE

RNS Number : 5705H

Southern Cross Healthcare Grp PLC

31 May 2011

Tuesday 31 May 2011

Southern Cross Healthcare Group PLC

('Southern Cross', 'the Company' or 'the Group')

Summer Platform Update

Southern Cross, the UK's largest care home operator, provides the following update regarding its ongoing financial restructuring.

The Group confirms that it will defer an aggregate of 30% of its monthly cash rental payments from 1 June to 30 September 2011. This is designed to create a 'summer platform' during which the Company and its key stakeholders can agree an appropriate restructuring of the Company's affairs.

The Company remains confident that a critical mass of landlords will support the summer platform and believes that other key stakeholders including its lenders, the Department of Health and Local Authorities are similarly supportive. The Company is clear that all responsible stakeholders recognise that continuity of care is the single biggest shared priority and believes that a solution to its financial difficulties will be forthcoming within a co-ordinated restructuring. The Group, together with its stakeholders, is reviewing a range of options and expects to make a further statement about its restructuring proposals in July.

Christopher Fisher, Chairman of Southern Cross, said:

"We believe that all of the key stakeholders in Southern Cross want this restructuring to succeed. We are in dialogue with the Department of Health, our lenders and landlords and they continue to support the process. Those landlords that do not want to take part in the longer term restructuring will be able to review other options but it is in everyone's interests if this is as part of a larger, managed and orderly process.

"The objective will be to emerge with a stable and sustainable business model for the continuing care of our residents. Our primary concern is the continuity of care to all our 31,000 residents."

Enquiries:

Southern Cross Healthcare Group
PLC [phone]
Jamie Buchan, Chief Executive
David Smith, Group Finance Director
Amy Kroviak, Director of Communications

Financial Dynamics [phone]
John Waples/ Ben Brewerton

About Southern Cross

Southern Cross is, in terms of number of beds, the largest UK provider of care home services for the elderly and a major provider of specialist services for people with physical and/or learning disabilities. The Group's care homes for the elderly operate under two distinct brands: Southern Cross Healthcare and Ashbourne Senior Living. Both brands provide a range of social and personal care services and nursing care services for elderly people with physical frailties and differing forms of dementia. The Group's specialist services operate under the Active Care Partnerships brand and provide long-term care services for people with physical and/or learning disabilities and for younger people with complex forms of challenging behaviour.

Southern Cross is focused on providing high quality care in well invested facilities, seeking to be the home of choice in each local community in which it operates. The Group provides care services for most of the local authorities in the UK which, together with the NHS, represent circa 78% of the Group's revenues. Its care home portfolio is largely purpose-built with a high percentage of single occupancy rooms and rooms with ensuite bathrooms.

This information is provided by RNS

The company news service from the London Stock Exchange

END
MSCDKDDPBBKDPPN

[mavverick] 31/5/2011 12:48

thanks for your view stud i presume jb will have by now asked govt for assistance/loan He has seemed more optimistic in media interviews than the bare bones of this allow.

[mister md] 31/5/2011 12:36

does dealy still post here?

[stud-muffin] 31/5/2011 11:49

My take is even with a reduction of rent agreed SCHE and its current equity are doomed.

Best case dilution and massively so perhaps leaving as little as 1% to current holders, worst its all over.

I reckon landlords will want to take the orderely disposal route but fail to see a backer moving in to rescue the remaining homes unless the govt do something useful.

[mavverick] 31/5/2011 10:34

what does break up through orderly insolvency mean? what options could this give, if any? Or is this a silly question?

[mavverick] 31/5/2011 10:27

thanks krupatel...bleak only chance of SC survival is handing back up to half of portfolio to LL with an option to buy freeholds back for some of remaining half with a financial backer to do just that. Current model has too low margins to be viable. imho

[selkirk69] 31/5/2011 10:21

Thanks for posting that article.

[krupatel] 31/5/2011 10:15

The beleaguered care homes operator Southern Cross is cutting its rent by 30 per cent from tomorrow and remains locked in negotiations with its landlords to find a longer-term solution as it struggles to stay afloat.

The group, which owns about 750 care homes, said that it would pay nearly a third less rent than it is contractually obliged to for the next four months. It had warned two weeks ago that without the cut it would not be able to meet its rental obligations.

Southern Cross is struggling with a £230 million annual rental bill after selling off most of its freeholds in the property boom. It has said that the cut in rent - which effectively amounts to a loan from the landlords - will be repaid when it can do so.

However, the group is unlikely to achieve this goal without an improvement in its operational performance - which would enhance its ability to pay rent - and a fundamental reworking of its rental obligations.

The Times understands that talks are progressing but there is still no sign yet of a longer-term agreement between the parties, which range from large landlords with significant numbers of Southern Cross homes to small landlords with only one or two homes.

A confidential presentation that Southern Cross gave to landlords in April, when negotiations started in earnest and which has been seen by The Times, offered the landlords four stark options. The first was that the landlords agree to a transitional 30 per cent rent cut for four months, equating to a total £5 million reduction per month. It said that this would give it the breathing space to advance equity talks simultaneously with third parties.

Its second option was that the landlords agree to reduce the rent by 30 per cent to allow Southern Cross to provide transitional services while "landlords take back the homes over a nine to twelve-month period".

The two final options entailed either a "break-up through an orderly insolvency process" or a "break-up through disorderly insolvency process", the latter of which, it said, "was to be avoided at all costs".

In the presentation landlords were advised that Southern Cross was "currently cash negative" and would use £20 million to £25 million of cash this year with more capital expenditure required next year.

It said: "There is an immediate requirement for funding which can practically come from only two sources: lenders and landlords. This funding requirement will exist in either a solvent or insolvent restructuring. Over the longer term, funding can come from improved trading and/or equity injections. It won't kick in prior to the need for a contribution from landlords."

Talks have moved on since then but it is thought likely that some landlords, particularly those that are care home operators themselves, such as Four Seasons, may choose to take back some of the homes. This would leave Southern Cross as a smaller, and better capitalised, company.

For other landlords, however, the situation presents a number of problems, because reducing the rent affects the investment value of their property and could cause issues with their own lenders if debt is secured against the property.

Additionally, even if the landlords agree to a longer-term rent cut, Southern Cross has warned that it may have further liquidity problems and could need further concessions in the coming months. In short, Southern Cross needs to pay less rent and it wants a consensual agreement among its landlords, but it will be up to individual landlords to decide whether that will be acceptable.

In its half-year results two weeks ago Southern Cross made a pre-tax loss of £311 million and said that it was in a "critical condition".

Operationally, its performance has been poor, with its local authority referrals falling and occupancy levels falling, at higher rates than rival operators have experienced. This poor performance further affects its ability to pay its rent.

[selkirk69] 31/5/2011 10:13

Media sensationalise to sell papers etc.
SCHE did state they have asked for a period of time paying 30% less and also to pay monthly instead of quarterly, this has happened as far as I know.

The facts will be contained in an RNS which SCHE are obliged to release on company effecting news, I'll wait on that.

I do believe that if the LL's and banks agree to concessions then we could have a significant recovery here.
Just IMO.

[kimboy2] 31/5/2011 10:05

I don't think they have got a 30% rent reduction. They are just paying 30% less.

There is a report in the Times today. Doesn't read well.

[warranty] 31/5/2011 08:54

Said on the BBC Money Prgramme on 5 this morning that SC had got a 30% rent reduction but no word from the company so why would they say that without something changing??

[kenny] 25/5/2011 23:26

See this article about SCHE and others:

[bc4] 23/5/2011 10:10

panic selling someone just sold 2 shares do he know something we dont

[wraggo] 23/5/2011 07:17

can someone post the sunday times artical please?

[tempramental] 22/5/2011 19:15

judging by the latest media coverage this looks terminal now, looks like the endgame is near imo

[mavverick] 22/5/2011 19:08

as selkirk says from memory i think they have only very mimimal freeholds left worth circa 10m, that remain unsold. I heard a rumour that Four Seasons might be interested in some of them, but FS would probably want the freeholds too..so if LL's take back as Clarendon indicates from ST, they may take a few. However SC need to hang on to the best/better ones if they are going to have a chance of coming out the other side in good shape!

[clarendon] 22/5/2011 12:23

More in the Sunday Times today. Looks as though the restructuring may go ahead by default - the landlords look like taking some of the homes back!!

[nermil] 21/5/2011 20:10

The rent is one side of the equation. Its necessary but the so too is a re-working of the relationship with government. Otherwise, the entire care home industry is very unattractive. Either a palatable solution needs to reached on the funding side of things, or government figures out how to house, care for the elderly in this country themselves via the NHS.

[selkirk69] 21/5/2011 13:32

My understanding is they have at least one property worth £14m and I've not seen it as sold in any of their recent reports.
The LL's need to reduce the rents without doubt, hopefully then they will either secure the investment they're after or be taken over, the later will happen imo.

[nermil] 21/5/2011 13:09

mavverick my understanding is that their property portfolio is made up only of leased properties. I am not aware that they own any freeholds and if there are they are very few. The moved to a sale and leaseback model with Blackstone. And the value of fixtures, fittings, etc, would be negligible against debts, loss of rents they leave behind. Those sorts of assets have high levels of depreciation and would only be valuable if the same properties cna be re-leased out to the same type of operator.

The bank also would normally come first in priority in the creditors list.

I would like to know how consolidated their portfolio is in terms split by landlord. The more fragmented the more they will argue amongst themselves to make sure they get the best deal in terms of rent re-negotiation. I would imagine each is furiously trying to make sure they don't give more than the next. All I know is that three quarters of Southern Cross's homes are held by less than 10 landlords. But that's still 10 sets of hands grabbing for the best deal.

Their other issue is how to shelve homes that no longer are fit for purpose or where lack of demand suggests closure is the best option. They dont' seem to have flexibility in their Blackstone agreement to exit leases. I don't see anyone wanting to buy these homes. No one in their right mind would step in to assume the same 2.5% upward only rent reviews and long leases agreed by Blackstone with LAs offering fee growth of less than inflation or even paying less than they did before.

What is needed is government intervention here, its disappointing to see the government sitting on its hands. There needs to be if care homes remain in private hands a guarantee fee level with built in year-on-year increases above inflation. Leaving the lease issue aside the entire model here will not work without a proper discussion. This is whethor we like them or not a quasi-NHS service. The government can't keep on stickig its head in the sand. This country needs to figure out how to care for its elderly. The issue is not going to go away and will only get worse.

[mavverick] 20/5/2011 17:09

its not LA's fault....SC are not getting their market share of occupancy due to poor quality caused by historcal underinvestment and a flawed business model that left very vulnerable low margins to any downturn.
Interested in nermils one might be thick etc. I'm not an expert but would SC in administration have some value in terms of furniture/fittings,boilers, hoists etc and unsold freeholds?
I'm away for a fe days....did they release a spot occupancy as at end of April/early May? IF difficult LL negotiations are successful SC could be circa half/2 thirds as big as now, but profitable