-3x Short China Discussion Threads

[mavverick] 01/6/2011 15:24

Stud as you say too risky. Thee is a glimmer that some kind of deal could get worked out but its of Lazarus proportions...and also the possibility hinted at by a previoius poster of equity being traded for debt at probably much less than 7p ashare ...? 2p a share.

[kirk2] 01/6/2011 15:24

last one out switch off the lights

[mavverick] 01/6/2011 15:15

EI I think home care has had negligible net impact on care home businesses, not least due to supporting demographics that ensure still a growing customer base for care homes, and the generally different and distinct older people customer bases that use home care as opposed to care homes. The other big care home providers are not in this serious trouble.

Private payers were not the key here. The SC quality aspects were an issue for council commissioners/social workers who influence the care homes actually used by non-private payers who are by far the largest group of SC residents...and they began using Southern Cross less. So even with the recent growth in private funder admissions to SC, it made no difference to the overall occupancy slide.

[stud-muffin] 01/6/2011 15:11

One care home nurse manager told me in Feb they were running at less than 30% occupancy - he seemed untroubled by this.

The following week they hit the pan. I have traded these since then - but now see too much risk for me.

GL anyone long - Raymarine proved that even disaters can have a better ending than the expected.

[essentialinvestor] 01/6/2011 14:35

Yes mavverick, valid points.
However, Home Care has impacted occupancy because of constraints in LA
budgets, as this is increasingly used where possible -
and lower occupancy has a huge impact on the P&L.

The quaility aspect is vital for private payers, the rating system
is frequently a deciding factor in choice of a particular NH.

I accept these are two factors alongside your views on the wider business
model.

[mavverick] 01/6/2011 14:17

EI The LA budgets and home care are not really what caused this imho. Plenty contine trading at a good profit.

It was caused by a leaseback rent model that squeezed the margins to such an extent that any adverse aspect on the business (ie occupancy rates) would lead to a loss, (and rent contracts assumed that there would never be a squeeze on fees, or any unmet funding of inflation on costs, or any costs added by staffing requirements by the regulator)!

The over rapid expansion without due attention to quality aspects just accelerated+++ the inevitable demise of this business model.

At the end of the day the falling occupancy sunk the business

[kirk2] 01/6/2011 14:07

7p looks good to get out of this dog,huge shorts been placed today

[essentialinvestor] 01/6/2011 14:00

sportbilly, many of these points were raised on this thread over 12 months ago.
Some are perhaps paying more attention now, than back then.

I made the point about LA budgets repeatedly, and the Home Care favoured
solution where possible - as well as quality standards having implications for
private payers.

kenny, who took a lot of flack from some of the bulls, made what now appears to
be a great call on the accounting/revenue side imv.

[induna123] 01/6/2011 13:51

Southern Cross mentioned on the ITV lunch-time news. Saying it could go bust next month.

[sportbilly1976] 01/6/2011 12:58

some very good points being made here recently...

several of the LL's are under extreme pressue with vitually no wiggle room with their lenders and so things will undoubtedly come to a head over the next 6-8 weeks (30th June interest payments to banks being the trigger)..

personally I believe that some form of D4E will occur, but I feel that existing shareholders will be left holding about 2-5% of the remaining company

one for the brave here at the moment, but best of luck

[mavverick] 01/6/2011 11:34

Good point LEJ2. Very complex chains and different positions for the negotiations. Dog eat dog probably..little chance of orderly decisions if any one LL has a solution for their bit. Any buyers for bits, such as Four Seasons, could get a good price. Some LL's may want to stay with SC where occupancy is high...but others could take SC under. Jamie's new legal man will earn his keep in terms of rebirth options, etc. This technical stuff is all out of my knowledge/experience.

[lej2] 01/6/2011 09:40

The LL's have their own problems with lenders. They paid over the odds for properties on the basis of the large, increasing, rents. The £20m or so at risk for banks in SCHE is peanuts compared what is owed by LL's - £2 billion or so purchase price, so probably £1 billion plus borrowings. Some will have enough head room but some will be between a rock and a hard place.

[krupatel] 01/6/2011 09:33

Southern Cross Healthcare followed a risky business model from the start. It was committed to paying a high level of rent in the expectation that it would get ever increasing income from local authorities needing accommodation for an ageing population.

Like tech shares in the 1990s and house prices in the 2000s, it was a bubble. This time, though, the commodity that the markets believed could only go up in value was the provision of private residential care for the elderly.

The discovery that vulnerable and frail people might have the roof over their head threatened by market economics is politically sensitive. Trade unions, led by the GMB, which has an agreement with Southern Cross, are seizing on the potential disaster as an omen of what may come with the Government's healthcare reforms.

Few saw trouble ahead when Southern Cross was the darling of the stock market after its flotation in 2006. Its value had more than doubled from £423 million to £1 billion by the following year. Blackstone - the American private equity group that bought Southern Cross in 2004, floated it and sold its own remaining shareholding by 2007 - was reported to have made about £1 billion from the exercise.

But while the company made financial gains from selling the care homes, there was little evidence that quality of care was given sufficient priority. But what neither Southern Cross nor the markets could foresee was the financial crash and the new age of austerity about to dawn.

Today local authorities have tighter budgets so are looking to save money on housing the elderly. They may find it cheaper to pay for domiciliary care - keeping people in their own homes.

Southern Cross has not been particularly good at looking after people. One in six of the homes has been graded 0 (poor) or 1 (adequate) by the inspectors from the Care Quality Commission, the regulator. Critics say that the rent burden was so heavy that the business had too little spare cash to spend on improving standards.

The rents, however, were high by design. Southern Cross raised capital by selling its care home properties to groups of landlords who were given lucrative lease agreements that made them seem a sure-fire investment. This model was called "opco/propco" (operating company/property company) and was a fashionable way of making money during the boom years. It meant that the company could avoid large loans from the banks. But today Southern Cross is being brought to the brink by money owed to landlords.

Operationally, Southern Cross had a higher staff turnover than its rivals and its cost management was poor. This was a vicious circle. Local authorities became more reluctant to send elderly people to Southern Cross homes. The occupancy rate has fallen from 92 per cent in 2006 to 85 per cent last year. It cannot afford any more empty beds.

Southern Cross intends to solve this problem by unilaterally cutting the amount of rent that it pays by 30 per cent, saving £5 million a month.

If the landlords refuse to accept that, they can seize back the properties, but they will never find anyone willing to pay such high rents again so most may put up with the cut. Alternatively, they could go to court and demand the money that they are owed.

Policymakers are looking at this mess nervously. Care was privatised over the past two decades with the State becoming a purchaser rather than a provider. Instead of town halls running old people's homes, they buy accommodation from businesses or the voluntary sector.

The Government is proposing to increase the purchaser/provider split within the NHS and opponents are warning that the same problems will ensue in healthcare.

Without doubt, investors see growing demand for some type of care arrangements. Politically, it has proved difficult for the State to foist costs on to residents and their families. This is good news for investors who can look forward to reliable income streams rather than having to attract private custom.

One financier involved in the market said: "The way that investors describe these businesses based on the elderly can sound very cynical to outsiders.

"The classic care home business will be created by someone involved in nursing and someone involved in property. They come together seeing a mutual way to make money. What people are becoming interested in is what they call the 'dementia market'. The biggest nuisance to care home businesses are the relatives. When some complain, the perception is that this is because they feel guilty for leaving the elderly relative in strange hands."

[mavverick] 01/6/2011 09:04

Still waiting
It was managed on Northern Rock principles.

[mavverick] 01/6/2011 09:02

lej2
As you say thats the crux..the fact SC are in situ may help a little with getting the upperhand in some negotiations as getting rid of SC caiuses even more unknowns for LL's...even if SC end up even smaller than this, as say the preferred operator for a small group of landlords. Pleased to hear you got out without any overall damage.

One question is will the other LL's play ball or be determined to get a pound of useless flesh. If they play ball, then not totally dead yet.

[still waiting] 01/6/2011 08:55

if this survives pi's are going to get wiped out, the govt. ministers have hinted as much.

N.rock part vi ???

[lej2] 01/6/2011 08:42

Unfortunately, mavverick, everyone will want the 'good' homes and nobody will want the 'bad' homes, which will eventually leave only one way out - the least attractive one for shareholders IMHO.

I finally gave up the ghost here last week at 8.25. Sizeable loss but still in front (marginally) on SCHE over the past three years.

[mavverick] 01/6/2011 08:21

thanks krupatel

thats the first time i've seen realistic figures of retaining just 400 to 500 homes which matches my suggested target of getting rid of a third to a half of current stock. Deep surgery...but essential.
The very difficult trick is to be able to negotiate to get rid of the 'right' third to a half! If they do there is a business. imho dyor etc

[krupatel] 01/6/2011 07:54

Tens of thousands of vulnerable elderly people in care are facing an uncertain future as Britain's biggest private provider of care homes runs out of money today to pay the rent.

Southern Cross Healthcare, which runs 750 care homes, is cutting rental payments by a third in a stand-off with its landlords. The financial crisis leaves the 31,000 residents facing an anxious wait to learn whether the business will go bust, if the landlords will seize back the homes or if the company's survival plan can work, amid fears that standards of care will decline.

Local authorities are watching anxiously as they have a legal obligation to step in and provide care for any elderly people left stranded by a crash in the private sector.

Age UK warned that councils across the country were already referring fewer elderly people into care, and underpaying fees to care home providers by as much as £500 million a year.

If a number of residential homes closed suddenly and clients had to move to other accommodation lives could be at risk, the charity said.

Bondcare, another private care home provider that also leases properties to Southern Cross, said: "If Southern Cross goes into administration, the care of these residents in our view would be jeopardised."

Morale at Southern Cross, which employs 44,000 people, is at an all-time low, according to one employee who spoke to The Times, citing recent problems such as staff leaving their jobs without notice, and delays in being paid. The company blamed the problem on new payroll software.

All councils have a duty of care if homes have to shut, which includes transferring the elderly to a different care home or bringing in temporary local authority managers.

Andrew Harrop, of Age UK, said: "In the early 2000s some of the closures were extremely badly handled and people died. There was a huge spike in the number of deaths in the months after the moves."

At present the finances of companies that oversee the needs of 200,000 people in residential care are not independently scrutinised in the same way that applies to hospitals and other public bodies.

Groups such as the Association of Directors of Adult Social Services are now calling for a new independent financial regulator of residential care to avoid a repeat of the Southern Cross debacle.

The latest care home crisis came as charities and health providers told David Cameron that the adult social care system was approaching "breaking point".

A letter to Downing Street from Bupa, Age UK, the Local Government Association and seven other organisations said: "As a number of recent reports have highlighted, the increased pressure on public finances is pushing an already overburdened system to breaking point. It is frail, older people who will suffer unless the issue is resolved."

Southern Cross is in trouble because it was created using a risky structure that involved selling its care homes to private landlords and leasing them back. The model is heavily dependent on fees from local authorities, rather than elderly people paying for their own care, and has been left exposed by the recent spending cuts across the public sector.

The care home provider will withhold 30 per cent of its rent obligations for four months starting today in the hope that a solution to its problems can be found by the end of September.

The company wants to hand back some homes to landlords by agreement and will sell others. It is hoping to reduce its size to 400 or 500 homes. The business also needs investment to improve its poor care record and wants to spend more money training staff.

A source close to the negotiations said: "Most of the landlords are playing their cards close to their chest." Some landlords may repossess their homes while others may go to court over unpaid rent, forcing Southern Cross into administration, the source added.

Bondcare, one of the main landlords, with 39 homes, said that it was thinking of taking over a chunk of the whole business."Our suggested solution is to take back the operation of our homes and we have offered the same solution to other landlords to deal with this crisis," a spokesman said. "In our view the rent reduction does not solve the underlying problem."

Jamie Buchan, Southern Cross's executive director, said last night: "The current levels of rent are too high in the context of the needs of the business and the pressures that the sector faces, particularly in the context of reducing local authority fees in real terms and reducing local authority placements.

"We recognise that more investment is required - both capital investment but also investment in training and development of our staff to take the business forward to the next level."

Age UK said that standards of residential care had been falling. Mr Harrop said: "Care staff can now only feed, wash and dress their clients but have no time to add to their quality of life, such as daytime activities."

[0405] 01/6/2011 07:53

On the front page of the Times unfortunately I don't prescribe.

[qipincha] 01/6/2011 07:44

on bbc news

[qipincha] 01/6/2011 07:41

morning
hope today is a better day for sche

[stud-muffin] 31/5/2011 17:53

Well they have through no alternative decided to simply impose a rent strike.

Who (landlords) will be the first to petition the winding up order?

Which of the directors will decide they are insolvently trading and force the end game?

All in this looks very messy and not surely what they had planned.

[selkirk69] 31/5/2011 17:13

The message is simple: Play ball or the ball will be taken away.

[boffster] 31/5/2011 15:09

At least they keep saying 31,000 residents and not 30, 29, 28 etc :)