Four Seasons (or more) of restructuring

July 9, 2009

A woman looks at the 2009 artwork "Sixty Watches" by Austrian artist Michael Schuster at the Art Basel art fair June 9, 2009. The Art Basel runs from June 10 to 14. REUTERS/Arnd Wiegmann (SWITZERLAND ENTERTAINMENT)Restructuring a company’s debts is not a simple process. Unlike acquisition deals, when everyone around the table has something to gain, a restructuring requires everyone to agree to lose something.

Pain has to be shared but everyone has an interest in ensuring someone else takes more of that pain.

As a result, the larger and more complex a company’s debt structure, the more likely it is that restructuring the company’s debt will be a long and difficult process.

These are facts the management at British care home company Four Seasons Healthcare know all too well.

The company found itself loaded up with around 1.4 billion pounds of debt, split across 11 tranches and more than 30 lenders, via an ambitious securitisation at the top of the market in 2006.

But now, plunging property prices mean the owners of the company — the Qatar Investment Authority — and many of the debt holders are now “underwater”, unlikely to see much of a return on their investment.

A recent valuation estimated the company’s assets to be worth around 900 million pounds, while others suggest even this figure could be too high.

So the company has spent the last year attempting to restructure its debt. Twelve months later and still no deal is in place, despite the company reporting strong operating figures.

The problem is the scale of the debt reduction required — maybe approaching half a billion pounds — and the difficulties rounding up all the creditors behind a single deal.

On Monday creditors rejected the latest restructuring proposal to cut the company’s debts. Four Seasons responded by pushing forward their plan B: a sale of the company, managed by Deutsche.

Creditors knew that a sale process would begin if the restructuring deal did not go through, and worry that a sale would raise less than the restructuring proposal.

Buyers, including Advent (owner of Craegmoor, another care home company) and The Priory, have previously taken an interest and may see Four Seasons’ predicament as a great opportunity to buy a good business at a low price.

Do not write off a last-gasp restructuring deal, however. Swallowing pride and taking a big hit is not always easy, and often restructuring deals are wrapped up at the last possible moment. As a result, many predict another chapter or two in one of restructuring’s longest-running sagas.

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