Four Seasons care group facing financial meltdown with £525m debt

The warning comes after Four Seasons Health Care Group reported a 39 per cent fall in annual earnings to £38.7 million, and the debt-laden company's private equity owner admitted that it did not have enough money to meet its long-term needs.

Its operating losses soared to £263.6m, largely due to wiping £224m off the value of its 450 homes nationwide.

Tim Snow, senior analyst at credit ratings agency Moody's, has now branded the company's financial structure 'unsustainable'.

The group, which houses 20,000 elderly residents and employs around 30,000 people, has been stung by a cut in local authority fees and rising costs, and faces a further hit with the introduction of the national living wage which was announced by the Chancellor last year

Its estate includes sites in Dudley, Kingswinford, Walsall, Oldbury, Great Wyrley and Hednesford.

It looks after Holbeche House Care Home in Wolverhampton Road, Kingswinford; Ashbourne Care Home in Lightwoods Road, Dudley; The Gables Care Home, Wolverhampton Road, Oldbury; Fernwood Court Care Home, Wolverhampton Road, Walsall; Hornegarth House Care Home, Walsall Road, Great Wyrley and Tudor House Care Home in Littleworth Road, Hednesford, Cannock; Windsor House Care Home in Littleworth Road, Hednesford.

It is also saddled with £525 million of debt and faces interest payments of more than £50 million a year.

Mr Snow said the company "will not be able to service material levels of cash to pay debt going forward" and he now views a debt for equity swap with lenders as "the most likely outcome".

But last week Four Seasons said it had enough medium term finance for its needs, with £55m in cash at the end of last year.

It was also talking with key stakeholders to find a long term solution. "We don't envisage this process having any effect on the day to day care provision in our homes, hospitals and specialist care centres," said the company.

Four Season's lenders include US investment giants HCP and H/2 Capital Partners.

Owned by City financier Guy Hands's private equity vehicle Terra Firma, the company has said it is exploring all options for Four Seasons as it battles to secure the firm's future.

Mr Hands is best known for his 2007 takeover of EMI, the record label that signed The Beatles. The deal ended in disaster when he was forced to hand the business over to lender Citigroup four years later.

Moody's damning judgement on Four Seasons comes just a few weeks after the head of the West Midlands Care Association – the body representing 1,100 homes across the region – warned social care busineses faced a 'monumental struggle' to survive in the wake of the Living Wage.

Chief executive Debbie Le Quesne said: "There simply isn't enough cash in the business models so many have been forced to adopt under the current austerity measures."

A survey of the group's members found more than half said they would actively be looking to increase fees, sell up, or cease trading in the future.

Meanwhile, local authorities across the area operate a 'safety net' in case of problems with care homes.

Alan White, Staffordshire County Council's cabinet member for health, care and wellbeing, said: "If a care home closes suddenly we have an obligation as the local authority to support its residents to find a new and appropriate home.

"There are usually three types of resident: people placed there by the county council, some placed there by other local authorities and those who are paying for themselves.

"It can be traumatic for residents and their families because it may have been their home for many years – so looking after them is our priority.

"The plan is always to work with residents, their families and other local authorities where necessary to ensure continuity of care until everyone can make a fully supported move to another home."