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Four Seasons on the brink as talks stall

Terra Firma boss Guy Hands - Bloomberg
Terra Firma boss Guy Hands - Bloomberg

Fears are growing over troubled care homes operator Four Seasons, with restructuring talks between its private equity owner and its main lender deadlocked by a bitter £136m legal row.

The US hedge fund H/2 Capital, which owns most of Four Seasons’ £525m bond debt, made a rescue proposal that has now been rejected by the buy-out firm Terra Firma.

Four Seasons, which provides 17,000 beds, has said it will not pay a £26m interest payment due next month to conserve cash. Without a restructuring deal or a standstill agreement in the next few weeks, it will be in default and under threat of administration.

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After initially welcoming the H/2 plan, Terra Firma, led by the financier Guy Hands, is refusing to hand over a package of 24 care homes worth £136m that it says are not part of Four Seasons. H/2 claims the assets, acquired separately in 2014, have already been pledged to lenders.

A legal tax avoidance structure used by Terra Firma when it acquired Four Seasons in 2012 required any extra homes bought to be included in debt security agreements, according to the hedge fund. Mr Hands claims the homes have been included due to a disastrous copy-and-paste error by lawyers Allen & Overy and has applied to the High Court to regain control of the assets. 

Terra Firma claims it cannot hand over the assets because of its duty to its own investors. The trial is not listed until next year, however, and H/2 could trigger a  potentially disruptive administration before then. It is understood that Terra Firma has proposed restructuring the company as proposed by H/2, as long as the court is allowed to decide the fate of the 24 homes.

Marin Green, chief executive of the trade association Care England, said: “Administration is the nightmare scenario but if it happens as in the Southern Cross disaster, the sector will come together with the Government and the regulator to manage the situation.”