Britain's biggest nursing homes operator in desperate plea to stave off collapse
Southern Cross, Britain's biggest nursing homes operator, is asking landlords to agree to cut rent by 30% for four months from June in a desperate bid to stave off administration.
A collapse of the group would create a political storm, with Labour MP Michael Meacher saying on Thursday that if the company failed "it would expose the brutal logic of profit-driven private services."
The cash-strapped firm, which used to be owned by the US private equity group Blackstone, emerged with some 750 homes and 31,000 residents after a period of heady growth over the last decade.
But Southern Cross is now struggling to meet a huge rent bill because it offloaded freeholds to raise cash during the boom years. It also faces declining fees from local authorities, which pay for most of the company's residents, as councils grapple with public spending cuts imposed by the government.
On Thursday Southern Cross appointed the investment bank Greenhill and accountants KPMG to "assist with the restructuring process".
Well placed sources have told the Guardian that Southern Cross's 80 landlords are divided over the way forward and that administration remains a possibility. Landlords have two weeks to decide the company's fate and are looking at a number of options that would amount to a wholesale reorganisation of the group's property portfolio.
One possibility is that many owners of the homes will insist on taking back control of the properties and either operating them themselves or bringing in another operator, as the price of agreeing to a temporary rent reduction. Some landlords could agree to take equity in Southern Cross in return for capping rent on a long-term basis, even though this would dilute the stakes of existing shareholders, who have already seen the stock price plummet.
Jamie Buchan, chief executive, is thought to be planning to close 50 homes which that are deemed "not fit for purpose", though the company has always insisted that patients would be found alternative accommodation before closure.
Today he said: "Throughout, Southern Cross remains fully committed to the provision of quality care to all its residents."
A number of landlords are privately saying that a quid pro quo for agreeing to a restructuring is for current management to go.
The GMB union is claiming the company's woes bring "uncertainty and insecurity" for residents and their families and was "utterly unacceptable".
Meacher said: "Several factors lie behind this approaching catastrophe. Tory party policy to turn to private providers … means that over two decades, no less than 110,000 beds were opened in private and voluntary homes and 95,000 closed in local authority homes. The result has been that 90% of residential care is not publicly provided and most is for profit. "But no provision was ever made (or perhaps ever even contemplated) for when a major provider collapsed or downsized."
Meacher said it was disgraceful that homes for elderly people had been "floated on the market in exactly the same way as metal or food commodities".
Southern Cross, however, was putting on a brave face, saying that meetings with landlords had gone well and that it welcomed their decision to form a committee representing all their interests. "These developments are a further step in a consensual and constructive process to create a sustainable future for the business."
But Paul Saper, head of LCS, a health consultancy said: "Southern Cross's problems turn on falling occupancy rates that have come about because the quality of care has deteriorated in some homes as cash for investment in staff and facilities has been in short supply."
Two years ago, Southern Cross's occupancy rate was running at 91% but has now fallen to about 82%.
A Southern Cross home in Oxford is the subject of a damning report by the Care Quality Commission, which said residents were left in pain without their medication, while others were not given help to bathe or get out of bed.