Southern Cross cuts rent payments without landlord agreement
Wednesday 01 June 2011
The care home operator Southern Cross will today slash its rental payments by 30 per cent despite failing to secure agreement for the restructuring plan with all of its landlords.
The beleaguered group has been locked in talks with its landlords for months in an attempt to slash its £250m-a-year rent bill as doubts have been raised about its ability to continue as a going concern.
At least one major landlord revealed last night that it has been unable to "get past first base" with Southern Cross's plan to slash its rental bill. Analysts have warned that an agreement with its landlords is "crucial" and, if they refuse to wear the cut in rents, the company could be broken up through an insolvency process.
Yesterday it emerged that despite a failure to agree the rent cuts with all of its landlords, Southern Cross insiders said it had "no choice" but to push ahead with the plan. The state of the company's finances is hugely sensitive, as its collapse would put 31,000 elderly residents at risk, as well as the company's 44,000 staff.
Southern Cross will cut its monthly cash rental payments by 30 per cent from today, which will run to the end of September. The company warned that it would be unable to meet its obligations unless the landlords agreed to the £5m monthly reductions.
The so-called summer platform is to allow the company to agree "an appropriate restructuring of the company's affairs". Southern Cross said in an update yesterday it was confident that a "critical mass" of landlords will support its proposals, adding that "other key stakeholders including its lenders, the Department of Health and local authorities are similarly supportive".
The group leases all of its 750 retirement homes from 80 lenders and Southern Cross has met some opposition from yesterday's move.
A spokesman for Bondcare, which is one of Southern Cross's five largest landlords and itself a care home operator, said: "To date we have not got past first base with Southern Cross in relation to this proposed solution despite being in negotiations with them since December 2010. In our view the rent reduction does not solve the underlying problem."
Christopher Fisher, the chairman of Southern Cross, said yesterday: "We believe that all of the key stakeholders in Southern Cross want this restructuring to succeed," before adding: "Those landlords that do not want to take part in the longer-term restructuring will be able to review other options but it is in everyone's interests if this is as part of a larger, managed and orderly process."
Bondcare offered Southern Cross a different option, which has so far been rejected. "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," the spokesman said.
Bondcare is among the landlords on the committee that is negotiating with Southern Cross's board. The group also includes Four Seasons, London & Regional, Lloyds Properties and Vector Property Group.
The company posted a £311m interim loss two weeks ago and said it did not have enough cash to survive beyond the end of this month. Its auditor, PricewaterhouseCoopers, warned there was a "significant doubt" over whether it would continue as a going concern.
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