Southern Cross Healthcare has made a last ditch attempt to salvage its struggling business with a management overhaul, as its worsening finances put 31,000 elderly residents at risk of losing their homes.
The UK's largest care home operator revealed that chairman Ray Miles had resigned yesterday as the company warned trading had deteriorated further and a breach of its covenants was a matter of "when not if".
Insiders said the future of the company depended on the outcome of negotiations with the landlords of its care homes and it hopes to wrap up discussions by the beginning of July.
Mr Miles has been replaced by Christopher Fisher, a former managing director of the investment bank Lazard and a board member of Southern Cross, with immediate effect. The departing chairman said his experience had "mainly been building businesses and improving their operational performance and that the company now faces a period of intense financial restructuring, it is time to hand over to others with more experience of this".
Jamie Buchan, the group's chief executive, has also shifted his focus to concentrate on the restructuring of Southern Cross and the negotiations. So far it has been unable to renegotiate its rental bill.
The group does not own the freehold to most of its 750 care homes, and the rent has risen nearly a fifth since 2006 to £248m. There can be no certainty that the negotiations will be successful, it said in a statement yesterday, before adding "the prevailing mood appears to be constructive".
The company said that beyond the restructuring it was adopting a radical approach to reshaping its portfolio. "It is not clear whether these actions will be sufficient to offset the lost revenues from lower occupancy and fees," Panmure Gordon's analyst Damian McNeela said.
Day-to-day operations have been handed to executive committee member Mark Cash, who was yesterday appointed to the newly created role of chief operating officer. Mr Cash, who joined Southern Cross as a regional director in 2009, will have the role on an interim basis reporting to Mr Buchan.
Mr Fisher said: "The board is focused on supporting Jamie Buchan and his executive team in promoting an orderly restructuring of the company's affairs, to stabilise its financial position and to provide the business with a sustainable platform for the future while at the same time ensuring the continued delivery of high quality care for residents."
Even though the group is set to breach its covenants – which the company revealed in a statement last month – its lenders "continue to be supportive. The company will shortly be making proposals to its major landlords as to how its rent burden and capital structure might be reorganised."
As it remains under pressure Southern Cross revealed its profits have suffered, blaming the disruption caused by March's announcement. Analysts put the deterioration in trading down to lower occupancy and weekly fees because of continuing cost-saving measures by local authorities, as well as rising rental costs.
Mr McNeela said: "The combination of a high level of fixed costs and declining revenues is likely to result in the company breaching its banking covenants."
There will be a further update on the full impact of the restructuring when the group puts out its interim results in just under a month's time.
There are fears that if Southern Cross goes bankrupt, the care-home owners could repossess the sites potentially forcing residents to be moved.