By Susanna Moon
Chicago, Oct. 17 – Four Seasons Health Care is looking to restructure the £350 million 8¾% senior secured notes due 2019 and £175 million 12¼% senior notes due 2020 issued by Elli Finance (UK) plc and Elli Investments Ltd.
Four Seasons Health Care’s high-yield bond group plans to launch a financial creditor and leasehold estate restructuring of the note issuers and their subsidiaries in November, according to a company announcement.
The move comes as the high-yield bond group’s cash position and projected cash generation appear inadequate to meet its short- to medium-term needs, including payment of the December coupons due on the notes.
The company is proposing that in exchange for the 8¾% notes, a restructured group would issue £350 million of new senior secured notes due June 15, 2021 with a cash coupon of 4 3/8% and a pay-in-kind toggle coupon of 4 3/8%. The new notes would benefit from an extensive guarantee and first ranking security package granted by the restructured group, including the business and assets of the non-high yield bond group.
For the 12¼% issue, holders would exchange the notes for £60 million of 9% PIK senior notes due June 15, 2022 to be issued by the restructured group and 20% of the equity in the restructured group. The new notes will benefit from unsecured, senior subordinated guarantees granted by the same guarantors of the new notes. The £10.7 million December coupon will not be paid as part of the proposed restructuring.
“For the past 18 months we have been very clear that a capital restructuring is needed to ensure the long-term stability of the business and allow it to continue to build on its strong operational turnaround,” Robbie Barr, chairman, Four Seasons Health Care, said in the statement.
The business will operate as usual due to the liquidity in place, the release noted.
For the notes, the company is looking for two-year maturity extensions through new senior secured notes and the new senior notes.
The issuer also would reduce cash interest burden by way of a partial equitization of the senior notes and also lower the cash pay note coupons.
In return, the company is offering enhanced noteholder protections with new senior secured notes that receive a tighter covenant regime and also the new senior secured notes and new senior notes benefit from extended security, which includes access to the business and assets outside of the high-yield bond group and therefore outside the existing security package, the release noted.
The proposed changes would improve the company’s financial profile by cutting senior secured net leverage to 5.7 times from 7.2 times and total net leverage to 6.5 times from 10.3 times assuming no rent savings through the leasehold estate restructuring.
The company’s £40 million super senior term loan facility was refinanced on Oct. 16 with a new £40 million super senior term loan due March 2019, with the lenders agreeing to support the proposed restructuring and to negotiate a new super senior term loan facility with a further maturity extension as part of the restructuring.
The restructuring is needed because “the business has faced significant industry-wide challenges over the past five years, which have adversely impacted earnings. These challenges in the health care services sector include historical and ongoing underfunding, increased regulation and related compliance obligations and costs, and own staff shortages resulting in an increase in agency costs,” the release said.
“The backdrop to these discussions and exploring the various options has been continued tight liquidity in the High Yield Bond Group which, in part, has been supported by Terra Firma’s additional £50 million cash equity contribution made into the High Yield Bond Group at the end of 2014 and the funding of capital expenditure by property disposals. These disposals have comprised a mixture of closed, loss making, non-core and underperforming homes,” the release added.
Proposed restructuring
Under the restructuring, Terra Firma, via the parent, will contribute significantly more equity into the restructured group by transferring or contributing 24 high quality earning homes that are currently in the non-high yield bond group.
Also, by way of a series of share and business and asset transfers, the high-yield bond group will be split into two separate groups:
• A new group sitting under a newly incorporated holding company structure that will comprise existing high-yield bond group freehold operating companies, property owning companies and leasehold operating companies where the landlord has consented to its landlord proposal; and
• A transition group, sitting under the existing high-yield bond group holding companies including the notes issuers, which will comprise leasehold operating companies where the landlord has not consented to its landlord proposal.
Also, noteholders and term loan lenders will be offered a chance to subscribe for new senior secured notes to be issued by the restructured group or additional loan commitments in an amount of up to £70 million. Proceeds will be used to pay the £15.3 million December coupon on the senior secured notes, to refinance non-high yield bond group financial debt and to provide liquidity for the restructured group.
The high-yield bond group will be seeking a back-stop arrangement for the additional funding requirement, the company noted.
For comments, e-mail campbell@pjtpartners.com and wilcox@pjtpartners.com.
As reported May 1, 2012, the leveraged buyout of England-based care home operator Four Seasons Health Care was to include £525 million of high-yield bonds.
The Wilmslow, England-based company was acquired by England-based private equity firm Terra Firma Capital Partners Ltd. for £825 million with the buyout expected to close during the first half of 2012.
Proposed new issues
Secured notes
| Issuer: | Restructured group
|
| Issue: | Senior secured notes
|
| Amount: | £350 million
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| Maturity: | June 15, 2021
|
| Coupon: | 4 3/8% cash, 4 3/8% PIK
|
|
|
| PIK notes
|
| Issuer: | Restructured group
|
| Issue: | PIK senior notes
|
| Amount: | £60 million
|
| Maturity: | June 15, 2022
|
| Coupon: | 9% PIK
|
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