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Terra Firma wins auction for Four Seasons

by Jonathan Braude and Laura Board in London | Published April 30, 2012 at 9:19 AM

Guy Hands' buyout firm, Terra Firma Capital Partners Ltd., has prevailed in the auction for Four Seasons Health Care Ltd. with a bid worth £825 million ($1.34 billion) that significantly reduces the lender-owned nursing homes provider's debt.

Terra Firma has agreed to kick in £300 million in equity, pay off the company's existing £780 million of debt and put in new debt of £580 million, provided by Goldman, Sachs & Co. and Barclays plc, which are also Terra Firma's advisers.

"There's always been this question of debt hanging over the company," Four Seasons spokesman Robert Mitchell said. "Four Seasons was profitable, and the existing debt was being managed very well. The trouble was it was due to mature in September 2012."

The deal comes just over two weeks after Four Seasons confirmed it was in talks with potential new investors. The price is at the lower end of an £800 million to £900 million estimated range. Other bidders had reportedly included care-home investor Formation Capital LLC and property-backed assets investor Patron Capital Advisers LLP.

Wilmslow, England-based Four Seasons in 2009 had sold a stake to lenders led by Royal Bank of Scotland Group plc in return for their halving its £1.5 billion debt pile. Then, in 2010, the maturity of the remaining debt was extended to 2012. Royal Bank of Scotland will reinvest alongside Terra Firma to remain an equity investor, the companies added.

The deal is expected to close July 16.

"By investing new equity, Four Seasons' debt has been very substantially reduced and Terra Firma has brought stability to the company. Terra Firma is committed to further investment in the business in order to achieve long-term sustainable growth," Hands said in the statement Monday, April 30.

Four Seasons became the largest independent nursing homes provider in a £15 billion U.K. market after the collapse of Southern Cross Healthcare Group plc last year. Four Seasons took over 140 homes from Southern Cross, including 45 homes that Four Seasons already owned but leased to the failed operator. Today, Four Seasons operates 445 care homes, with a total of 22,364 beds, and 61 specialist care centers, with 1,601 beds.

About 60% of its facilities are owned by the company, which limits its exposure to the rental costs that played a large part in the demise of Southern Cross.

But until Monday's deal, the legacy of past investors' mistakes remained a burden. Four Seasons had been saddled with debts left over from its 2006 acquisition by Qatar Investment Authority-backed investor Three Delta LLP. Three Delta had bought the business from Allianz Capital Partners GmbH, the private equity arm of German insurer Allianz SE, which in turn had bought the company from Alchemy Partners LLP for £775 million in 2004.

Hedley Goldberg of Rothschild, Peter Warner of Gleacher Shacklock LLP and Deutsche Bank AG advised Four Seasons and its owners. Four Seasons' legal adviser was Ian Martin of Macfarlanes LLP. Terra Firma took legal counsel from a Slaughter and May team led by Jeff Twentyman and including Michael Roy, Dan Won, Clare Halliday, Mark Dwyer and Matthew Tobin. It received additional legal counsel on financing issues from a Cravath Swaine & Moore LLP team led by Philip Boeckman and including Alexander Muller.

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