Safe as houses

The Europe corporate restructuring space is stepping up a gear as property exposure takes its toll on UK corporates.

Nursing home operator Southern Cross Healthcare said banks have granted an extension to a £46m drawn loan facility, which was due to be repaid by June 30, and agreed a waiver for an expected breach of a financial covenant, until 28 July 2008.

In a statement the company said the outstanding £46m facility is one of two syndicated credit facilities specifically for the purpose of funding additional acquisitions. These facilities are drawn to about £82m and secured against a portfolio of 20 recently acquired and developed homes which it had intended to dispose of under its sale and leaseback scheme.

The listed business has announced a number of board changes, including a new finance director.

The crux of the current crisis at Southern Cross is an effect of borrowing short-term money to finance growth through acquisitions. Pre-crunch it had been possible to repay the short-term debt quickly and relatively easily through sale and leaseback deals, an option now far from easy. Early sale and leaseback deals are seeing few problems yet, but that may change.

Even without the pressure of immediate debt repayments, nursing home operators are very much in focus, thanks to property exposure, a trend of leveraging at the height of the market and a squeeze on UK government spending.

Debt and equity holders in unlisted Four Seasons Health Care, meanwhile, remain in focus, with Qatar Investment Authority-backed financial sponsor Three Delta reported to have committed an extra £100m of equity into the company to avoid breaching banking covenants, but has failed so far to secure lender support to refinance its £1.2bn debt package.

The debt backed Three Delta’s £1.4bn buyout of Four Seasons from Allianz Capital Partners in late 2006. The lending group includes RBS and Credit Suisse.

The deal is just one of a number of struggling property-exposed investments by Three Delta, an investment vehicle run by ex-NatWest head of structured finance Paul Taylor, prompting QIA to seek to secure exclusive control of the Three Delta as a step to work out at the portfolio level.

Distressed investors are understood to be targeting home builder Taylor Wimpey, which said it is looking to secure debt covenant waivers as a precautionary measure to allow greater flexibility in case of market deterioration.

The waiver request is for greater flexibility relating to the minimum Ebitda/interest cover covenant, currently three times. The business also has a minimum level of tangible net worth covenant of £1.8bn and a maximum level of borrowings covenant of 100% of TNW.

The interest of distressed investors highlights the rapid evaporation of confidence in the business, which revealed last week that it had failed to secure a new equity capital investment which is the key condition it needs before it can agree a revised banking facility (See ‘UK rights in turmoil’).

Taylor Wimpey has debts totalling £1.883bn, including £1.16bn of bank debt, £1m of FRNs, $380m of US private placements and £443m of Eurobonds.

A plethora of listed homebuilders will release trading statements this week, which will ensure continued media focus.