Wednesday, December 08, 2010

You know that no good will come of it

The shenanigans that are going on in Europe are something like a bush fire. Just when you think the flames are out it flares up somewhere else. You get sombre pronouncements from an EU bigwig assuring us the problems are sorted and within a week it is clear that they aren’t and that there is worse news to come.

The same pattern of things has been going on with the Southern Cross. For what seems forever, the care home company has been renegotiating its debt and coming to terms with the reality of life in the austere times of local government cutbacks.

Today’s FT concludes that: “Southern Cross’s future remains unclear following the release of its full-year results.” The FT is is on subscription.

The company confirmed that its lenders had agreed to change the terms of its banking covenants, which analysts had said Southern Cross could have breached in the near future and that it had entered talks with 10 of its largest landlords, seeking cuts in its rents and an end to agreements that link rent increases with inflation.

Latest losses have reached £47.4m although reassuringly the Finance Director said: “It’s in nobody’s interest to see our business become unstable.”

Lots of the company’s problems are of their own making but it does suffer the same constraints as the rest of the care business. These two sentences from the FT tell us a lot about what is going on in the industry.

To compensate for local council cuts, the group is looking to attract more self-funded payers, who last year paid on average more than £100 per week more for their care than local authority-funded patients. Some 20% of residents are self-funded.

Southern Cross is asking residents’ families for “top-up” payments to help to cover the full cost of care, Mr Buchan said. The fees are not means-tested and families can decline to pay, but the company can refuse to accept the patient. I think that is marketing speak for threat!

Where Southern Cross goes a lot more care companies a sure to follow. Dick Stroud

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