Southern Cross warns over banking covenants

Shares in the group, which has more than 60 care homes in Yorkshire, plunged more than 64 per cent to close at 5.57p yesterday.

Southern, which owns the Southern Cross Healthcare and Ashbourne Senior Living brands, said its trading outlook has worsened in 2011 after admissions and fees declined as local authorities look for cheaper prices in the wake of the Government’s budget cuts. The group said it is looking at “radical” solutions to its “unsustainable” rent burden.

The GMB union warned the group’s 31,000 residents face homelessness if Southern is forced into administration.

“These 750 UK care homes are not factories that are failing from lack of demand but are an essential part of every community which now face ruin due to the combination of privatisation and private equity,” said the union.

The company also revealed it has appointed advisers at KPMG to help it negotiate with landlords and lenders as it tries to stave off “an impending banking covenant breach”.

The Darlington-based group said: “In the light of reduced local authority placements, the company considers its current rent burden to be unsustainable and intends to step up discussions with landlords based on a more radical agenda.”

Southern added it has decided not to pursue a number of “highly preliminary” buyout proposals it has received in recent months because none are likely to result in a meaningful offer in the foreseeable future.

Southern’s residents are cared for by 45,000 staff in more than 750 homes, making it the largest provider of care home services for the elderly and a major provider of services for people with physical or learning disabilities.

It is being squeezed as councils and primary care trusts, which pay for more than 70 per cent of its customers, demand rate reductions while rents have risen, and seek more competitive rates from rivals. Southern reported doubled losses of £47.4m in the year to September 2010.