One in three care homes struggling under debt mountain

Nearly 1,500 UK care homes are “financially vulnerable” and could go bust, a new report has found.
The British care home industry is currently in a state of crisis, according to research commissioned by Company Watch, a specialist at tracking and predicting financial risk. It has discovered that a third of British care homes have notched up unsustainable levels of debt.

The report has given rise to fears that many care homes could crumble under their financial commitments, the same fate that befell Southern Cross, the care home operator that went bust in 2011.

At the time the largest company in the sector, Southern Cross had been funding the majority of its growth through short-term liabilities. But in May of that year, it could no longer meet its £230m rental obligations and went into administration.

The collapse of Southern Cross caused misery to more than 30,000 elderly residents and their families. Now, according to Company Watch, hundreds of other operators are similarly at risk, with “off the scale” levels of borrowing.

Company Watch has surveyed 4,872 firms, operating 20,000 care homes across the UK between them. Of these, 1,449 have been rated as “financially vulnerable”.

“[These] have a one in four chance of needing a financial rescue,” said the report.

Almost 700 were also found to be “zombie” business, companies with liabilties worth more than their assets. The combined negative net worth of these “zombies” came in at £217m.

Nick Hood, Company Watch business risk analyst and author of the report, said, “The thing that worries me the most is the unusually high level of borrowing across the industry. Gearing currently stands at 82%. Care homes are essentially property businesses that provide a service, so you would expect the figure to be high but not above 60%.

“I’m running a warning flag up the mast for government and the Care Commission,” he added. “Just imagine what could happen if interest rates rise.”