UK healthcare group in $3bn debt talks
London, February 12, 2013
Lenders to Britain's General Healthcare Group (GHG) are in talks to restructure its around 2 billion pounds ($3.1 billion) of debt, in a process which threatens to leave them nursing heavy losses, banking sources said.
The company, one of Britain's largest independent healthcare services providers, was bought in 2006 by a consortium comprising Apax Partners, Brockton Capital, London & Regional Properties and Netcare. The latter subsequently bought Brockton's share of the business, bankers said.
The 2006 deal was backed by 2 billion pounds of borrowings, split 315 million at the operating business (opco) - known as BMI Healthcare - and 1.65 billion pound at the property arm (propco), according to Thomson Reuters LPC data.
The debt matures later this year, bankers said.
GHG has suffered in the economic downturn, which has led to a drop in demand for private healthcare as consumers rein in spending, bankers said. In the same sector, Southern Cross collapsed in 2011 after defaulting on its debt.
Lazard and PwC are advising lenders and are working with a steering committee of lenders led by Barclays , Mizuho and Pfandbriefbank to find ways to deal with GHG's debt burden, the banking sources said.
Options include an extension of GHG's debt, an equity injection by shareholders, or a debt-for-equity swap whereby lenders agree to wipe out debt in return for a portion of the business, bankers said.
GHG declined to comment.
The opco borrowings have been reduced to around 234 million pounds but the propco is struggling with its huge debt pile, bankers said.
An opco/propco structure, as it is commonly referred to, involves the propco's debt being serviced with rent payments from the opco.
A spokesman for BMI Healthcare said: "BMI Healthcare is not threatened by the situation around the GHG property company refinancing its borrowings."
"The GHG PropCos' debts are non-recourse to BMI Healthcare, and BMI Healthcare has robust 29-year leases with fixed rental schedules and no change of ownership clauses, to remain in the hospital properties. BMI Healthcare continues to trade profitably as evidenced by our recently published results."
The propco loans are almost worthless, quoted in Europe's secondary loan market at 8 percent of face value, according to Thomson Reuters LPC data. One trader quoted them as low at 1 percent of face value. This means lenders could suffer heavy losses in a restructuring, bankers said.-Reuters