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By Debbie le Quesne

‘Unsustainable’ debt in the care sector

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I feel bombarded with information and papers on this and that at infinitum. And nestling in the pile was a report from Company Watch, a specialist outfit at tracking and predicting financial risk.

And guess what they are telling us? The care home industry is in a state of crisis and that a third of British care homes have notched up unsustainable levels of debt. I have no idea whether these ‘facts’ are well founded of representative of the care sector in the Midlands that we serve.

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 company – a giant in the care industry, went belly up in 2011.

The report says: “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 2011, it could no longer meet its £230m rental obligations and went into administration.”

The collapse spelt untold misery to more than 30,000 elderly residents and their families.

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”. The report says these have a one in four chance of needing a lifeline.

Almost 700 were also found to be “zombie” business, companies with liabilities worth more than their assets.

The combined negative net worth of these “zombies” came in at £217m.

The report was published in the online Telegraph last month, so given the state of the economy I can’t see it being out of date.

My worry is whether the current gloomy industry profile is a direct result of the government’s frugal approach to funding care.

Frankly, I suspect it is.

Almost 700 were also found to be “zombie” business, companies with liabilities 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 in the Telegraph: “The thing that worries me the most is the unusually high level of borrowing across the industry.

“Gearing (what does this mean?) currently stands at 82pc. Care homes are essentially property businesses that provide a service, so you would expect the figure to be high but not above 60pc.

“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.”

I can imagine. Help!

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