Terra Firma's Four Seasons Bonds Slide After Moody's Rating Cut

  • Secured notes fall to record low after three-level downgrade
  • Care-home operator's earnings squeezed by shortage of nurses

Bonds of Four Seasons Health Care Ltd., the care-home operator owned by Guy Hands’ Terra Firma Capital Partners, fell to a record low after being downgraded three levels by Moody’s Investors Service.

The ratings company cut Four Seasons’ secured notes to Caa3, or two grades above default, because a shortage of qualified nurses in the U.K. is pushing up costs, according to a Sept. 9 statement. The cost squeeze, which may worsen next year when the U.K. raises the minimum wage, fueled a 38 percent drop in first-half earnings before interest, tax, deprecation and amortization, Moody’s said.

“There could be substantial cash burn in the coming 12 months, raising concerns surrounding liquidity depletion and probability of default,” according to the report.

Moody’s maintained a negative outlook, meaning the probability of default may increase. Four Seasons’ unsecured notes were cut to Ca, the lowest grade above default.

The care-home operator’s 350 million pounds ($540 million) of secured bonds due June 2019 lost about 4.5 pence on Thursday to 90 pence on the pound, according to data compiled by Bloomberg. They were at face value about two months ago. The unsecured 175 million-pound junior notes due June 2020 are quoted at 46.5 pence, the lowest since they were issued in 2012.

Terra Firma bought Four Seasons in 2012 for 825 million pounds. It funded the acquisition with 565 million pounds of bonds and a loan.

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