Tonight:
4°c
People warned before the credit crunch broke that the slicing and dicing of debt and the emergence of new specialists in the market for second-hand and distressed loans would make future restructuring much more difficult. Others dismissed this as nonsense, saying the new players were nothing if not professional and, while they might play hard, they had a shrewd idea what assets were worth, so they would negotiate in a suitably cold but unsentimental way. Restructuring would therefore get done.
Well, the continuing saga of Four Seasons, a struggling care homes business does not provide that much comfort. It is a classic case of a basically good business that has been brought low by private equity treating it as a property play and piling in so much debt that all the money the company makes goes on paying interest. As such, its problems are similar to the pub businesses also reduced to desperate straits by management who thought success was all about gearing up property, not about serving the customer.
Four Seasons equity has long since been abandoned as worthless by its Qatari owners, but the debt holders are now squabbling among themselves as to who will be next to bear the pain -though the word yesterday was that they have agreed to some form of standstill until January. Basically, the stand-off sees the holder of the senior debt, Royal Bank of Scotland, wanting to whack Four Seasons into a merger with The Priory (so they can both go into rehab together) while knowing that under the terms of the covenants, such a move would largely wipe out the junior debt holders.
Just try it, say the holders of the Piks, the mezzanine and the assorted other rubbish masquerading as debt. Rather than shoulder such losses, we will force the company into administration. And if that happens, they say with ill-concealed glee, there is a fair chance the assorted grannies will be turfed out on the streets just before Christmas.
Four Seasons residents should not read this and get unduly alarmed. Battered though the RBS reputation is, treating the customers so unfairly is not something it is willing to contemplate. So the stand-off continues.
No doubt it will be resolved in time. But if a small business like this, with no more than a couple of hundred million at stake, proves so intractable, it makes one wonder what will happen when some of the big stuff goes belly up.
Hyde Park poser for the Candys
The Candy brothers, two of London's more flamboyant and successful property developers, have fallen victim to the Bank of England curse.
When the Bank slashed interest rates last week, half the population was relieved, the other half began to worry about what the Bank knew that had prompted such drastic action.
Similarly with the Candys. Having been relatively shy of publicity for most of their careers, they have begun giving big interviews in the Sunday papers to say how well they are doing. Again, the anxieties of half the readers are assuaged; the other half may wonder if there is anything more the Candys know that is not being said.
They have, of course, taken steps to trim their positions - as one would expect in the biggest property and banking meltdown for a generation.
The massive redevelopment of Chelsea Barracks is currently stalled as arguments swirl about the mix of cheap and expensive housing. It could be some time before these and associated planning and financing issues are resolved, but, given the current climate, they are probably in no great hurry to get it going.
The Middlesex Hospital redevelopment has also had a hiccup because it was financed with Icelandic bank money. But the Candys seem successfully to have switched out of it with no great pain.
That still leaves the One Hyde Park development of luxury apartments opposite Knightsbridge Tube. One suspects this will be the make-or-break deal. If there are still enough Russian billionaires and Asian steel magnates around with the money, and if a London in the throes of recession retains its magnetism for them, the Candys could still have a winner. If the property sticks - or worse, if numbers of those who have already bought decide to forfeit their deposit and cancel, as often happens when markets turn spectacularly south - it will be another story.
Thus far things appear to be going well. The Candys say it is half sold, but to be realistic in this climate is to have doubts. Property has already endured 18 months of pain, and has probably another 18 months of forced sales, deleveraging and bankruptcy to go through before we can be assured it has touched bottom. It will be a truly remarkable tribute to their talents if they come through unscathed.
Message from Yell is missed
Yell, the telephone directories and internet advertising business, today announced revenue up, earnings before interest up, cash generation up and another round of cost-cutting for next year.
But the market is fixated on the group's mountain of debt, and no amount of success in meeting its obligations to its lenders seems to make much difference.
One suspects that when this downturn is over, John Condron's actions will be seen as a textbook example of how to manage through troubled times. Presumably it is too much to expect the market to appreciate it while he is actually doing it.
