Southern Cross care homes

I\’ve seen this mentioned in a couple of places, how appalling it would be is Southern Cross closed all its care homes:

Councils are drawing up emergency plans to rehouse up to 31,000 elderly care home residents amid fears that Britain’s largest care home provider could be forced to shut down due to funding cuts.

I\’d welcome clarification but here\’s how I read it:

Southern Cross warned last month its current rent burden is \”unsustainable\” and that it would base talks with landlords on a \”more radical\” agenda.

It\’s the rent that\’s causing the problems.

Christopher Fisher, chairman of Southern Cross, said that people should not be concerned about the standards of care available to residents despite profit issues.

“At a corporate level there does need to be change but at a delivery level to our clients and our residents what we are doing is sustainable,” he told ITV.

One way of looking at it is that the running costs are covered, it\’s the capital costs (rents being a reasonable substitute for mortgages to build the homes in the first place) which are the problem.

Which leads to two things. How are the equivalent costs for the competition, council owned care homes, accounted for?

The second is that, if the underlying business is sound but the capital structure isn\’t, then we\’ve a simple and reasonable solution. Southern Cross goes bust. Someone else comes in, renegotiates the leases, and the business carries on. After all, the landlords won\’t get much out of having empty care homes, there is a deal to be made there.

It is thought that one of the options under review could be to swap shares in return for a reduction in rent.

Or short of bankruptcy, dilution of the shareholders in favour of the landlords.

Disruption is possible therefore, but perhaps not quite the full on disaster that some are claiming, 31,000 oldsters out on the street. If the underlying business were notsound, that latter could indeed happen, but if it\’s just the rents then there\’s a number of solutions short of that.

3 thoughts on “Southern Cross care homes”

  1. The manner in which local authority care homes are accounted for makes for a pretty difficult comparison. Here in sunny Bradford the indication is that the operating costs of Council homes – i.e. without capital costs since these are not recharged – is around 50% higher than for homes in the private sector (roughly £600 per person per week compared to £400).

    I smell a bit of a non-story here anyway – were the business operating these homes to fold, the homes would be snapped up pretty sharpish! Looking after old folk is a growth business after all.

  2. Not sure who is engaged in brinkmanship with who here.

    2 points:

    Firstly if banks are “to big to fail” then the pain caused by nursing homes going under wouldbe far greater, if more concentrated. I don’t think anything should be to big to fail.

    Secondly building costs are 75% caused by government regulation. This cancades through all building rent costs and shows how government parasitism hurts everybody.

  3. “How are the equivalent costs for the competition, council owned care homes, accounted for?”

    My guess is – on the Soviet model, ie not at all.

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