Well, obviously, I don\’t actually know, but I can give a sketch of what\’s likely.
The basic situation is that Southern Cross operates but does not own a series of nursing homes for the retired/elderly.
30,000 odd residents, 45,000 odd staff.
They\’re in a squeeze. The major customer is the local authorities, who have a duty to provide such elderly/nursing care. The LAs have reduced the inflow of new clients by some 15% over this past year.
And as Southern Cross doesn\’t own the buildings, they obviously have to pay rent on them. Their leases have a 2.5 % a year rental uplift in them.
So, as a basic business problem they\’ve got high and rising (staff and rents) costs and declining income. In a low margin business this is of course something of a catastrophe.
They need to a) negotiate those rents down, b) get more capital to cover the losses or c) go bust.
There are more complex alternatives, like issuing shares to the landlords in lieu of rent, even to purchase the underlying freeholds.
OK, so, but what\’s going to happen to those 30,000 residents?
My best guess is, not a lot really. These are all purpose built homes. They\’re useful as residential homes for the elderly and not a lot else. Even if Southern Cross does go bankrupt, the buildings will still be used as residential homes for the elderly under some other financial arrangement. At lower rents, which is why sure, the shareholders have a problem, but so do the landlords.
Which is why some sort of deal is likely.