Yourcarehome.co.uk comments on the number of care homes collapsing into administration, and explains why?

Mark Sadler of yourcarehome.co.uk comments on why he thinks more than 70 care home groups have followed Southern Cross Healthcare into administration?

The most notable of these smaller care home operators collapsing to date are: Southern Care Group, Winnie Care Group, Grosvenor Care and Argus Care Group in Scotland, Through the boom times many care home groups were keen to keep borrowing against the values of the properties on their portfolios, and to keep buying even more properties to expand their business often by acquisition with many companies taking on significant debt.

Before and after the economic downturn many operators were forced into a position where they have needed to reduce their debt, with many loan values outstripping the values of assets on their books. In an attempt to overcome this problem and escape 'negative equity' they have sold their care homes to investment companies and leased or rented them back.

Care home operators who have used this 'leaseback' model to keep expanding are facing significant cash flow pressures, as their rents increase at 'above market rates' meanwhile the local authorities are reducing their funding due to their own funding cuts caused by the recession.

So what can we expect to see in the future?
It is possible that we will see more care home operators who expanded rapidly without being adequately funded either falling into administration or divesting their assets just as quickly as they acquired them.

We should not forget however that many care home operators have managed and expanded their businesses more responsibly, but have not overcommitted themselves. They too may have grown rapidly, but they have done so with more caution and with a more modest funding requirement.