REIT financing for buyout of former Southern Cross

Sale of UK care home provider NHP financed by US REIT, HCP.

Real estate investment trust (REIT) HCP, announced that it led the financing for Formation Capital and Safanad’s acquisition of NHP, one the UK’s third largest care home providers which defaulted on over £1 billion in debt six-years ago.

HCP is providing a £394.5 million five-year secured loan to back the deal.

The loan is secured against almost all of NHP’s assets and £362.5 million of the facility is already funded, according to the announcement. HCP will lend up to £32 million more to finance capital improvements on the NHP controlled by HC-One, its operating subsidiary which controls the care homes previously operated by collapsed former tenant, Southern Cross.

HCP said that the financing should return a blended 8.2 percent yield-to-maturity including up-front fees.

The buyer, Formation Capital, a US private equity firm focused on healthcare investments, has entered a binding agreement to buy NHP/HC-One, for £477.67m.

The business was still laden with £1.17bn of outstanding debt when a sales process was launched just over a year ago, including £610m of senior debt, securitised in Titan-Europe 2007-1, and a multi-tranched, £560m subordinated B loan, as reported by PDI’s sister title, Real Estate Capital.

Unresolved issues of creditor seniority from the failed debt restructuring process have delayed the sale twice.

The deadlock was broken after special servicer Capita Asset Services brought in debt advisory firm Brookland Partners to negotiate a settlement between swap provider, Class A creditors, bidders and the company. The swap provider, Credit Suisse, agreed to release the guarantees and 75 percent of the class As agreed to ‘be restricted’ enabling a resolution to sell to be passed.

The issue over the ranking of the unpaid swap – variously calculated at between £75m (by Capita) and £90m (by Credit Suisse) – is still to be resolved, but the sale of the business will go through irrespective of the outcome, Real Estate Capital reported.

NHP’s portfolio includes 226 care homes, the majority of which are in England and Scotland.