Private hospital giant in talks on £2bn debt

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The owner of Britain’s biggest private hospital operator is looking to secure a financial lifeline as the company faces an autumn deadline to repay billions of pounds of loans.

General Healthcare Group (GHG), which owns BMI Healthcare, is in crisis talks with its lenders over £2bn of debt that falls due in October, reports The Sunday Times .

BMI runs 72 hospitals nationwide in buildings that are owned by GHG's property arm, treating more than 1m patients a year in partnership with the NHS and private healthcare providers such as Bupa.

In 2006, GHG was taken over by private equity group Apax Partners, South African hospital chain Netcare, and London & Regional, the property investor. The consortium has written off hundreds of millions of pounds on the deal.

It was then split into a health-care business and the property arm. GHG's health care business includes the BMI Healthcare, the largest independent provider of private health care in the UK.

More than £2bn of debt is secured against the properties, including about £400m tied to an interest rate swap — a financial instrument.

This device was supposed to protect GHG from rising interest rates but instead caused damage because the Bank of England lowered rates to 0.5pc.

Another £222m of debt is secured against the operating business, which is still profitable.

A spokesperson for BMI said the healthcare arm, which operates the private hospitals, would not be affected by the GHG property company refinancing its borrowings.

"BMI Healthcare’s patients, employees, suppliers, and consultants are all entirely unaffected by the current GHG PropCo matters."

Senior lenders led by Barclays (LSE: BARC.L - news) , the Japanese bank Mizuho and Pfandbriefbank, the German lender, have appointed advisers from Lazard and PwC to thrash out a solution with GHG’s backers, reports The Sunday Times.

Sources told The Sunday Times that one option would see the banks extend their loans to give the company time to work out a long-term plan.

Another would see them seize control of GHG’s property portfolio, although they are likely to be wary of the adverse publicity this could bring. They would also have to appoint a specialist to manage the properties on their behalf.

A restructuring of GHG will reignite the debate over the financial engineering used by investors in businesses that care for vulnerable people.

In 2011, Southern Cross, which had become Britain’s biggest care home operator with 750 homes,collapsed because of a drop in income and a £250million rental bill, affecting 30,000 elderly and vulnerable residents.