Buyers eye Berrington Care rescue

Fifteen businesses have expressed an interest in buying Berrington Care Group, an aged care provider which went into administration earlier this month, while residents consider options for nearly $125 million of deposits.

Berrington operates high end aged care facilities in Como and Subiaco, with 211 beds.

Business News revealed Berrington entered administration two weeks ago, with Hayden White, Wayne Rushton and Stephen James Parbery of KPMG taking control of the business.

Much more detail was revealed at a meeting of creditors today.

Berrington's Como facility. Photo: Attila Csaszar

The big problem for Berrington was a $50 million loan from a secured creditor, GRG Innovation, through a vendor financing deal that covered the company’s purchase of the Como facility about two years ago.

About half of that debt was repaid, but the remaining $25 million matured at the start of this month.

Owners Karen Gillingham and Glen Gillingham had tried to negotiate or refinance the loan prior to the appointment, Mr White said, but had been unsuccessful.

Trade creditors were likely to come in at a low number, he said, while tax payments were up to date.

One big concern would be around resident deposits.

About $120 million was contributed through Refundable Accommodation Deposits, which are usually used to support working capital in the business and repaid when a resident leaves. 

The company had reportedly charged residents deposits of $800,000 or more after receiving approval from the Aged Care Pricing Commissioner to exceed the regulatory cap on bonds.

Those deposits are backed by a federal guarantee scheme, however.

A spokesperson for the Department of Health said the guarantee scheme would ensure residents were not financially compromised when these events occur.

“In the event that Berrington Care Group goes into liquidation and is unable to refund RADs, the guarantee scheme will meet the refundable accommodation payments to residents,” she said.

Residents will need to weigh up accessing these deposits now, to move to another facility, or staying on and hoping for a positive outcome.

A further $4.5 million, however, was in lump sum advanced payments for services, not covered by the government guarantee scheme.

That additional cost for residents will be treated as unsecured debt.

Inside the Berrington facility in Como. Photo: Attila Csaszar

KPMG’s Mr White said 15 parties had expressed an interest in acquiring Berrington.

That included the existing owners.

"It is absolutely their intent to put forward a proposal, a deed of company arrangement, to (continue) the business,” he said.

A further ten businesses were on a list to be approached as potential buyers, Mr White said.

The process of finding a buyer, and due diligence, might take eight weeks, he said.

Residents

Representatives of some residents expressed support for the staff and management of the facility.

"We don't want the upheaval,” one said.

"But we also don’t want to feel vulnerable.”

Others expressed concern that an exodus of residents would impact the viability of the business.

"We haven’t had anyone request to remove a family member,” Mr White said.

"If we lose a number of people, we can start to tweak costs as well.

"It would take a (significant) number for us to (have) any real concerns.”

Industry warning

Berrington was operating with a narrow profit, the administrators said.

But the industry generally is under pressure.

About 45 per cent of residential aged care providers are operating with a negative EBT, according to research by accounting firm Stuart Brown.

"The financial performance of the aged care sector continues to experience significant challenges due to the systemic decline in profitability in both the residential care and home care segments," the report said.

" The deterioration began in the 2017 financial year. If such a deterioration  continues, it will render some residential care homes more financially vulnerable.

"This in turn could affect  the sustainability of their provider organisations."

The report said regulatory changes and funding pressures were contributing to the tough environment.

"While all geographic locations reported a decline in results, the outer regional, rural and remote locations have significant financial concerns," the report said.

"Direct care staffing hours per resident per day increased marginally from 3.11 hours (Mar 2018) to 3.14 hours.

"Direct care staff costs have risen by $6.69 per bed day since Mar 2018.

"This increase alone is in excess of the average rise of (the) subsidy revenue of $5.83 per bed day.

"In simple terms, residential aged care revenue is not keeping pace with the rising costs"