It is understood that annual earnings at Four Seasons, owned by private equity giant Terra Firma, could plunge by as much as 34% to £42 million when it releases results next week.
The company, which houses 20,000 elderly residents across 450 homes, has been stung by a cut in local authority fees and rising costs, and faces a further hit with the introduction of the National Living Wage.
To compound matters, Four Seasons is struggling under £525 million of debt and faces interest payments of more than £50 million a year.
“It’s come to a point where creditors are looking at ways to turn the company around and recover some of their money. One of those routes is a debt for equity swap,” a source with knowledge of the matter said.
One of Four Seasons’ biggest creditors includes US investment fund HCP, which is considering a number of options including proposing waiving some of its debt in exchange for equity.
Terra Firma is controlled by City financier and Guernsey-based tax exile Guy Hands, and Fours Seasons’ debt is linked to his £825 million takeover of the firm in 2012.
Credit ratings agency Standard & Poor’s has warned that Four Seasons will run out of cash by June unless it undergoes financial restructuring.
To this end, Four Seasons has enlisted the services of PJT Partners and Allen & Overy to assess its options.
A Four Seasons Health Care spokesperson said the firm has “medium term” finances for its needs, adding: “As we have previously said, we have appointed advisers to help us enhance the group’s financial flexibility.”