Things feel bad in health care services with closed shutters across the sector. But it could be a lot worse.
For starters, advisers point out that the sector remains favoured. For property investors as Stephane Pichon at Your Care Consult points out, health care looks positively glitzy compared to leisure, hotels and retail. Rothschild says the same applies to lenders.
Secondly, covenants are much less tight than they were in 2008. In fact, it’s no longer a thing that covenants above £200m are assessed every quarter. This reflects the fact that lenders have had to compete hard with others as quantitative easing saw interest rates fall through the floor. Paradoxically, listed companies and family-owned businesses borrowing less have far tighter covenants.
So there is plenty of money sloshing around. Private equity is likely to quietly pump in more equity to any at-risk investment.
The key is whether operators can convincingly demonstrate that they can get back to similar EBITDA levels to those they enjoyed in 2019 within 18-24 months. That would suggest that almost all the sector should reach safety.
So who is less likely to? The answer is anyone with a flawed business model. Many of the forecasts in dentistry looked optimistic before COVID hit. And sectors that are extremely sensitive to consumer spending such as cosmetic surgery also look vulnerable. Then there are sectors like the UK elderly nursing home market that face low tariffs, rising pay bills and more regulation.
But overall? There are far worse places to be than heath care.We would welcome your thoughts on this story. Email your views to Max Hotopf or call 0207 183 3779.