Page 9 - Stakis C Case Study

"We had to sell nursing homes. Despite the fact that they
are a good business.But for us they had reached their

maximum, 95% occupancy rates, and we could not afford

to develop the sites we had. On the other hand, casinos
which are also good business, provided positive cash flow

for the hotels - the Americans have known this for years."

In May 1992 debt peaked at £235 million but it was obvious

to Michels and Chisman that with the casinos not being sold

plans had to be made to provide for the end of the standstill
agreement in March 1993. Eighteen options ranging from

issuing shares, to buying new hotels, to selling the whole

hotel portfolio, to a rights issue, a debenture issue, and
many others were considered. Each was painstakingly

evaluated and by August 1992 two options -a joint venture

with Electra on Ashbourne Nursing Homes or a three year

extension to the bank standstill agreement, were
considered. It was decided to choose the former option.

In September Electra refused to enter the joint venture but

after some haggling agreed to an outright purchase price of
£50 million. At the time of sale there were 1,426 beds in 18

nursing homes (8 purpose built), 20 sites for future

development (18 with planning permission) and all of these
at the premium end of the market. For the purposes of the

sale fixed and other assets were written down by £39

million. For Stakis £50 million was the bottom line figure as

the banks would require that much cash injection in order
to obtain a bank `reconstruction'.