Southern Cross lenders in line for interest rate swap compensation

The Telegraph By Marion Dakers, Financial Services Editor

5:00PM BST 22 Aug 2015

RBS payment could be a belated windfall for creditors to the failed care home provider 

Southern Cross sign

Southern Cross, which managed 750 care homes, was floated by Blackstone in 2006
Lenders to the failed care home operator Southern Cross are set to receive a belated windfall after the restructuring team discovered that RBS is preparing to pay compensation for a mis-sold interest rate swap.

The collapse of Southern Cross in 2011 was one of the most spectacular corporate failures of recent years, illustrating the dangers of the sale and leaseback model that saddled the company with rental bills on 750 homes.

Landlords were handed control of the sites, which were home to 32,000 residents. They have also been paid 0.51p for every pound owed when Southern Cross and more than 150 subsidiaries were put into company voluntary agreements (CVAs). Shareholders were wiped out in the deal.

Barclays and Lloyds were also left £50m out of pocket by the agreement. However, KPMG said in its latest creditors’ report that £200,000 could be on its way to the lenders from RBS. The bank has told KPMG that it mis-sold an interest rate hedging product to Alexandra Park Limited, one of Southern Cross’s subsidiaries, in 2007.

Because this subsidiary is not part of the CVA process, the bank is dealing directly with Stephen Taylor, a restructuring expert appointed to the board of Southern Cross after its collapse.

RBS has estimated the compensation “at a level exceeding £200,000”. KPMG has said it is “likely” the funds would be dispersed to lenders.

The interest rate swaps scandal has led to nine banks paying £2bn to compensate more than 12,000 customers who were sold inappropriate and sometimes catastrophic hedges.

Seven Southern Cross subsidiaries cannot be released from their CVAs because of the uncertainty around this payment, along with a protest from a relative of a former care home resident. KPMG, RBS and Mr Taylor declined to comment.

One Comment on “Southern Cross lenders in line for interest rate swap compensation

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