OakNorth Bank has lent several hundred million pounds to the senior living and elderly care sector since its launch in September 2015, and one of the things we often get asked about is what criteria we look for when determining whether to lend. One of these is the Care Quality Commission (CQC) ratings of the care homes in an operator’s portfolio.
From a lending perspective, CQC ratings make it easier to identify strong businesses, as they help us assess the quality of the care home and how it’s managed. If we can see that a care home’s rating has increased from inadequate to requires improvement, or from requires improvement to good, and that this rating has been maintained for a period of time, we can infer that the management team has taken steps to improve the quality and amenities of the care home.
The frequency of inspections depends on the care service’s existing rating. If the latest report finds the service to be inadequate, CQC will revisit in six months to conduct another inspection. If the latest rating finds a service requires improvement, an inspection will be completed after a year.
However, one of the unfortunate indirect impacts of COVID-19 on the sector is that it has created a backlog of inspections as they weren’t able to be conducted during the pandemic. We know a number of care homes which were rated as requiring improvement in 2019, so borrowed money to invest in refurbishments, better-trained staff, facility upgrades, etc. and were eagerly awaiting the CQC’s return to hopefully see their rating improve. The backlog from COVID-19, however, means that many care homes are having to wait longer for re-inspection which is impacting demand and therefore revenue.
At OakNorth Bank, we appreciate that ratings can vary wildly in severity and that there can be delays in re-inspection, so we take the time to understand the key issues and actions that have been taken to address any improvements that need to be made. We’re also open to taking a reasonable commercial view, potentially aided by instructing an independent care quality consultant to undertake a review of the home for us. Finally, we’re also open to supporting the acquisition of care homes with a sub-optimal performance from a regulatory compliance perspective if we feel the management team has a strong track record of regulatory compliance and will be able to turn things around by the time of the next inspection.
Visit our care and senior living sector loans page to find out more, or to get in touch about an opportunity, fill out our short online form.
By Stuart Blair, Director of Debt Finance at OakNorth Bank
