CARE home group Southern Cross Healthcare has denied approaching the Treasury for a state bailout.

It was reported over the weekend that the Darlington based firm approached the Treasury towards the end of March seeking short-term financial support.

But last night both the Treasury and Southern Cross denied any such approach.

It comes amid mounting speculation over the future of Britain's biggest care home provider, following March's announcement that it was in danger of breaching its banking covenants, the conditions imposed by its lenders.

This was attributed to rents it pays to landlords, agreed five years ago, rising faster than the fees it receives for residents care.

Last night the group's chief executive Jamie Buchan said: "We have not asked the Treasury for a bail out.

"We announced on March 14 a number of restructuring initiatives. We made it clear at that time that we were speaking to Government, not to ask for funding, but to reassure that the restructuring was to be concluded in a timely manner and would not compromise the quality of care provided to our 31,000 residents."

In a statement the Treasury said: "We have received no such request. Southern Cross is a private sector company, so any solution to its current difficulties needs to be a private sector one."

The warning about a possible breach of banking covenants came after Southern Cross had spent six months of attempting to persuade landlords to renegotiate agreements on its 750 homes, the majority of which the firm leases.

The group has been hit by public sector cuts, with the overwheming majority of its residents local authority or NHS financed.

Cuts have already been responsible for a drop of nearly 15 per cent in local authority admissions to the group's homes, while the company is presently paying around 22p of every pound it makes on rent.

Southern Cross believes that rent renegotiations are fair because agreements, some for 30 years, were agreed in better economic times when the valuation on properties was higher. It is understood that the group will meet its landlords this week as it continues to push for the rent reductions.

The firm recently told a third of its landlords it planned to switch to paying them monthly, as it does for the majority of homes it leases, rather than quarterly.

In March it brought in KPMG to accelerate negotiations, as well as appointing Tim Bolot, a barrister and chartered accountant with extensive experience of the healthcare industry, to the newly-created role of director of financial restructuring.

The group employs more than 200 people at its base in Archer Street, Darlington, and 43,000 people across the UK, including about 6,000 staff in 100 North-East homes.