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Sunwest sells to Blackstone/Emeritus

Published on February 14th, 2010

Oregonlive had an article about SunWest’s recent sale of nursing homes.  Sunwest Management has signed a deal to sell 134 of its senior housing facilities to a group led by private equity giant Blackstone for $1.15 billion in cash and assumed debt.  The price is lower than the approximately $1.27 billion price tag discussed last September when the deal first came to light.  Blackstone Real Estate Advisors VI LP is leading the acquisition group. Teaming with Blackstone are Seattle-based Emeritus Senior Living and Columbia Pacific Advisors, an entity controlled by Dan Baty, chairman and co-CEO of Emeritus.   Baty went to considerable lengths to win a seat at the negotiating table. His company, Columbia Pacific, bought up $290 million in debt that various Sunwest entities owed to lenders and shrewdly attempted to use its new position as a creditor to leverage a better deal out of Sunwest.

Sunwest was once the fourth-largest assisted living company in the country. It fell into disarray in 2008, a victim of the credit crisis, its own out-of-control growth, greed, mismangement, and poor quality of care. The company’s crash led to one of the largest investment scandals in Oregon to come out of the economic downturn. In the summer of 2008, Sunwest affiliate companies stopped making promised interest payments on the more than $400 million it owed to some 1,200 investors.

The U.S. Securities and Exchange Commission sued Sunwest and its former CEO, Jon Harder, in March, accusing the company of running a Ponzi-like scheme. Like nearly everything about Sunwest, the proposed sale to Blackstone is controversial. Some investors feel that Blackstone is offering a lowball price. The bid must be approved by U.S. District Judge Michael Hogan, who has been overseeing a complex legal mediation involving Sunwest, its investors and lenders since early this year.

If the Blackstone/Emeritus group does not prevail, it could be entitled to $13 million in breakup fees and expense reimbursement, according to court documents outlining the tentative deal.

Long Term Care Living ran article explaining the deal between Emeritus and Blackstone, and Sunwest.  Emeritus Corporation, a national assisted living provider, has entered into a joint venture agreement with Blackstone Real Estate Advisors and Columbia Pacific Advisors to acquire 134 senior living communities currently operated by an affiliate of Sunwest Management for $1.5 billion.

 

The joint venture will post a $50 million purchase deposit in conjunction with the signing. The purchase includes cash, the assumption of secured debt, and the potential equity rollover of up to $25 million by the existing Sunwest investors.

 

The agreement also contains provisions to allow Emeritus a right of first opportunity to purchase the communities or the joint venture interests at fair value and includes a profit sharing provision for Emeritus if the deal’s internal rate of return exceeds established thresholds.

 

 

Joe Pioletti
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