In August 2010, Blackstone Real Estate Advisors closed a $1.2 billion deal to acquire 146 senior living properties from bankrupt Oregon-based Sunwest Management, formerly the country’s fourth largest (and largest privately-held) senior living operator. Tonkon Torp represented the Chief Restructuring Officer of Sunwest in this deal, which was the culmination of one of the biggest and most complex bankruptcy cases of its kind ever filed in Oregon.
The unwinding, restructuring and sale of literally hundreds of Sunwest entities demanded legal expertise in securities, tax, real estate law, corporate governance, litigation and mergers & acquisitions. While conventional wisdom suggests this was a job for an East Coast mega law firm, the Chief Restructuring Officer, Clyde Hamstreet, chose to stay local and retained one of Portland’s most respected bankruptcy experts, Al Kennedy, and his Tonkon Torp colleagues.
Kennedy and team collaborated with Hamstreet to develop and execute a complex resolution that avoided foreclosure of Sunwest’s property empire, which would have meant a loss of over $500 million in investments and potential disruption of thousands of employee caregivers and 11,000 senior residents whose average age is 85. If the company had been liquidated in the manner proposed by bank creditors, the investors – many of them local – would have lost everything and the collapse of Sunwest would have put an impossible burden on the state regulators of senior living facilities. Instead, investors are projected to recover 44 cents to 50 cents or more on the dollar, and senior residents are unaffected by the change of ownership.
This was accomplished, in part, by a mountain of legal work performed by 51 of the lawyers and paralegals at Tonkon Torp. The firm deployed its expertise in several critical areas:
Bankruptcy and governance
- Reorganization of hundreds of LLCs and other legal entities to allow Sunwest to be treated as a single organization protected from disorderly, piecemeal liquidation
Bankruptcy and corporate finance
- Loan restructuring, negotiation and documentation for more than 70 different lenders
- Negotiation of a sale agreement and preparation of securities disclosure documents for sale of hundreds of Sunwest properties
Tax
- Preservation of tax deferral benefits to many hundreds of “mom and pop” investors
Litigation
- Preparation and filing of over 120 federal lawsuits against more than 1300 defendants to allow Sunwest to resolve ownership rights in the retirement properties
Real estate
- Real estate sale transactions for 146 properties with 1079 different fractional owners and 423 deeds, including resolution of over 600 title complications in order to prepare the properties for sale
Through close collaboration among its practice areas, Tonkon Torp helped Clyde Hamstreet untangle Sunwest’s highly complex structure, provide regulators and courts with an avenue to avoid total liquidation of Sunwest’s substantial assets, and create an entity with market value and potential future growth for a new investor. The result was the best possible outcome for its client and the creditors, investors, employees and residents of Sunwest Management and its properties.
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