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SALEM, OR-Locally based Sunwest Management said Tuesday it has reached agreement on terms for the sale of 148 senior living facilities to a joint venture of Blackstone Group and Dan Baty. The deal still must receive approval from US District Court Judge Michael Hogan in Eugene in order to proceed.

Blackstone is a Chicago-based private equity firm. Dan Baty controls Emeritus Corp., a Seattle-based publicly-traded senior living company that manages 309 communities, and Columbia Pacific, a company that last year purchased the debt of 47 Sunwest facilities. The offer reportedly calls for the buyers to pay $270 million in cash and assume more than $1 billion in debt. Emeritus would manage the facilities and have the option to purchase a 10% stake in a joint venture with Blackstone and Columbia Pacific.

Sunwest, at one time the fourth largest senior living provider in the nation, is trying to reorganize under Ch. 11 of the US Bankruptcy Code after aggressive expansion, an over-leveraged capital structure, poor financial controls and under-performing operations were exacerbated by the recession and the credit freeze, leaving it unable to repay investors and lenders, according to bankruptcy court documents. In March, the Securities and Exchange Commission sued the company for running a Ponzi-like scheme.

Under the preliminary agreement between Blackstone-Baty and Sunwest, Sunwest would proceed with the plan of distribution currently pending before US District Court in the lawsuit filed in March by the SEC. If the court approves the plan at the end of the month it would subsequently consider the Blackstone transaction later this year in conjunction with Sunwest’s Ch. 11 reorganization plan.

Sunwest says the offer depends on the continuation of the restructuring that is currently in progress under Sunwest’s chief restructuring officer Clyde Hamstreet and federal receiver Michael Grassmueck, both from Portland, OR. Grassmueck, appointed after the SEC filed its lawsuit, ultimately determined that the allegations of wrongful conduct by the SEC “are supported by substantial evidence and played a significant role in the losses suffered by the Sunwest Enterprise.”

Prior to the purchase offer Hamstreet and Grassmueck offered up a plan of their own that called for taking the company public. The SEC has vehemently objected to that plan, however, because it called for the former executives accused of running the Ponzi-like scheme– Jon Harder, Darrel Fisher and J. Wallace Gutzler—to receive an equity position. The sale to Blackstone, if approved, would supersede the IPO plans.

In its lawsuit the SEC states that between 2006 and 2008, Sunwest raised at least $300 million from investors and used the funds for down payments on approximately100 retirement homes, with the remainder provided in the form of debt. Investors were assured they were buying an ownership stake in a specific senior living facility that would generate a profit of 10% per annum. Instead, more than half of the properties posted losses, losses the SEC says Harder concealed by commingling retirement home assets and paying off one investor with cash from new investors or cash flow from facilities owned by other investors, as well as refinancing and loans from Harder and friends.

“By June 2008, they operated Sunwest virtually as a Ponzi scheme,” the lawsuit said. By January 2009, Harder had filed for bankruptcy on behalf of 100 Sunwest facilities, according to the SEC, which filed its lawsuit in March. Harder also has since filed for personal bankruptcy.

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