Sunwest Management Receives Offer
September 10, 2009
Through one of his entities, Mr. Baty had purchased a good chunk of Sunwest’s secured mortgage debt from Credit Suisse last year. While it is unclear whether he did so as an investment or as a means to foreclose on the properties and transfer them into Emeritus, he most likely didn’t appreciate how the reorganization plan was going to treat the secured lenders (a little bit of understatement here?). According to local media sources, the initial offer was for $225 million plus the assumption of approximately $1.0 billion of debt. This was subsequently raised to $270 million plus the debt. That seems to be about 50% of what the restructuring officer believes the entity may be worth in about three years or so. However, there is the issue of the third party claims, such as the lawsuits against Sunwest’s former law firm and accounting firm, among others. We assume that these claims would go to the TIC investors and unsecured creditors, so adding these future potential claims to the $270 million cash offer starts to look attractive, especially with the time value of money and a higher degree of certainty. This would make a resolution easier for Judge Hogan, but somehow we don’t think he is looking for an easy way out. In addition, Sunwest co-founder Jon Harder would be left out in the cold with this deal, and would spend the next several years fighting various lawsuits instead of watching his potential equity interest increase to a possible 25%. We know his lawyers will be busy trying to stop the Baty purchase, and it seems they have had more sway than one would assume in a case such as this. By making a grab for the best of the remaining Sunwest assets, Mr. Baty is obviously making a statement on the future of these properties, and of the industry. A decision may be coming by the end of the month.