[Federal Register Volume 77, Number 65 (Wednesday, April 4, 2012)]
[Notices]
[Pages 20442-20445]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-8061]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30014; File No. 812-13778]
Sunwest Rollover Member LLC; Notice of Application
March 29, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').
[[Page 20443]]
ACTION: Notice of an application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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SUMMARY: Summary of Application: Sunwest Rollover Member LLC
(``Applicant'') requests an order of the Commission pursuant to
sections 6(c) and 6(e) of the Act exempting it from all provisions of
the Act and the rules thereunder, except sections 9, 17(a), 17(d) and
17(e), section 31, as modified herein (``Modified Section 31''), and
sections 36 through 53 of the Act and the rules thereunder. Applicant
would be exempt until the earlier of August 5, 2015 or such time as it
no longer meets the definition of an investment company under the Act.
DATES: Filing Dates: The application was filed on May 28, 2010, and
amended on June 17, 2010, June 28, 2010, July 8, 2010, October 8, 2010,
February 22, 2011, September 6, 2011, and March 22, 2012.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicant with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on April 23, 2012 and should be accompanied by proof of
service on applicant, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reasons for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicant,
2300 SW First Avenue, Suite 200, Portland, OR 97201-5047.
FOR FURTHER INFORMATION CONTACT: Jill Ehrlich, Senior Counsel, at (202)
551-6819, or Mary Kay Frech, Branch Chief, at (202) 551-6821 (Division
of Investment Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicant's Representations
1. Applicant is a Delaware limited liability company formed for the
purpose of holding equity interests (``Rollover Equity Interests'') in
BRE/SW Portfolio LLC (``Blackstone LLC''),\1\ a Delaware limited
liability company, to resolve the bankruptcy of Sunwest (as defined
below). Applicant is managed by a three-person board of managers
(``Board of Managers'') elected by the members of Applicant.\2\
Although Applicant is authorized to exist until December 31, 2020,
Applicant expects that Blackstone LLC will have a limited life of up to
five years from its acquisition of the Sunwest Assets (as defined
below) and similarly also expects to liquidate and dissolve by August
5, 2015.
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\1\ Applicant states that the Rollover Equity Interests consist
of common interests and class A preferred units, each as defined in
the limited liability company agreement governing Blackstone LLC
(``Blackstone LLC Agreement'').
\2\ Applicant's limited liability company agreement requires
that two of the three members of the Board of Managers are not
``interested persons'' as defined in the Act.
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2. Blackstone LLC was formed to acquire substantially all of the
core assets (consisting of more than 140 senior living facilities
throughout the United States) (collectively, the ``Sunwest Assets'') of
``Sunwest,'' a group of related entities formerly involved in the
acquisition, development, design, construction, financing, insuring and
operation of senior living and other properties nationwide, along with
miscellaneous other related assets and operations.\3\
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\3\ The acquisition of the Sunwest Assets by Blackstone LLC is
referred to herein as the ``Blackstone Acquisition.'' The Blackstone
Acquisition is governed by the terms and conditions of an Agreement
of Purchase, Sale and Contribution dated as of January 15, 2010, and
amended on February 12, 2010, March 25, 2010 and July 13, 2010
(``PSA'').
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3. Prior to 2008, Sunwest operated 290 facilities and was one of
the largest assisted living providers in the United States. Sunwest
financed the acquisition and development of its senior living and other
properties through various means, including the sale to investors of
tenant-in-common interests (``TIC Investors'') and limited liability
company interests (``LLC Investors'') in properties owned by
Sunwest.\4\ On December 1, 2008, Stayton SW Assisted Living, L.L.C.,
one of the Sunwest entities (``Debtor''), initiated its bankruptcy case
(``Bankruptcy Case'') with the filing of a voluntary petition under
Chapter 11 of Title 11 of the United States Code.
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\4\ The TIC Investors and the LLC Investors are referred to
herein, collectively, as ``Sunwest Investors.''
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4. On March 2, 2009, the Commission filed a complaint in the U.S.
District Court for the District of Oregon (``District Court'') alleging
that Sunwest Management Inc. committed violations of the federal
securities laws in the offering of interests in Sunwest.\5\ On March
10, 2009, the District Court entered an order in the SEC Enforcement
Action granting an injunction and appointing a receiver over the
Sunwest entities. On December 22, 2009, the District Court entered an
order providing that all assets and liabilities of Sunwest were
consolidated into the Bankruptcy Case, that equitable title to real
estate held by Sunwest was consolidated into Debtor's bankruptcy
estate, and that Debtor had the right to convey title to, or interests
in, real property pursuant to a confirmed plan of reorganization or
other order of the District Court.
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\5\ SEC v. Sunwest Management, Inc., et al., Civil Action No. CV
09-6056 HO (``SEC Enforcement Action'').
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5. On January 15, 2010, the Debtor and Blackstone LLC entered into
the PSA providing for the sale or contribution of substantially all of
the core assets of Sunwest, including the interests in the properties
owned by the TIC Investors and the LLC Investors, to Blackstone LLC or
a successful bidder who placed a higher bid at the ensuing auction.
After the bid deadline established for such auction expired, the
District Court entered its order identifying and approving Blackstone
LLC as the successful bidder and purchaser under the PSA. The
Blackstone Acquisition closed on August 5, 2010.
6. Applicants state that due to the complex and unusual capital
structure of Sunwest, outright sale of the Sunwest Assets to Blackstone
LLC likely would have resulted in adverse income tax consequences to
numerous Sunwest Investors. Applicant states that, to address tax
consequences and certain valuation concerns of Sunwest Investors, the
PSA and the Debtor's plan of reorganization provided that the
consideration paid by Blackstone LLC in acquiring the Sunwest Assets
would, at the election of Sunwest Investors, take the form of a
combination of cash and/or issuance of Rollover Equity Interests.
Sunwest Investors who elected to receive interests in the Applicant
contributed their interests in the Sunwest Assets and the bankruptcy
estate to Applicant in exchange for, at their election: Applicant's
common units or preferred units.\6\ Applicant in
[[Page 20444]]
turn contributed the property interests to Blackstone LLC. The terms of
Applicant's common units and preferred units mirror the terms of the
Rollover Equity Interests that are held by Applicant.\7\
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\6\ Applicant states that no Sunwest Investor was required to
receive interests in Applicant; only Sunwest Investors who
voluntarily elected to receive interests in Applicant became members
of Applicant. In addition, Applicant states that neither the common
interests nor class A preferred units that constitute the Rollover
Equity Interests were over-subscribed, so certain over-subscription
procedures developed in the Bankruptcy Case did not become
applicable.
\7\ Applicant also issued a third class of securities to certain
founders of Sunwest (``Sunwest Founders'') that consists of
contingent non-voting profits interests (``Profits Interests''). The
Profits Interests entitle Sunwest Founders to receive a portion of
Applicant's earnings if total distributions and payments to
Sunwest's general unsecured creditors and Sunwest Investors (not
including Sunwest Founders) aggregate in excess of $500 million.
Applicant states that it is unlikely that the Profits Interests will
ever have value.
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7. Applicant states that its assets consist exclusively of the
Rollover Equity Interests and the following short-term instruments
pending distributions to Applicant's members or disbursements in
payment of Applicant's obligations: (a) General obligations of the
United States, or its agencies and instrumentalities; and/or (b)
deposit accounts with banks, which accounts are insured by the Federal
Deposit Insurance Corporation or an equivalent insuring organization
(collectively, the ``Temporary Investments'').\8\
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\8\ Applicant's sole source of revenue is and will continue to
be its investment in Blackstone LLC (other than any income from
Temporary Investments).
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8. Applicant states that the District Court has been actively
involved in all aspects of the Debtor's reorganization, including the
development of Applicant's capital structure and the terms of the
Blackstone Acquisition.\9\ In addition, committees of unsecured
creditors and TIC Investors were established in 2009 to represent the
interests of Sunwest Investors and creditors, and representatives of
these committees considered and discussed numerous alternative methods
of maximizing the value of Sunwest Investors' interests in Sunwest,
including development of a stand-alone plan of reorganization and the
acquisition of Sunwest properties by third parties. The Blackstone
Acquisition was eventually determined to be the most favorable
alternative available to Sunwest Investors and creditors. Applicant
states that the negotiations which led to both the structure of
Applicant and the terms of the PSA with Blackstone LLC were protracted,
conducted at arm's-length, and actively participated in by Sunwest
Investors and their representatives, counsel, investment bankers and
other advisors.
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\9\ Applicant will continue to be subject to the jurisdiction of
the District Court.
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9. The Blackstone LLC Agreement permits Blackstone LLC's board of
directors to approve a proposal by BRE/SW Member LLC (a member of
Blackstone LLC, ``BREA'') to request that its members, including
Applicant, make additional capital contributions if BREA determines in
good faith: (a) That Blackstone LLC requires additional capital to meet
its financial obligations; or (b) that raising additional capital for
additional investment purposes is advisable and in the best interests
of Blackstone LLC; provided, however, such additional investments shall
not include additional facilities unless they are contiguous or
adjacent to ``properties'' (defined in the Blackstone LLC Agreement to
include specified assisted living, memory care and skilled nursing
facilities) existing as of the date of the Blackstone LLC Agreement. In
addition, Applicant's limited liability company agreement permits
Applicant to raise capital only for the purpose of paying Applicant's
expenses or responding to a capital request from Blackstone LLC.\10\
Any offering by Applicant, whether to pay its expenses or to raise
capital in response to a capital call from Blackstone LLC, must be
conducted in compliance with federal and state securities laws.\11\ In
any event, Applicant believes it is unlikely that Applicant or
Blackstone LLC will request any additional capital.
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\10\ Applicant does not anticipate that there will be
significant distributions to Applicant in the initial years of
operation of Blackstone LLC, but that Applicant will have
significant administrative, compliance and similar expenses.
Therefore, Blackstone LLC has agreed to reimburse Applicant $400,000
each year, and the Debtor has agreed to loan Applicant up to a total
of $2 million to permit Applicant to pay its expenses.
\11\ Applicant states that, if it were to sell any additional
securities, the securities would be sold to Applicant's members and
not to third parties. Applicant states that an offering likely would
be made only to accredited investors under Rule 506 of Regulation D
under the Securities Act of 1933 and all members of Applicant
received notice of such a possibility before electing to invest in
Applicant.
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Applicant's Analysis
1. Applicant requests an order of the Commission pursuant to
sections 6(c) and 6(e) of the Act exempting it from all provisions of
the Act and the rules thereunder, except sections 9, 17(a), 17(d) and
17(e), Modified Section 31, and sections 36 through 53 of the Act and
the rules thereunder. Applicant requests relief until the earlier of
August 5, 2015 or such time as Applicant no longer meets the definition
of an investment company under the Act.
2. Applicant states that it meets the definition of an investment
company, as defined in section 3(a)(1)(C) of the Act, because: (a)
Applicant has acquired investment securities (i.e., interests in
Blackstone LLC) having a value exceeding 40% of the value of
Applicant's total assets; and (b) none of the exemptions or exceptions
specified in the Act apply to Applicant in its current form. Applicant
states that, if the Commission does not issue the requested relief,
Applicant may be required to devote scarce financial and other
resources to comply with provisions of the Act that Applicant argues
are not relevant or necessary under Applicant's circumstances.
Applicant also states that, although it was formed as a limited
liability company rather than a liquidating trust, in terms of its
structure and function, as well as the policies underlying the Act,
Applicant is indistinguishable from liquidating trusts and other
entities that have been granted similar exemptions by the Commission in
the past.\12\ Applicant states that it is structured with the goal of
liquidating the Sunwest Assets in an orderly manner and distributing
the liquidation proceeds to its investors.
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\12\ Drexel Burnham Lambert Group Inc., Investment Company Act
Release Nos. 18643 (April 1, 1992) (notice) and 18675 (April 24,
1992) (order) and LTV Aerospace Creditors Liquidating Trust,
Investment Company Act Release Nos. 19596 (July 26, 1993) (notice)
and 19648 (August 24, 1993) (order).
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3. Section 6(c) provides that the Commission may by order upon
application exempt any person or persons, or any transaction or
transactions, from any provision of the Act if such exemption is
necessary or appropriate in the public interest and consistent with the
protection of investors and the purposes of the Act. Section 6(e)
provides that, in connection with any order exempting an investment
company from any provision of section 7, certain provisions of the Act,
as specified by the Commission, shall apply to the company and other
persons dealing with the company as if such company were a registered
investment company.
4. Applicant states that it will be subject to all of section 31
and the rules thereunder, except that rule 31a-1(a) will be modified to
require retention of the documents that constitute the record forming
the basis for the quarterly unaudited financial statements and the
annual audited financial statements that Applicant will provide to its
members, rather than the documents forming the
[[Page 20445]]
basis for the financial statements that would be filed pursuant to
section 30 of the Act. Under the requested relief, Applicant will
provide to its members: (i) Annual audited financial statements
prepared in accordance with generally accepted accounting principles
and rule 1-02(d) of Regulation S-X; and (ii) unaudited quarterly
financial statements prepared in accordance with generally accepted
accounting principles.
5. Applicant contends that the following factors, among others, are
appropriate grounds for the requested relief, particularly in view of
the provisions of the Act that will apply to Applicant: (i) Sunwest
Investors who were eligible to receive interests in Applicant, their
counsel, investment bankers and other advisors, as well as the District
Court and its appointed mediators, were active participants in
designing and determining Applicant's structure; (ii) Applicant will
continue to be subject to the jurisdiction of the District Court; (iii)
transferability of Applicant's securities is severely restricted; \13\
(iv) Applicant has a limited life and will liquidate upon the
liquidation of Blackstone LLC; and (v) Applicant will not be engaged in
the business of investing, reinvesting or trading in securities, and
the only securities that Applicant may hold are its interests in
Blackstone LLC and Temporary Investments pending distributions to
Applicant's members or disbursements in payment of Applicant's
obligations.
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\13\ Among other restrictions, Applicant states that it will
limit transfers to transfers among members or affiliates of members.
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6. Accordingly, Applicant believes that the issuance of the order
pursuant to sections 6(c) and 6(e) is appropriate in the public
interest, and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Applicant's Conditions
Applicant agrees that any order of the Commission granting the
requested relief will be subject to the following conditions:
1. Applicant will not own or hold securities other than: (a)
Interests in Blackstone LLC and (b) Temporary Investments.
2. Applicant will not offer additional securities to its members,
except in connection with capital requests from Blackstone LLC or to
pay its expenses.
3. If Applicant sells additional securities, such securities would
be sold at a price equal to or greater than the net asset value of the
securities at the time of the offering.
4. Applicant's governing documents will not be amended to permit
Applicant's securities to be freely tradable.
5. Applicant will provide to its members: (a) Quarterly unaudited
financial statements prepared in accordance with generally accepted
accounting principles and (b) annual audited financial statements
prepared in accordance with generally accepted accounting principles
and rule 1-02(d) of Regulation S-X.
6. Applicant will be exempt until the earlier of August 5, 2015 or
such time as Applicant no longer meets the definition of an investment
company under the Act.
7. Applicant will not hold itself out as an investment company.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-8061 Filed 4-3-12; 8:45 am]
BILLING CODE 8011-01-P