
[Federal Register Volume 77, Number 65 (Wednesday, April 4, 2012)]
[Notices]
[Pages 20442-20445]
From the Federal Register Online via the Government Printing 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


