Since our August 23, 2013 blog post, the Devonshire Continuing Care Retirement Community project was placed in Chapter 11 pursuant to a pre-negotiated plan filed with the Delaware courts on September 26, 2013. The Plan was put into place following the acquisition of approximately $177 Million senior secured debt by an affiliate of Erickson Senior Properties (" Erickson Affiliate") for an undisclosed sum and the foreclosure by HJSI Devonshire II, LLC ("HSJI") of its pledge of the ownership interest in the parent of the ultimate parent of the entity owning the Devonshire project. The Joint Plan of Reorganization (the "Plan") was approved by the court this December. Upon completion of the Plan, the Erickson Affiliate will acquire ownership of the project, which will be debt free. The Plan anticipates the full assumption of the resident contracts and entrance fee obligations by the Erickson Affiliate at closing, thereby eliminating any need for judicial determination of the senior secured debt/ resident refund priority issue addressed in our last blog. Closing is expected to occur on December 31.
An interesting side note to this overall process relates to the need to file a Change of Ownership ("CHOW") application as a result of the HJSI mezz foreclosure and Plan. Following its acquisition of the ownership interests in various Devonshire entities, HJSI became the putative owner of the project. However, HJSI's ownership was intended to be transferred to Erickson under the Plan in fairly short order. As the ultimate, long-term owner of the project, there was no question that Erickson would need to submit a CHOW application to the Office of Insurance Regulation (the "OIR"), but the question arose as to whether one would be necessary for HJSI during its brief interim period of ownership? The OIR worked with lawyers for HJSI and Erickson and ultimately agreed that F.S. 651.114 (8) (d), which allows the issuance of a 90 day temporary certificate of authority to a lender acquiring title to a CCRC, was applicable to HJSI's acquisition in this instance – thus, only Erickson need submit a CHOW application. While the circumstances leading up to this result are unique in the sense of the foreclosing mezz lender and the Plan, the OIR's decision should not be considered as establishing a precedent by OIR under in a different setting or under different facts. The case does, however, reflect a willingness of the OIR to cooperate with acquiring parties when a result can be obtained that benefits all of the interested parties including residents.
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