Getting Exactly What You Bargained For: The Ultimate Down Side of Creative Credit Enhancement Structures in the Face of In Re Senior Living Properties
By: E. Lee Morris (Co-author) and Joe E. Marshall (Co-author) I. Introduction On April 22, 2004, the U.S. Bankruptcy Court for the Northern District of Texas (The Honorable Steven A. Felsenthal presiding) issued its Memorandum Opinion and Order in the case of Dan B. Lain, Trustee of Senior Living Properties, L.L.C. Trust v. ZC Specialty Insurance Company, Adversary No. 03-3262 (the “SLP case”). The SLP case involved the question of whether a pre-petition agreement entered into by Senior Living Properties, L.L.C. (“SLP”), the Chapter 11 debtor, and ZC Specialty Insurance Company (“Zurich”), the issuer of a surety bond as a credit enhancement to facilitate SLP’s financed acquisition of 87 nursing homes in Illinois and Texas, established a de facto partnership between SLP and Zurich as to the ownership and operation of the nursing homes. Applying Illinois law the Court found that the agreement established a de facto partnership. This paper is designed to outline the background of the SLP case and the key factors considered by the Court in reaching its conclusion. Because of the significance of the outcome in the case – namely, the re-characterization of what ostensibly was documented as a debtor-creditor relationship as a partnership relationship and the implications of same – it is important for professionals on both sides of the bankruptcy aisle (creditor and estate) to understand the nature of a partnership under Texas law and the factors subject to consideration by the fact-finder in determining whether a partnership has been formed. II. Background of the SLP Case A. Primary Parties to the Transaction SLP: Senior Living Properties LLC, an Indiana limited liability company established as the special purpose entity (SPE) to purchase 87 nursing homes in Texas and Illinois (the “Facilities”). TO READ MORE, CLICK THE PDF ICON BELOW: View as PDF |