CHICAGO — Bids to buy the assets of an upscale continuing-care retirement community in downtown Chicago are due by April 10, with holders of its $229 million of debt hoping for a competitive auction that results in a better recovery rate than the pennies on the dollar offered by an initial bidder.

U.S. Bankruptcy Court Judge Susan Pierson Sonderby in the Northern District of Illinois in Chicago last week approved the bidding terms and schedule proposed by The Clare at Water Tower. If additional qualified bids are received by the deadline, an auction would be held on April 12.

The parties would return to court on April 24 when the judge would consider The Clare’s confirmation plan allowing it to exit bankruptcy, according to court filings.

The Clare has negotiated terms with a preferred bidder, Harrison, N.Y.-based Senior Care Development LLC, under which the company would pay $86 million to acquire the facility.

Senior Care, led by chief executive officer David Reis, is a distressed buyer of CCRCs that purchased two suburban facilities from bankrupt Erickson Retirement Communities.

The stalking-horse bid includes the assumption of $57 million of debt for residential deposits and $29.5 million in cash, of which $2 million would go to cover deferred lease payments to the building’s owner, Loyola University of Chicago.

Another $12 million would pay off debtor-in-possession financing provided by Redwood Capital Investments LLC, which allowed the facility to continue operating after its November bankruptcy filing.

That leaves $15 million to be distributed to bondholders, which a lawyer following the case called “a catastrophically bad recovery rate.”

Attorneys for The Clare announced at the hearing last week that they had reached agreement with Loyola, the owner of the 53-story building that houses the facility, on lease revisions that ease restrictions governing who can operate the facility and other terms. “They believe that improves the value of the facility,” an attorney involved in the case said.

The Clare also plans to restructure its deposit refund structure, under which departing residents are refunded their entrance deposits when a sufficient number of new deposits to cover the liability are received. The Clare will shift to a model that reflects the industry standard, allowing for a refund when an individual’s unit is filled.

Almost out of cash to keep operating, the CCRC filed for Chapter 11 in November. Since it opened in December 2008,The Clare has struggled to fill its units. At the close of last year, only 34% of the units were occupied.

It defaulted on an installment payment due Sept. 1 to cure a shortage in its debt service fund on its fixed-rate bonds, triggering a default under its loan agreements. The CCRC also did not pay letter-of-credit fees or reimburse the bank for an interest draw on its floating-rate securities.

The Clare issued $229 million of debt through the Illinois Finance Authority in 2005, with Ziegler Capital Markets Group as underwriter. The issue included $91.5 million of fixed-rate bonds in A, B and C series, $125 million of variable-rate tax-exempts, and $12.5 million of variable-rate taxable bonds.

Its sponsor organization, the Franciscan Sisters of Chicago Service Corp., has blamed the CCRC’s struggles on the 2008 housing crisis that drove down home values. It left seniors planning to move into the facility unable to sell their homes at a price needed to cover the expensive entrance fees.

Bank of America, which had provided a letter of credit on the floating bonds, now holds that debt, while the fixed-rate bonds are held by a handful of institutional investors. Bank of New York Mellon Trust Co. is the trustee.

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