Pershing Betting General Growth (GGP) Goes Under $$

Reuters Reports:

Hedge fund Pershing Square Capital Management, one of General Growth Properties Inc’s GGP.N biggest shareholders, is betting the No. 2 U.S. mall owner will file for bankruptcy — and equity investors will end up big winners, a person familiar with the firm’s thinking said.

Pershing Square declined to comment. General Growth, whose top properties include Fashion Show in Las Vegas and Faneuil Hall in Boston, declined to comment.

Bankruptcy usually leaves stock investors with plenty of nothing, but General Growth is an unusual case. It has almost $30 billion of assets on its books, and just about $27 billion of debt.

But most of the company’s real estate assets are recorded on its books at their historical value, and many were bought years ago, meaning their value now is likely substantially higher. The company’s problems are not with its assets, but with refinancing maturing debt in frozen markets.

Historically, companies whose assets are worth much more than their liabilities have gone through bankruptcy in a way that leaves shareholders intact, which is what Pershing Square is banking on, the person familiar with the firm’s thinking said.

It continues

General Growth is not the first company to \find itself in this bind. Amerco Inc (UHAL.O), parent of moving truck rental company U-Haul International Inc, filed for bankruptcy in 2003 after a dispute with its former auditor and multiple accounting restatements left it unable to refinance debt.

The company listed $1.04 billion of assets and $884 million of liabilities in its bankruptcy filing, and had considerably more assets off its balance sheet as well. Its shares tripled during bankruptcy, and rose more than fourfold after it emerged from bankruptcy in 2004.

Pershing Square sees parallels between Amerco and General Growth. The founding families of both companies own substantial blocks of stock, giving them a real incentive to refrain from diluting shareholders’ stakes during bankruptcy.

And General Growth is still generating more than enough cash flow to service its debt and meet other day-to-day obligations, just as Amerco was. Pershing Square views General Growth as having trouble refinancing its debt due to broader difficulties in the commercial mortgage market in the weeks after Lehman’s Chapter 11 filing.

It all makes much more sense now. It is also the most likely reason Citi (C) balked at restructuring GGP dent even though they own 5.3 of the shares. They, like Pershing probably perceive more value during and post bankruptcy that without..

Disclosure (“none” means no position):None
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