More commentary on the proposition of Generak Growth (GGP) shareholder being kept whole in bankruptcy.
Ackman Commented:
“Bankruptcy is not just designed for companies that are insolvent,” Ackman told a packed room of real estate investors, owners, analysts and bankers attending the New York University Schack Institute of Real Estate 14th Annual REIT Symposium.
“Bankruptcy is also designed for companies that are solvent, but have liquidity problems that are due to events outside of their control,”…
“It’s one of the most interesting investment opportunities I’ve seen in my career,” he said.
“I’ve learned that, when a solvent company files for bankruptcy and you have a lead equity holder, you can marshal it thorough the bankruptcy process,” Ackman said.
“If you’ve got a situation where you have a small equity cap and you can sell 90 percent of your stock and de-equitize yourself or you can file and retain equity value for shareholders, you should look at that very, very seriously.”
He compared its plight to that of Alexander’s Inc, the failed department store. Real estate titan Steve Roth, chairman of Vornado Realty Trust (VNO), bought the shares and put the company into bankruptcy in 1992. The stock eventually surpassed $450 a share
Read more on Ackman and Alexander’s (ALX) here:
Real Estate mogul Sam Zell, who sold Equity Office, the giant U.S. office owner, at what is now seen as the top of the market, said General Growth would likely file for bankruptcy protection.
“I do not believe GGP will be liquidated,” Zell said, speaking at the same conference. “I expect the company to file bankruptcy. It will do a prepackaged. It will be reorganized and it will be taken public.”
Here is more information on legal precedent for debt restructuring and equity being kept whole in bankruptcy
Now, a boilerplate warning for GGP. I know people have been following into this investment. If you do, you must be prepared to lose all of it. There is no guarantee of the above outcome. Buying this stock now is essentially buying a call option on the company’s survival. It is hits, you win big, very big. If not, what you invested is worth nothing. I believe the above scenario plays out, I am also not going to be broke should it not.
Disclosure (“none” means no position):Long GGP
7 replies on “Ackman, Zell Comment on General Growth Properties”
Are you long any other parts of the capital structure other than the equity? I know Ackman has holdings up through the debt levels. Do you think some of his enthusiasm might be focused more on the debt, or the debt gives him confidence that he can save the equity?
just equity. Ackman, he has interest in 25% of common so he must have enthusiasm about it. i think he owns both so he can have a seat at both tables in 11
Hi Todd, you mentioned in the worst case scenario one must be prepared to lose everything if he invests in GGP. What could the worst case scenario be?
From a layman’s point of view, if GGP does not go bankrupt, i.e creditors allow them to restructure their debts, that’ll be considered positive. On the other hand if it goes bankrupt and Ackman is right, it could unlock great value for the stock. What if the Ackman story does not work? Will GGP be delisted and it may possibly end up worthless???
worst case is equity wiped out in 11 and worth zero
The Rouse bonds trade in the high 20s.
Why not play the bonds…move up in the capital structure with equity like returns if this thing turns around.
5
correct me if i am wrong but if rouse bonds are refinanced, the time it takes them to reach par could also be pushed out 5 years or so whereas the equity will see an equal to or greater than jump immediately
To the “Anonymous” poster, you mentioned “I know Ackman has holdings up through the debt levels. Do you think some of his enthusiasm might be focused more on the debt, or the debt gives him confidence that he can save the equity?”
Where can I find the information on the debt Ackman holds?
Thanks,
Mark