General Growth Enters New DIP Plan

This is a much better deal for the company that the one they had with Pershing and Bill Ackman.

From the WSJ:

Bankrupt mall owner General Growth Properties Inc. has reached an accord for $400 million in emergency financing from new lenders, replacing proposed financing from activist investor William Ackman’ Pershing Square Capital Management LP.

General Growth disclosed in bankruptcy filings Wednesday that it will receive the financing from lenders including Canpartners Investments IV LLC, Delaware Street Capital Master Fund LP, Farallon Capital Management LLC, L, Perry Principals Investments LLC and Whitebox Advisors. Some of the lenders also own General Growth bonds.

The new debtor-in-possession, or DIP, pact replaces the Pershing proposal announced when General Growth and 166 of its U.S. malls filed for Chapter 11 bankruptcy protection on April 16. The Pershing deal called for Pershing to loan General Growth $375 million on an 18-month term at an interest rate of LIBOR plus 12%. In return, Pershing was to receive warrants to buy 4.9% of General Growth’s equity if and when the mall owner emerges from bankruptcy. In addition, General Growth could have repaid the $375 million by issuing Pershing additional stock.

Mr. Ackman didn’t immediately return messages seeking comment Wednesday. Pershing bought 7.5% of General Growth’s stock at prices of less than $1 per share in the months prior to the bankruptcy filing. Pershing also put nearly 20% of General Growth’s stock under swap contracts with various investment banks.

In outlining the new DIP agreement in its filing on Wednesday, General Growth pointed out several changes made to mollify creditors’ objections to the Pershing pact. First, the new DIP lenders will get a junior lien on cash collateral at General Growth’s corporate level rather than the senior lien proposed for Pershing. The new lenders get no warrant for post-bankruptcy stock as Pershing would have. Yet they can convert their loan into 6% of General Growth’s post-bankruptcy stock or debt.

The new DIP loan has an interest rate of Libor plus 12%, as the Pershing proposal did. Its term

Broken down it looks like this:

• Term extended from 18 to 24 months
• Amount from $375 to $400 million
• No warrants in new pact
• Loan falls from senior to junior level claim on cash at corp. level
• Interest rate same
• Pershing as well as new lender group are also bondholders

So, what does this mean for current shareholders? Not much really. It help post BK as the term extension will reduce funding needs out of the gate and the removal of the warrants means perhaps less share dilution although with the way the new loan can convert into 6% or new stock or debt, it remains to be seen how that shakes out.

Here is where it does matter. Ackman now even more of an incentive to make sure the shares he does have remain whole or at least partially whole. This is not to say he lacked incentive before but with 4.9% of the post BK shares as well as another potentially $375 million worth of shares to pay off the DIP financing, he was slated to have a nice chunk of the new entity. Without that guarantee, the fate of the shares he now holds and has under swap contracts becomes far more important.

The new DIP lender also have no equity interest that I was able to find from SEC filings. Note: they may have equity holdings through other entities, but not through those doing the DIP financing.

This bears watching, is good news for the company but is not earth shattering news for current shareholders. It will lead to some entertainment down the road though.

Disclosure (“none” means no position):Long GGWPQ