Turn out Goldman Sachs and Brookfield Asset also got involved in the bidding. The final DIP lender must be approved by the judge but after the process that has been undertaken, one ought to assume that it gets rubber stamped.
Now that this is done, the next big decision, expected tomorrow and on the CMBS lenders challenge to certain properties being included in the filing. The judge is expected to rule with GGP in this one also and that sets the stage for stronger operational results through the BK process.
Here is the DIP news from this afternoon.
The Farallon group, which includes Canpartners Investments IV LLC and Delaware Street Capital Master Fund LP among others, beat out both activist investor William Ackman’s Pershing Square Capital Management LP and a third group led by Goldman Sachs Group Inc. (GS) to provide the $400 million in financial backing, according to people familiar with the talks.
General Growth outlined the new debtor-in-possession, or DIP, financing in filings in its case on Tuesday in U.S. Bankruptcy Court in the Southern District of New York.
The new Farallon pact caps nearly four weeks of back-and-forth negotiations in which General Growth first chose a proposal from Pershing, then went with Farallon’s group, then back to Pershing and finally back to Farallon. The drawn-out process resulted in several aspects of the deal shifting in favor of General Growth, including the DIP lenders requiring less collateral for their loan and the elimination of an offer of warrants convertible to company stock after the bankruptcy.
The new Farallon pact provides lenders in the DIP pact a secondary claim to cash flow at General Growth’s corporate level, behind the claims of secured lenders. Previous pacts provided the DIP lenders a senior lien on that cash flow, raising objections from General Growth’s secured lenders. Another change: The DIP lenders no longer get a second lien on General Growth assets that already have first mortgages. The DIP lenders do, however, retain a first lien on a collection of unencumbered properties.
The new pact also omits any warrants for the lenders similar to those in the initial Pershing deal, which would have granted Pershing warrants convertible to 4.9% of General Growth’s stock upon emergence from bankruptcy. Pershing already amassed a nearly 8% stake in General Growth through buying stock in the months before the bankruptcy filing. Pershing also tied up another 17% of General Growth stock by putting it in swap contracts with various investment banks.
Now, the new arrangement with the Farallon group allows for General Growth to pay off the DIP lenders by converting their loan into up to 8% of the company’s stock, depending on the company’s equity value upon emerging from bankruptcy, rather than paying in cash. The original Pershing deal had a similar provision. Farallon and some of the other lenders in its group already are General Growth creditors, holding an undisclosed amount of the company’s bonds.
The Farallon deal comes with an interest rate of Libor plus 12%, limiting the lowest-acceptable Libor rate to 1.5%. The pact has a term of two years. The exit fee is set at 3.75%, down from 4% in the Farallon group’s initial proposal.
General Growth intends to use much of the DIP financing to pay a short-term, high-interest loan that Goldman provided it in the months before its bankruptcy filing. Goldman’s failed bid to provide General Growth’s DIP financing included participation from Brookfield Asset Management Inc. (BAM), the Canadian office and retail property owner.
Disclosure (“none” means no position):Long GGWPQ, None