If the ruling goes as indicated by the judge, his is bad for bondholders, very good for General Growth and then good for shareholders as anything that strengthens the holding company is by default good for them.
Also, tomorrow a ruling is expected on the DIP financing General Growth will present to the judge. We may find out today whom they have selected.
(Dow Jones)–A final ruling is expected Wednesday on whether General Growth Properties Inc. (GGP) would be allowed to tap into the cash flow from its properties, and overturn what was believed to be a basic tenet of commercial mortgage securities.
At a hearing last Friday, the bankruptcy judge postponed the decision, but indicated he was likely to side with the company.
He pointed out investors in commercial bonds would continue to receive their interest payments, and General Growth is only looking to sweep the excess cash into a centralized account that would pay for its general expenses.
Investors and lenders had believed pools of mortgage collateral that back commercial bonds would be cocooned in these special-purpose entities, and steady cash flow to investors would be protected even when the parent company files for bankruptcy.
So when General Growth dragged 166 of its properties into the bankruptcy filing and sought to consolidate the income from these properties, more than a dozen investors and industry groups rallied to protest strongly against such a move.
The Commercial Mortgage Securities Association and the Mortgage Bankers Association filed a brief stating such a move would hurt the $1 trillion commercial mortgage market.
However, the bankruptcy judge called such statements “hyperbole.”
“I am not surprised,” said Richard Zeigler, counsel in Mayer Brown’s bankruptcy and restructuring group.
“Bankruptcy remote doesn’t mean bankruptcy proof, and that’s what investors are finding out,” he said. Zeigler isn’t representing any of the interested parties in the bankruptcy.
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