Tag: ackman

What is going on out there with folks and General Growth Properties (GGWPQ) and Pershing? Is anyone actually doing any research before they put “finger to keyboard” Hat tip to reader Mark for bringing this to my attention.

First we had the NY Times this weekend not know Pershing is required to file with the SEC disclosing its activity in General Growth.

Now we have Deal.com and this story:

General Growth Properties Inc. (NYSE: GGP) was the Titanic of the Real Estate Investment Trust ocean that Morgan Stanley (NYSE: MS), Fidelity Investments and Pershing Square Capital Management L.P thought they could save from sinking. The three put their money into the Chicago-based REIT over the recent near term when its stock continued to swan dive, which culminated in a Chapter 11 filing last week. Now, Morgan Stanley, Fidelity Investments and Pershing Square have nothing to show for their stakes in General Growth but regret.

Pershing led by Bill Ackman owned a minority stake in General Growth of 7.4%. Mutual find company Fidelity owned a 13.4% share while Morgan Stanley reportedly owned a 5.1% stake.

So, what did all three as well as many others see in General Growth, whose $27.3 billion in debt, caused its knees to buckle to fall into bankruptcy?

The three likely thought that General Growth would be able:

1- to significantly lower the REIT’s massive debt load payments because they thought refinancing was a strong possibility
2- to use bailout money to payoff its existing debt and act as collateral
3- to maintain or increase revenue from retail tenants in its 200-plus malls to sustain its debt payments.

Full post

First, Ackman’s stake is just under 25% (including swaps) as indicated in the Friday SEC filing

Second, Ackman from DAY ONE was calling for Genral Growth to file Chapter 11 and hehas done at least half a dozen interviews stating the same.

Here is some of that commentary

In other words NONE of the above proposed items on the “wish list” were ever on the minds of those at Pershing.

Is it just me? It is one things to express an opinion, but what I am seeing is just really sloppy work…

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

So I am reading the NY Times (yea, I do that every so often) and come across the following article on Bill Ackman. Being a fan, I read it.

Then I get to this (bold italics mine):

In the case of General Growth, Mr. Ackman was clear from the start that the company should file for protection from its creditors. He invested last fall, as the financial crisis reached a fever pitch, and for months urged the company to seek bankruptcy. (Pershing has not disclosed the price at which it bought its General Growth stock.) General Growth controls Faneuil Hall Marketplace in Boston and the South Street Seaport in New York, and Mr. Ackman argues that its properties are worth far more than they are valued on its books.

Has not disclosed the price it paid?

WHAT??!!???!!???!!???!

So , I go to this neat little organization called the SEC and look it up. It took little ‘ole me blogging along 35 seconds to find it so I can understand why an organization with the Times resources thinks IT DOES NOT EXIST!! Here is the link the GGP SEC Filings. Ackman’s will be in 13D section

They also could have found it on my blog here

This post of mine actually has the exact trades Ackman made as of its date

Full Article

I always knew The Times did shoddy work when it came to its politics, now I guess its business section needs to be included too? How can anyone writing for a business section not know this information is available…..how????

Disclosure (“none” means no position):

Here is the filing in General Growth Properties (GGWPQ) as well as the comittment letter and term sheet for the DIP financing.

It finally happened this morning.

Here is the 8-K Just filed:
General Growth 8-K

Here are the voluntary filings filed with the court

General Growth Properties’ Bankruptcy Filing

So, what to think.

* Liquidation is not happening. It would destroy the entire CRE market and take the banks down with it.
* GGP is current on its mortgages and has asked the bankruptcy court to allow them to remain current while reorganizing, this is a huge point as it goes to solvency vs seized credit markets
* The incentive for the banks is to be “made whole” on the debt. That give validation to the marks they currently carry on other CRE.
* Because of that, GGP’s plan to ensure that, will receive serious consideration from the court.
* This is not a typical Chapter 11 as the reason for reorganization is not due to a company that cannot pay bills, credit markets have cause extenuating circumstances. because of that, the “usual outcome” some assume must be discounted and other options receive more weight.
* There is legal precedent in 11 for equity remaining whole.
* Pershing and Bill Ackman. They have a stake in 25% of the equity, own debt and are the DIP financier. In other words, he will have a seat at every negotiating table as a large holder, that is more than a little significant

More after the call at noon today…

WSJ Article

Reuters Article

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

More commentary on the proposition of Generak Growth (GGP) shareholder being kept whole in bankruptcy. 

From Reuters

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

The similarities are striking…Bill Ackman talks about it in the video at the end.

Why did Amerco file for bankruptcy?

Amerco took the action in 2003 to restructure its debt, officials said, adding that since the its assets are greater than its debt, it intends to repay its creditors in full pursuant to a full-value plan of reorganization. Amerco obtained a commitment from Wells Fargo Foothill (WFC) for a $300 million debtor-in-possession facility, officials said, and for a $650 million bankruptcy emergence facility.

On Oct. 15, 2002, Amerco defaulted on a $100 million principal payment owed to holders of 1997 asset-backed notes. That default triggered defaults on other debt outstanding. Until the filing, the company had been in negotiations with creditors about restructuring its debt.

“Business fundamentals at the company remain strong,” said Joe Shoen, Amerco’s chairman at the time. “Amerco has taken a positive step in choosing Chapter 11 to facilitate the restructuring of its debt. We are getting our financial house in order.”

Amerco’sJoint Plan of reorganization filed Oct. 2003

Debtors disclosure statement under the Joint plan

Took the evening to digest the General Growth Properties (GGP) news. Here is what I came up with for to affirm the investing thesis of the equity (stock).

First, here is the news (linked for those who have already read it):

So, why invest in the common stock, does bankruptcy destroy it, why aren’t lenders forcing it, will it be a Chapter 11 (reorganization) or Chapter 7 (liquidation)?

The answers are all tied up and related so lets go through it:

If (when) there is a bankruptcy filing, why 11 and not 7? The simple answer is having the second largest mall operator go into liquidation and throwing 200 million square feet of retail space up for sale would destroy the commercial real estate market. Why? The sudden supply of properties without bidders (loans still are very tough to get) would mean they would have to be placed on the market below “fire sale” prices to sell. Because of that, all other operators real estate values would fall, dramatically, and in turn, causing debt covenants for them to be tripped. That would create a cascading effect on the whole industry. For those not sure, this would be a very, very bad thing. You think you have seen write-downs in home mortgage loans at banks? Force liquidation of GGP and as the saying goes “you ain’t seen nothing yet”.

It also means the banks holding the loans on the properties would then be forced to take pennies on the dollar, very bad for them. In a Chapter 7, shareholders, debt holders and the industry as a whole suffer. No one wins.

So, if we rule out liquidation. What happens in Chapter 11? Who wins there? Here is what Bill Ackman said yesterday in the WSJ:

Some investors, however, consider a bankruptcy filing likely. Among them is activist investor Bill Ackman of Pershing Square Capital Management LLC, who bought 7.5% of General Growth’s stock in recent months and put another 18% under swap contracts in a bet that the company’s equity will survive a bankruptcy unscathed. Mr. Ackman also expects to soon get a seat on General Growth’s board.

“We think the company will ultimately have to file for bankruptcy, but we think that it’s a wholly solvent company with a liquidity problem,” Mr. Ackman said in an interview Monday. “I don’t think they’ll need to dilute shareholders. All they need to do is extend the maturities [in bankruptcy court] and they can refinance those debts as they come due.”

Now, one must know that Ackman took his stake AFTER GGP’s troubles were known. This is not a situation where we have an investor trying desperately to save a bad investment. He bought in knowing this scenario we now face was likely.

The typical bankrupcty is forced because the liabilities (debt) outsize the assets. In this case the common shareholders are wiped out. But, we know that the assets GGP has are in excess of the liabilities. In this case, even in a worse case Chapter 11, shareholders are not wiped out.

But, this goes even further. Again from Ackman “Most of the time, insolvent companies go bankrupt,” Ackman said. “It’s rare for a solvent company to go bankrupt. This is a solvent company with a liquidity problem.”

General Growth is not losing money. Rents are stable, occupancy rates are over 90% and FFO (funds from operations) remain healthy. What is the problem? Credit. GGP has loan due that they typically just rollover into longer maturities. With the current credit “lock down”, they cannot do that. That means bulk payment come due and the cash is not there. It should be noted that this is not an odd situation, this is what REIT’s typically do with their debt.

With a Chapter 11 debt holders are put in a room and told by a Judge, “we can pay you all 100% but we need to change and lengthen maturities OR we can liquidate and you can pick up scraps for pennies on the dollar”. Here are the new terms. The choice is rather obvious

The banks all recognize this too. This is the reason they have not been paid a dime since late last year and have not forced a Chapter 11 filing. They do not want to take the risk of writing down loan portfolio’s. Remember, our mark-to-market world means they just do not just write down GGP loans, they then have to write down ALL of them on their books. Again, this is very bad. So we get endless extensions to pay.

Why? The banks are riding this out. If we get MTM changes in Congress then we may see the log jam break. In that case a Chapter 11 would not have a cascading effect on their whole portfolio and restructuring the loans to again begin receiving payments makes perfect sense. They may be hoping for an economic turnaround late this year that enables GGP to sell some property to pay them off. They may all be playing a waiting game hoping someone restructures and set the bar for the rest of them that is better than a bankruptcy judge will do.

Who knows the exact reason why for each lender. We do know what they don’t want right now, a Chapter 11 filing. If they wanted it they could force it easily.

Because of the financial situation of GGP, there is no need to convert debt to equity. Restructuring the loans would allow for payments to be made, equity holders would remain intact, the banks again have performing loans on their books and everyone is happy…..VERY happy.

I think the specter of Ackman going on the board must give the banks pause and perhaps want them to restructure sooner rather than later. Then knowing he wants a Chapter 11 I am guessing will bring people to the negotiating table a bit faster…

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

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