Tag: ggp

This is interesting…

CHICAGO–(BUSINESS WIRE)–GENERAL GROWTH PROPERTIES, INC. (GGWPQ) today announced the appointment of Glenn J. Rufrano to its Board of Directors.

Mr. Rufrano is currently the chief executive officer of Centro Properties Group, a retail investment organization specializing in the ownership, management, and development of retail shopping centers with an extensive portfolio of centers across Australia, New Zealand and the United States, which does not compete directly with GGP. Mr. Rufrano led Centro Properties Group through its successful restructuring during the current credit crisis. From 2000 until its acquisition by Centro Properties Group in April 2007, Mr. Rufrano was chief executive officer of New Plan Excel Realty Trust, Inc., as well as a member of that company’s board of directors. Mr. Rufrano spent 17 years as a partner at The O’Connor Group, a diversified real estate firm.

“Glenn’s CEO and restructuring experience combined with his regional shopping mall expertise will be invaluable to the Company as we continue to develop the plan to emerge from bankruptcy. We are delighted to be able to strengthen our Board with this latest addition and look forward to benefiting from his insights and experience,” said Adam Metz, chief executive officer of General Growth Properties.

So, why is this interesting?

Here is Mr. Ruffano’s most recent work:
Centro Completes Debt Stabilisation Agreement

Notice one constant theme? Maturity extension…..the very same thing GGP is looking to do.

It is important to note here that Centro’s action were done outside of the bankruptcy court and, being and Australian company, bankruptcy law there is different than here. The central point remains though that Ruffino does have successful real world experience in the current market environment. That is good as this progresses..

On another note, Robert Jaffe’s (formerly of SAC capital) Force Capital picked up 1.1 million General Growh shares in the most recent quarter according to this SEC filing

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

This has some interesting ramifiacation for our General Growth Properties…

WASHINGTON (Dow Jones)–U.S. lawmakers rang alarm bells about the troubled commercial real estate industry, which has been walloped by the credit crunch and an implosion of property values.

“The commercial real estate time bomb is ticking,” Joint Economic Committee Chairman Carolyn Maloney, D-N.Y., said in opening remarks to a hearing before her panel Thursday.

U.S. Sen. Sam Brownback of Kansas, the panel’s top Republican, said he was distressed about the situation the industry is facing.

Banks have yanked back on lending to developers of shopping malls, apartment complexes, hotels and office parks. Meanwhile, the securitization market – a key source of funding for the commercial real estate industry – has been in a deep freeze since last year.

The situation is fueling concerns that property developers won’t be able to refinance roughly $400 billion in commercial real estate debt coming due this year.

General Growth Properties Inc. (GGWPQ), one of the largest U.S. shopping mall owners, filed for bankruptcy protection along with 158 of its properties in April, citing lack of financing.

A wave of defaults of commercial real estate loans would deal a blow to the already weakened economy and banking sector. The U.S. commercial real estate market is roughly $6.7 trillion in size and is underpinned by about $3.5 trillion of debt.

A panel of witnesses painted a dire picture for lawmakers. Property values have plunged 35%-45% in many markets as transactions have slowed to a crawl, Deutsche Bank Securities Inc. (DB) mortgage analyst Richard Parkus told lawmakers.

The market won’t begin to recover until 2012, or even later, he said. “We believe the bottom is several years away,” he added.

Plunging property values are further hampering developers’ ability to refinance their debt or loan extensions, the industry said.

The Federal Reserve has taken steps to get lending flowing to the industry. On June 16, it announced it would accept as collateral new issuance of commercial mortgage-backed securities as part of its emergency program to thaw the securitization market. As early as next week, the Fed is expected to extend that to existing, or “legacy,” CMBS already held by investors.

The industry welcomes these moves, but worries that the Fed program is set to expire at the end of this year.

The program aims to spark investor appetite for a range of asset-backed securities, now including CMBS. To the extent that CMBS investors are able to buy and sell the securities again, spreads will tighten, the Fed and the industry argue. That will allow financial institutions that make loans backing the CMBS to free up their balance sheets and make new loans to the industry or refinance existing debt.

U.S. Rep. Kevin Brady, R-Texas, criticized banking regulators for leaning too hard on banks to reduce their commercial real estate exposure.

In testimony before the panel, the associate director of the Fed’s Division of Banking Supervision and Regulation, Jon D. Greenlee, said the central bank was trying to strike the right balance between ensuring credit flows to the sector while maintaining the safety and soundness of the banking system.

“It is important that supervisors remain balanced and not place unreasonable or artificial constraints on lenders that could hamper credit availability,” he said.

What does it all possibly mean? Anything that shakes the CMBS logjam loose is a good thing. Acknowledgement by both industry analysts and Congress that the market has been shuttered and that there is zero financing available in this arena also helps General Growth’s cause in Court.

It also means it behooves Congress/Banks/Fed to take some sort of action to stop a foreclosure cascade throughout the industry. The last thing Congress can afford is a housing type fiasco on commercial real estate. What to do?

Fortunately, unlike housing much of the commercial real estate (REIT’s) are somewhat healthy. They are paying their bills and paying the interest on their loans. What they cannot do, is make multi-million dollar repayments of loans that come due that under ordinary conditions, they would have simply rolled over into a new loan. Because of this, unless something is done, you will have more otherwise healthy REIT’s filing Chapter 11, just like General Growth.

Because they are other wise healthy, there is a solution already available to both Congress/Banks/Fed that has both legal precedent AND avoids the moral hazard question that plagues all homeowner bailout plans.

What is it? Cramdown(for more details on this click here)….

A cramdown works for because it keeps all stakeholders (debt and equity) whole, compensates debt-holders additionally for the debt extension AND avoids moral hazard.

In a cramdown current debt maturities are extended, giving the company more time to make principle payments or refinance the debt (roll over) when debt markets improve. During this time frame they continue to make interest payments as they have been doing in the past. Because debtholder must accept a longer time period before their debt is repaid, they are then granted a higher interest rate on that existing debt. Win/Win.

What about the moral hazard? Cramdowns are not available for companies who cannot make their interest payments and are not currently “liquid”. Those “sick” institutions would then be forced to file Chapter 11 and the courts would deal with their assets/liabilities accordingly. Again fortunately for Congress/Banks/Fed this is not even close to the majority of the institutions that will be forced to file should debt extensions not be granted. In all reality, this solution is perfect because it will allow the functional operations to survive and weed out the weak, just as it should be.

A simple debt maturity extension program from Congress/Banks/Fed would stave off the $400 billion in defaults that are sure to happen should nothing be done.

The icing on the cake for the Congress/Banks/Fed is that is also reduces the need for banks to begin the massive CRE mortgage write-downs that will be necessary should REIT’s begin to be forced to file bankruptcy if nothing is done. Those write-downs will make what is happening in housing look like a picnic and probably break the backs of several dozens of additional institutions, some VERY large.

The cramdown scenario is one that truly enables all parties to comes out clean in the long run.

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

This was not unexpected as General Growth had initially said when it filed it had hope to file a plan “by the end of the year”. If you follow bankruptcies, you know that those initial deadlines are rarely met due to the complex nature of the process. But, having the clarity is a good thing. It would be shocking were this extension not granted. The only way I can see it done is if Gropper decides to consolidate the filings and just cram down all debt. In that scenario (unlikely), the reorg plan becomes very simple overnight.

This isn’t to say a cram down is not likely or in the best in interest of all parties, it is that there will likely be some dilution and deciding the “who and what” of it will take time…

Dow Jones Reports:

General Growth Properties Inc. (GGWPQ) needs until early next year to
complete its plan to exit bankruptcy, saying its operations are too large and
too complex to meet an upcoming August deadline.

General Growth, the second-largest mall owner in the country, is asking a
judge for a six-month extension to file its plan to exit bankruptcy and repay
creditors. The existing deadline is Aug. 14.

If approved, the extension to Feb. 26, 2010, would allow General Growth to
maintain exclusive control over the path of its bankruptcy case by preventing
creditors and others from filing rival plans with the court.

Chicago-based General Growth filed for bankruptcy April 16 to restructure $27
billion in debt. It said in court papers last week that it has achieved “major
and solid accomplishments” during the case but needs more time to negotiate
with creditors.

The company has spent much of its time in court fighting with lenders to its
malls. Early in the case, lenders unsuccessfully tried to block General
Growth’s plan to spend the cash generated by its individual malls. The lenders
claimed the cash couldn’t be swept into a central account to benefit other
properties.

More recently, a group of lenders and loan servicers representing lenders
moved to force about a dozen of General Growth’s malls out of bankruptcy. They
claim there’s no reason for the properties to be part of General Growth’s
Chapter 11 case because they generate positive cash flow and can service their
debts.

Judge Allan Gropper, who’s overseeing the case in the U.S. Bankruptcy Court
in Manhattan, has yet to rule on the dispute.

At a court hearing scheduled for July 28, Gropper will consider General
Growth’s request for more time to file its bankruptcy plan. In addition to
setting a Feb. 26, 2010, deadline, General Growth wants until April 23 to win
creditor support.

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

There are two questions we need to answer:
– Will they be successful?
– Does it matter?

First the news:

From the Providence Journal:

In a filing with the U.S. Bankruptcy Court in New York City, MetLife contends General Growth is trying to “cramdown” a wholesale reorganization plan for its more than 200 mall properties that will hurt the insurer’s financial interests in Providence Place.

“No reorganizational purpose is served by allowing [the mall owners] to have the benefits and powers of Chapter 11,” MetLife states in a recent court filing.

MetLife contends the mall’s net operating income, a standard measure of the cash flow generated by real estate holdings, is more than enough to satisfy the debt payments tied to Providence Place.

General Growth borrowed nearly $400 million from Lehman Brothers Bank on Providence Place shortly after it took control of the retail center in 2004. In August 2005, Lehman Brothers sold a portion of that debt, $104.3 million, to MetLife, secured by the Providence Place property.

According to the court filing, Providence Place generated $9.9 million in free cash in 2008, after subtracting the roughly $25 million in total payments due on two loans on the property. MetLife also claims General Growth made no effort to refinance or extend its loan from MetLife.

The borrowing, on a shopping center that had changed hands only months before for $510 million, is symptomatic of the problems General Growth Properties Inc. (GGP:NYSE) created for itself as it amassed a portfolio of more than 200 properties in 44 states.

General Growth filed for Chapter 11 bankruptcy protection after failing to persuade a majority of its debt holders to give it more time to refinance billions of dollars in debt racked up during an aggressive expansion that included the $11.3-billion purchase of Rouse Co. in 2004. Just months before, Baltimore, Md.-based Rouse had purchased Providence Place for $510 million from the developers who built the shopping center in the late 1990s.

General Growth had about $29.6 billion in assets and more than $27 billion in liabilities as of Dec. 31, according to documents filed with the U.S. Bankruptcy Court in the Southern District of New York.

MetLife’s demand, first made in a May 29 filing, followed similar ones by other lenders to General Growth. On May 7, a unit of Wells Fargo Bank asked the court to pull Boston’s Faneuil Hall Marketplace out of the massive bankruptcy case, citing much the same reasoning used by MetLife.

Wells Fargo-FHM claims rents at Faneuil Hall Marketplace are large enough to cover the monthly loan payments and operating costs at the iconic shopping center.

Clarion Capital Services LLC, which holds mortgages on eight malls General Growth owns in the West, has made the same request in a separate filing.

Where to start. Simply put, in order for the entities to be removed from the Chapter 11 process, the essentially have to prove that GGP engaged in “bad faith” in its filing.

General Growth Council answers this claim:

“Against this backdrop, Movants’ claim of “bad faith” filing is meritless. In this Circuit, dismissal for lack of good faith should be granted “sparingly, with great caution,” In re G.S. Distrib., Inc., 331 B.R. 552, 566 (Bankr. S.D.N.Y. 2005) (Gropper, J.) (internal quotation marks omitted), and only “if both [1] objective futility of the reorganization process and [2] subjective bad faith in filing the petition are found.” In re Kingston Square Assocs., 214 B.R. 713, 725 (Bankr. S.D.N.Y. 1997) (emphasis in original). A bankruptcy petition should not be dismissed unless “it is clear that on the filing date there was no reasonable likelihood that the debtor intended to reorganize and no reasonable probability that it would eventually emerge from bankruptcy proceedings.” Baker v. Latham Sparrowbush Assocs. (In re Cohoes Indus. Terminal, Inc.), 931 F.2d 222, 227 (2d Cir. 1991). The Movants bear this heavy burden, but they do not and cannot satisfy it.

► Reorganization Is Not Objectively Futile. Because they have nothing to say about
this requirement, Movants ignore it. Not only do Movants fail to offer any evidence of objective futility, but the facts they assert and that are disclosed in their depositions – that the project entities presently have positive cash flows and are current on their loans – dispel the notion that a restructuring here would be futile. Rather, these claimed facts establish a reasonable likelihood that the debtors can successfully emerge from bankruptcy. The motions fail for this reason alone.

► There Is No Subjective Bad Faith. The crux of Movants’ argument is that the
filing was in bad faith because the Project Debtors currently are not at risk of imminent default. This ignores that two of the Project Debtors, Faneuil Hall Marketplace, LLC and RS Properties Inc., already were in default before filing for bankruptcy, and is not the relevant legal standard in any event. Rather, a debtor need only “face such financial difficulty that, if it did not file at that time, it could anticipate the need to file in the future.” Cohoes, 931 F.2d at 228. Given the
condition of the credit markets, the boards made a considered and reasonable judgment that filing for bankruptcy and undertaking a coordinated restructuring now would maximize stakeholder value for each Project Debtor. Waiting for a series of anticipated defaults would benefit no one.

Finally, ING speculates that one of the Project Debtors – the Lancaster Trust – is a
land trust and therefore “may not” be eligible to file for bankruptcy. ING is legally and factually incorrect. Like any other trust, a land trust may file for bankruptcy, so long as it engages in some business activity. Here, the Lancaster Trust is an operating business, just like every other GGP project-level subsidiary, and its leasing documents reflect that it is in fact an Illinois business trust. It is, therefore, eligible to file under the Bankruptcy Code.”

Now, did GGP make a good faith effort to extend loan before filing Chapter 11?:

As GGP’s President and COO Thomas Nolan testified, “the master servicers indicated [to GGP] that they had no ability to make any meaningful amendments, adjustments, restructurings on the – on the loans and that until such time as a loan went into default, that they weren’t capable or they weren’t allowed under their servicing agreements to engage in any discussion [of] restructurings and that only those matters could be addressed with the special servicer.” (Ex. 3, Nolan Dep. at
29:8-17) Helios’ corporate representative likewise testified that if a borrower had contacted the special servicer concerning the terms of a loan for which a special servicing event had not yet occurred, the special servicer would have refused to discuss the issue: “We would simply explain that a servicing transfer event has not occurred and that our authority under the PSA is triggered only by a servicing transfer event. They – there was no role that we can play in the discussions, negotiations of a loan until after the servicing transfer event.”

In other words, under the CMBS structure, master servicers generally do not have authority to renegotiate loan terms. That authority resides with the special servicers but the Project Debtors cannot talk to the special servicers until the loan is close to, or in, default. The bankruptcy filings thus eliminated one of the fundamental structural impediments to renegotiating CMBS loan terms.29

So then what are the courts parameters in calling a filing “in bad faith” and thus removing entities currently in bankruptcy?

In re Kingston Square Assocs., 214 B.R. 713, 725 (Bankr. S.D.N.Y. 1997); see In re RCM Global Long Term Capital Appreciation Fund, Ltd., 200 B.R. 514, 520 (Bankr. S.D.N.Y. 1996), the court held a bankruptcy petition should not be dismissed unless “it is clear that on the filing date” that (1) “there was no reasonable likelihood that the debtor intended to reorganize,” and (2) there was “no reasonable probability that it would eventually emerge from bankruptcy proceedings.”

The SPE’s actually in a round about way make the case that the Chapter 11 filings, based on their claims that the entities included are viable make the case FOR GGP that emergence from Chapter 11 was not only planned but likely, thus rendering the “bad faith” argument moot.

Neither of the above conditions apply to General Growth Properties, because of that, based on case law, the motions for the entities to be removed from the Chapter 11 process ought to be denied.

If they are denied, and again, once in Court the outcome is never guaranteed, then a global solution will be more likely for General Growth. A global solution, barring a total collapse of the CRE market means shareholders ought to be happy when this is concluded.

Talking about General Growth Properties (GGWPQ), Oil (USO), Gold (GLD), Natural Gas (UNG) and Red Sox/Yanks

See more video at Wall St. Media

Disclosure (“none” means no position):

June 17th. D-Day for many lenders in the General Growth (GGWPQ) bankruptcy case. Why?

From Reuters:

group of creditors and loan servicers is scheduled to ask U.S. bankruptcy Judge Allan Gropper on June 17 to dismiss about a dozen malls from the case.

Chicago-based General Growth set up each mall as a special purpose entity — a separate company — that protected General Growth from each of the malls’ obligations. Each SPE was be governed by independent directors, and each entity’s cash was to be managed separately. They were intended to be “bankruptcy remote.”

During the hearing next week, the creditors of the SPEs will argue that General Growth put the SPEs into bankruptcy in order to give the company more leverage from which to negotiate loan modifications and extensions.

The commercial real estate and the lending sectors will be watching this hearing and the overall bankruptcy, said experts speaking at the Commercial Mortgage Securities Association conference in New York.

“I think the debtor (General Growth) is inclined to fast track this, and we will have to wait to see what proposals come out short of a dismissal to see if the a negotiated exit is possible,” Cross said.

When General Growth filed for bankruptcy protection in April, it swept 166 of its malls along with it, replacing the directors with new ones who voted to put the SPEs into bankruptcy. The entities in bankruptcy were facing $24 billion of debt, about $15 billion of which consisted of commercial mortgage-backed securities.

The remainder of General Growth’s other 200 or so malls are joint ventures and are not in bankruptcy nor is the General Growth’s management company.

Will the judge rule to consolidate or not?

When a corporation files for bankruptcy, the court must address a fundamental question: Are these entities legally distinct or should they be collapsed?

Substantive consolidation is the pooling of the assets and liabilities of technically distinct corporate entities. For the purposes of confirming a Chapter 11 plan or for liquidating assets under Chapter 7, the creditors of the previously distinct subsidiaries are creditors of a single debtor. Although courts use language akin to “piercing the corporate veil,” the doctrines are quite distinct—instead of pooling assets vertically (e.g. parent and subsidiary), substantive consolidation pools asserts horizontally (e.g. subsidiary and subsidiary).

Is this valid in the GGP Chapter 11? In many instances, yes. What we have brewing is a ruling of the lending agreements vs the actual structure and operations of the SPE. In many instances in the malls in question, there was no defined separate director (or whether or not there was one is debatable) and cash flows were not managed independently from other operations. This enables them to be consolidated under Chapter 11. The consolidation will be done on a mall by mall ruling but expect many to be folder into the current filing.

How does this effect shareholders. Directly, it doesn’t as we only care about the big picture (what is left after debt claims settled). Indirectly, it does. If GGP is victorious in this ruling, they then will have more sway over debtholders. The more debt that can be extended, the stronger the resulting entity that emerges remains. Also, the fewer moving parts in a filing, the faster it is then able to emerge from Chapter 11.

Disclosure (“none” means no position):

For shareholders of General Growth Properties (GGWPQ) this bit of news is huge….it really is.

From Reuters:

U.S. commercial real estate mortgage servicers are seeking to extend maturing loans for up to five years in a bid to prevent borrowers from defaulting and giving up office, retail and apartment buildings at distressed levels, an industry executive said on Tuesday.

The moves by special servicers, which oversee mortgages in or near default, would sharply increase the maturity of the loans from the six- to 12-month extensions commonly negotiated today, John D’Amico, a senior managing director at Centerline Capital Group, told Reuters after a panel hosted by the Commercial Mortgage Securities Association in New York.

Modifying loans has consumed the $700 billion market for commercial mortgage securities this year. Frozen credit markets have limited refinancings for maturing loans in commercial mortgage-backed securities, resulting in a wave of defaults and exacerbating the impact of the U.S. economic recession.

Loans coming due in CMBS will grow to $42 billion in 2010 and $69 billion in 2011, from $15 billion this year, according to Credit Suisse.

So why is this such a big deal? It is an admission by the industry that market were broken AND that the best way to prevent a cascade of defaults is to materially extend maturities of current debt.

This scenario is the reason for GGP’s Chapter 11 and expected to be the very plan put forward when it files the plan of reorganization later this year. The plan stands a far better chance of acceptance by the court and will resist challenges from any dissenting groups if the plan runs in accordance with already established practices by the industry. Creditors will not be able to argue the plan is “unfair” if what is being proposed is in some form what is already being practiced.

From the article:

The loan “workout” process has often turned “nasty” as servicers try to hammer out terms agreeable to a variety of borrowers, lenders and investors that will limit losses and prevent foreclosures, a lawyer said at the CMSA conference on Monday. Among sticking points, lenders often demand borrowers put up additional equity, and the extensions add risk for CMBS investors because it delays return of their principal.

But with property prices falling and outlooks dire, parties are coming to terms with longer extensions, D’Amico said.

“I think we will see more cases where people will put more (equity) in the properties” to get extensions of up to five years, D’Amico said.

This gives even more credence to the cram-down scenario we brought up here in April. It is not by any means unreasonable to think the court will simply say that since the market is currently operating in this fashion, it is going to handle to Chapter 11 in a similar way and simply extend all debt.

A cram-down in this case that uses existing practices as a general guide would make for an expedited Chapter 11 and give a certain level of stability to a market that desperately needs it. It also is the best scenario to ensure both debtholders and stake holder are kept whole.

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