After the conference call yesterday regarding General Growth’s (GGWPQ) …new symbol.. bankruptcy filing, I sat down for a conversation with Doug at Wall St. Media to share thoughts on it. Rather than regurgitate them in a blog post, here is the video.
Disclosure (“none” means no position):Long GGWPQ
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…
Reuters Article
Disclosure (“none” means no position):Long GGP
CHICAGO, Apr 16, 2009 (BUSINESS WIRE) — GENERAL GROWTH PROPERTIES, INC. (NYSE:GGP) today announced it is voluntarily seeking relief to reduce and restructure its debts under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. In addition, approximately 158 regional shopping centers owned by GGP and certain other GGP subsidiaries (collectively with GGP, the “Company”) have also filed for protection. The Company intends to work with its constituencies to emerge from bankruptcy as quickly as possible while executing on a plan of reorganization that preserves the Company’s integrated, national business operations.
Certain subsidiaries, including GGP’s third party management business and GGP’s joint ventures, have not filed for protection. A complete list of subsidiaries that have filed voluntary petitions can be found at www.ggp.com.
All day-to-day operations and business of all of the Company’s shopping centers and other properties will continue as usual.
The decision to pursue reorganization under chapter 11 came after extensive efforts to refinance or extend maturing debt outside of chapter 11. Over many months, the Company has endeavored to negotiate with its unsecured and secured creditors to obtain the time needed to develop a long-term solution to the credit crisis facing the Company. Unable to reach an out-of-court consensus, the Company reluctantly concluded that restructuring under the protection of the bankruptcy court was necessary. During the chapter 11 cases, the Company will continue to explore strategic alternatives and search the markets for available sources of capital. The Company intends to pursue a plan of reorganization that extends mortgage maturities and reduces its corporate debt and overall leverage. This will establish a sustainable, long-term capital structure for the Company.
The Company also announced it has received a commitment for a debtor-in-possession financing facility of approximately $375 million from Pershing Square Capital Management, L.P., as agent. When approved by the bankruptcy court, the new facility will provide a source of funds to the Company during the chapter 11 process. The Company has requested, and expects to receive, additional approvals to give the Company the authority to make payments to ensure that the Company’s shopping centers and other properties continue to operate uninterrupted in the ordinary course of business, including paying employee compensation, certain critical service providers, insurance and other claims. The Company intends to pay all providers of goods and services delivered post-petition.
“Our core business remains sound and is performing well with stable cash flows. We believe that chapter 11 is the best process for restructuring maturing mortgage loans, reducing the Company’s corporate debt, and establishing a sustainable, long-term capital structure for the Company,” said Adam Metz, Chief Executive Officer of the Company. “While we have worked tirelessly in the past several months to address our maturing debts, the collapse of the credit markets has made it impossible for us to refinance maturing debt outside of chapter 11,” he said.
GGP Information/Website
The Company currently has ownership interest in, or management responsibility for, over 200 regional shopping malls in 44 states, as well as ownership in master planned community developments and commercial office buildings. The Company’s portfolio totals approximately 200 million square feet of retail space and includes over 24,000 retail stores nationwide. The Company is listed on the New York Stock Exchange under the symbol GGP.
Disclosure (“none” means no position):Long GGP
Talking natural gas, ggp, inflation and the Fed.
Disclosure (“none” means no position):
Wilbur Ross talks about GM (GM) and Chrysler with AutoNation’s (AN) Mike Jackson on CNBC.
Ross has a fascinating quote on bankruptcy as it related to a few dissident GM bondholders. Ross said “bankruptcy is about forcing the will of the majority on the dissident minority” as it related to the type of restructuring.
This goes to my General Growth Properties (GGP) thesis that in bankruptcy (Chapter 11) the common remains whole. Right now a majority of bond holders have tentatively agreed to postpone payments to talk about restructuring the debt. What we have in this situation a few bondholder holding up the works for the majority. The bankruptcy in this instance would be about forcing the holdout bondholders to restructure as is the will of the others.
There is no talk of debt to equity conversion, just debt restructuring as it related to GGP.
Here is the video:
Disclosure (“none” means no position):Long GGP, none
Talking about General Growth Properties (GGP), RHI Entertainment (RHIE), Best Buy (BBY), Sears Holdings (SHLD), Bill Ackman, The Economy and the Red Sox.
Disclosure (“none” means no position):Long GGP, RHIE, SHLD, None
Thanks to Doug and the folks at Wall St. Media for chatting with me on Thursday morning.
Topics covered:
– The Economy
– FASB mark-to-market changes
– General Growth Properties (GGP)
– RHI Enterntainment (RHIE), (as of this writing up 59% since video aired). Post on it here
Disclosure (“none” means no position):Long GGP, RHIE
More commentary on the proposition of Generak Growth (GGP) shareholder being kept whole in bankruptcy.
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
This is the most backwards thing you’ll ever see. It also gives more confidence of the equity surviving even should they be forced to file.
But a bankruptcy filing isn’t imminent for the mall giant, according to people familiar with the matter, and General Growth’s (GGP) ability to remain out of bankruptcy shows the unusual dynamic between lenders and distressed companies in the recession-ravaged commercial-real-estate market.
Bondholders have refrained from forcing mall owner General Growth Properties into bankruptcy court, despite lack of a deal on a debt extension.
Under normal circumstances a company with as much past-due debt as General Growth would have been forced into Chapter 11 bankruptcy protection by now. Creditors so far have been willing to let deadlines pass because they believe there is little to be gained and much to be lost through a bankruptcy. General Growth’s mall operations are stable and many bondholders hope for a greater recovery outside of bankruptcy court.
“This is really rare,” said Kevin Starke, an analyst at CRT Capital Group LLC, a research company that tracks distressed securities. “It is corporate-bond limbo like I’ve never seen before.”
This piggybacks on the thesis laid out here recently that lenders want to avoid a Chapter 11 here at almost all costs.
It continues:
Many creditors say that General Growth’s management is doing a good job running the company. Its 200 U.S. malls, a portfolio second in size only to Simon Property Group Inc., generate enough cash to cover interest on the debt. But its properties are overleveraged and it lacks the borrowing capacity to retire those debts as their principal comes due.
“There’s no question that General Growth is a liquidity issue,” said Jeff Spector, an analyst with UBS AG. “The properties, for the most part, aren’t broken.”
General Growth, based in Chicago, isn’t the only real-estate borrower that is getting a reprieve from its lenders these days. Hundreds of property owners have had loans come due without a repayment made in recent months. But most lenders have agreed to extend loan terms, hoping that the credit market will improve.
For those who did not see it previously, here is the legal basis should it go into bankruptcy for the equity staying in tact. The point that cannot be forgotten here is the company is technically solvent and that alone separates this Chapter 11, should it occur, from 99% of all other Chapter 11’s when the companies entering them are insolvent.
It continues:
A person familiar with the bondholder talks said that, while some creditors are angry, none appears ready to insist on an involuntary bankruptcy petition yet. It is possible that bondholders didn’t go along with the consent solicitation primarily because they feared that making such a pledge would reduce the value of their bonds.
General Growth has told lenders that they’ll have more influence over the outcome if it restructures outside of bankruptcy court, according to people familiar with the talks. A bankruptcy filing could force the company to liquidate its assets for less than the whole company would be worth if it remained a single entity for the long term, these people said.
Another deterrent to an involuntary petition is that bankruptcy wouldn’t bring immediate payment of General Growth’s debts. “It’s such a large company that the bankruptcy would definitely last at least a couple of years,” said Heidi Sorvino, a lawyer leading the bankruptcy practice of law firm Smith, Gambrell & Russell LLP.
The timeframe could be shorter if General Growth did a prepackaged bankruptcy in which the creditors agree to terms prior to the company entering bankruptcy, Ms. Sorvino added. But wrangling so many creditors without the threat of a judge making and enforcing decisions is “almost impossible,” she said.
This is the classic “everyone wins” or “everyone loses”scenario. Banks facing liquidity issues cannot have billions tied up in a Chapter 11 proceeding for years. The viability of common equity, while in my opinion is safe in an 11, can never be assured once the courts get involved. By restructuring out of court and now, everyone wins…
Boilerplate ending for this investment:
Now as usual, a warning. 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
Doug at Wall St. Media was nice enough to have me for a chat yesterday to talk about General Growth Properties (GGP).
Could be a big weekend for shareholders.
Disclosure (“none” means no position):Long GGP
Tick, tock goes the clock…
Here is 2009 outlook for commercial real estate from Deutche Bank. It does notr paint a pretty picture. Run through it (it is mostly graphs)
Commercial Real Estate Outlook 2009
So? What to make of it? Short answer there is still pain hovering out there for banks if they allow these loans to default…..if.
First we need to segment to commercial owners into categories. The owner who holds mortgages on a single strip mall in Des Moines vs. the REIT that hold 100 or more properties. The little guys who gets in trouble? Sorry bud but you are cooked. There will be no help for you from either the banks or the Feds. But, you big boys out there are going to be spared OR at least kept on life support.
Why? Scale. Let’s say we have three property owners in a town. One guy holds 20 properties and the others each own one or two. All three are currently delinquent. Who does the bank care the most about? Of course, the big guy. If he is forced into bankruptcy, the entire town’s property values are destroyed. The chance of the bank recovering anywhere near their investment is virtually nothing. Now if they refinance his loans (extend maturity to lowers payments so they are covered by current rents) and let the other two go into bankruptcy, the market takes a small hit while it waits for the economy to come back. As the economy comes back rents rise and, property values rise with it and the bank gets made whole on its loans. The key point here is that the market survives.
But, with banks already strapped, how can we be sure there will be funds available to refinance?
Commercial real-estate debt is potentially more dangerous to the financial system than debt classes such as credit cards and student loans because of its size. The Real Estate Roundtable, a trade group, estimates that commercial real estate in the U.S. is worth $6.5 trillion and financed by about $3.1 trillion in debt. Partly because the commercial real-estate debt market is nearly three times as big now as in the early 1990s, potential losses in dollar terms loom larger.
According to an analysis of bank financial reports by The Wall Street Journal, the broad shift to real-estate lending can be seen by comparing commercial real-estate loans — including both mortgages and construction loans — with banks’ so-called Tier 1 capital, a key indicator of a bank’s ability to absorb losses. In 1993, less than 2% of the nation’s banks and savings institutions had commercial real-estate exposure exceeding five times their Tier 1 capital. By the end of 2008, that had risen to about 12%, or about 800 financial institutions. A higher ratio means a thinner cushion for loans that go sour.
The Federal Reserve and the Treasury are moving to adapt a funding program to make it attractive for investors to buy debt backed by office buildings, hotels, stores and other income-producing property. The program, called the Term Asset-Backed Securities Loan Facility, or TALF, was begun to finance purchases of debt backed by consumer credit, and officials will expand its use to include commercial-property debt.
See, if CRE goes bust, all the aid to banks that has been doled out up to this point gets flush away. It is in both the banks AND the government’s best interest to assure that does not happen. Keeping it from happening in CRE is also FAR easier than the mortgage market. Rather than dealing with millions of individual homeowners, only a dozen or so REIT’s must be helped.
So, this all leads us to General Growth Properties (GGP). It looks increasingly like two or three debt holder are going to force (or allow) it to file Chapter 11 reorganization today (this weekend) after the 5pm deadline. If (when) that happens, what is in the best interest of all? You see GGP is the largest mall owner in the US. That means that whatever happens to it, effects the entire CRE market in the US.
Because of that, a liquidation cannot happen. There are not buyers that can purchase enough of the properties with credit markets in their current state to avoid a total collapse of the CRE market. With $3.1 TRILLION of loans out there for it, it sort of makes the $50 billion given to Citi (C) look like change found in the sofa and gives us some proportion of the potential damage. With mark-to-market accounting rules, the destruction of GGP debtors would cascade to all lenders and make what homeowners did to banks look like “the good ‘ole days”.
How bad could it be? Look at the following chart from Goldman Sachs (GS).
Click to enlarge:
If you look at the third column you’ll see that most banks are still carrying commercial loans at 99% or higher. This means they haven’t even begun to write-down these loans. It also gives them more impetus to do anything possible to avoid having to do this..translation? Refinance..
As an aside. It would seem that Wells Fargo (WFC) has been the most honest with its marks (that being relative to the others). It also means they may be done marking down assets. A lot of “mays” but worth watching.
Now is the problem with GGP that the business is going under? No. If the debt is refinanced, GGP can pay its interest from its operation (here is case law to support this). Don’t forget, it did as of the last quarter have a 92% occupancy rate. That is sure to fall but is at the top of the industry. If the debt can be refinanced, everyone is made whole and we now have the largest player in the market stabilized and provide a blueprint for the rest of the industry.
One cannot underestimate the positive effect on the CRE market as a whole should that happen.
Well, if all that is true, why hasn’t it happened yet? TALF just went into effect and while it appears it will be expanded to include CRE, that has not officially happened yet. That is why we are seeing extension after extension. Once it comes into effect, we ought to see movement here.
Now as usual, a warning. 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, WFC, none
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
Here is the part is this bankruptcy that GGP shareholders need pay attention to
Specifically, the Debtors believe that their businesses and assets have significant going concern value that would not be realized in a liquidation, either in whole or in substantial part. According to the valuation analysis and the liquidation analysis prepared by management with the assistance of the Debtors’ restructuring advisors, Alvarez & Marsal, Inc. (“A&M”), and the other analyses prepared by the Debtors with the assistance of A&M, the Debtors believe that the value of the Estates of the Debtors is significantly greater in the proposed reorganization than in a liquidation.
So, as debtholders were made whole, through restructuring of the debt, this is what was propsed for the common and prefered stock
Existing Common Stock means shares of common stock, par value $0.25 per
share, of AMERCO that are authorized, issued and outstanding prior to the Effective Date. Other Interests means the preferred share purchase rights issued by AMERCO pursuant to that certain stock-holder rights plan adopted by the Board of Directors of AMERCO in July 1998, with each such right entitling its holder to purchase from AMERCO one one-hundredth of a share of Series C Junior Participation Preferred Stock (Series C), no par value per share of AMERCO, at a price of one one-hundredth (1/100th) of a share of Series C, subject to adjustment. The Plan does not alter or otherwise impair the Allowed Existing Common Stock and Other Interests.
Here was the thought process behind the debtors plan:
Shortly after filing for relief under Chapter 11 of the Bankruptcy Code, the Debtors focused on the formulation of a plan of reorganization that would allow them to quickly emerge from Chapter 11 and preserve their value as a going concern. The Debtors recognize that in the competitive arena in which they operate, a lengthy and uncertain Chapter 11 case may detrimentally affect the confidence in the Debtors by their respective vendors and employees, impair their financial condition, and negatively impact the prospects for a successful reorganization. The terms of the Plan are based upon, among other things, the Debtors’ assessment of their ability to successfully restructure their capitalization, make the distributions contemplated under the Plan, and pay their continuing obligations in the ordinary course of the Reorganized Debtors’ business.
Also, like GGP, Amerco had a very higher percentage of insider ownership of the common stock.
Well, you ask? What happened?
AMERCO today announced that all of its creditor classes have approved the Company’s Plan of Reorganization. Creditors under the Plan will receive a combination of cash and new notes in AMERCO.
“Now that we have a 100 percent consensual agreement with all creditor groups, we are poised to emerge from Chapter 11,” stated Joe Shoen, chairman of AMERCO. “We are gratified that our creditors have recognized that our Plan is in the best interest of all of the company’s constituencies.”
According to Richard Williamson, Regional Managing Director at Alvarez & Marsal, Inc., “AMERCO is positioned to accomplish one the most successful restructurings in recent history. On the effective date of the Company’s Plan of Reorganization, AMERCO will have restructured, on a consensual basis, over $1.2 billion in debt and lease obligations with no dilution to equity holders.” Alvarez and Marsal, Inc. has served as the exclusive financial advisor to AMERCO since May 2003, with respect to its negotiations with creditors and in the raising of exit financing and its capital restructuring.
A Confirmation Hearing is scheduled to be held by the U.S. Bankruptcy Court in Reno, Nevada beginning on February 2, 2004. Subject to confirmation by the Court and the completion of all necessary documentation, the Plan should become effective and be funded shortly thereafter.
The plans were approved and common shareholders were let whole.
This is part of the blueprint Ackman is looking at in my opinion. Were is not for the credit markets, GGP would have refinanced the debt and because of its strong operations, the company itself would be functioning.
Because of the similarities to Amerco, GGP can make the same arguments for the debt restructuring and the survival of the equity.
Now, a warning. 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
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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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Here is the news, more on this tomorrow including more on Ackman’s role
-General Growth Properties, Inc. (NYSE:GGP) (the “Company”) announced today the administrative agent under the Company’s 2006 Senior Credit Agreement received consents from the requisite lenders thereunder to waive certain identified events of default under the 2006 Senior Credit Agreement and to forbear from exercising certain of the lenders’ default related rights and remedies with respect to such identified events of default until December 31, 2009 (unless terminated earlier in accordance with the terms of such forbearance agreement), subject to certain conditions, including final documentation.
The Company also announced today its subsidiary, The Rouse Company LP (“TRCLP”), has extended the expiration date for its previously announced consent solicitation to 5:00 p.m., New York City time, on March 20, 2009. In the solicitation, TRCLP is seeking consents from the holders of TRCLP’s unsecured notes (five series with an aggregate outstanding principal amount of approximately $2.25 billion at December 31, 2008) (the “TRCLP Notes”) to forbear from exercising remedies with respect to various payment and other defaults under the TRCLP Notes through December 31, 2009.
The Company also noted that it has been informed by the representatives of an ad hoc committee of holders of TRCLP Notes, the members of which hold in the aggregate approximately 41% of TRCLP Notes, that all of the members of the ad hoc committee have committed to consent to the forbearance.
As of 5:00 p.m. on March 16, 2009, consents had been validly delivered (and not validly revoked) with respect to the following amounts of TRCLP Notes (click to make larger):
The minimum acceptance levels for each series of the TRCLP Notes are: 90% of the 3.625% Notes due 2009 and the 8% Notes due 2009; 75% of the 7.20% Notes due 2012, the 5.375% Notes due 2013 and the 6 3/4% Notes due 2013. Holders of TRCLP Notes who have previously validly delivered consents will continue to have the right to revoke their consents through the extended expiration date.Effectiveness of the forbearance under the 2006 Senior Credit Agreement will be conditioned on and subject to, among other things, the successful completion of the consent solicitation and effectiveness of the forbearance agreement relating to the TRCLP Notes.
“We are pleased that we have been able to obtain consents from the requisite lenders under our 2006 Senior Credit Agreement and with the positive reaction to the TRCLP bond consent solicitation,” said Adam Metz, chief executive officer. “Given this support, we feel it is appropriate to extend the expiration date for the consent solicitation in order to give bondholders more time to receive and review the consent solicitation materials and to consider this request.”
GGP INFORMATION
General Growth is a U.S. based, publicly traded Real Estate Investment Trust. The Company currently has an ownership interest in, or management responsibility for, more than 200 regional shopping malls in 44 states, as well as ownership in master planned community developments and commercial office buildings. The Company portfolio totals approximately 200 million square feet of retail space and includes over 24,000 retail stores nationwide. The Company is listed on the New York Stock Exchange under the symbol GGP.
Disclosure (“none” means no position):Long GGP
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This situation is getting really fun to watch…It also gives us more clarity into the value of General Growth Properties’ (GGP) assets.
Bloomberg Reported Yesterday:
General Growth Properties Inc.,(NYSE:GGP) the mall owner at risk of bankruptcy, received offers of almost $400 million for properties including Boston’s Faneuil Hall and New York’s South Street Seaport, according to a person familiar with the matter.
General Growth, the No. 2 U.S. shopping-mall owner, put the two properties and Harborplace & the Gallery in Baltimore up for sale in December. More than 10 offers were received, including offers for the entire portfolio and for individual properties, said the person, who asked not to be identified because the sales process isn’t public.
So, in 2004 GGP acquired the Rouse Company, who owned the above properties. It included a total of 40 million sq. feet of retail space plus another 9 million of land for $11.3 billion.
From the press release:
The Rouse Company acquisition adds 37 regional shopping malls, four community centers, and six mixed-use projects totaling 40 million square feet to General Growth’s portfolio of owned shopping centers. There is also a portfolio of office, industrial and other commercial properties totaling approximately 9 million square feet and considerable undeveloped land in some of the most successful master planned communities in the country, such as Summerlin, Nevada, Columbia, Maryland and The Woodlands outside Houston.
If we look at it, GGP paid $11.3 billion for 49 million square feet or $230 per square foot. Yet, if the numbers in the Bloomberg article are accurate (no reason to assume otherwise) they are selling just over 1 million square feet of it for $400 million or $389 a square foot.
Remember GGP carries all real estate on it books at cost. This potential transaction gives us more confidence that the $28 billion asset value on the books of GGP is far below the actual value. With $27 billion of debt, there is plenty of value left for shareholders.
Disclosure (“none” means no position):Long GGP
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