GGP Expects to Emerge from Chapter 11 Nov. 8 - Update

Published on October 22, 2010 | Comments: 0
The United States Bankruptcy Court, Southern District of New York, has confirmed the plan of reorganization from bankrupt mall owner/developer General Growth Properties, Inc. (GGP). GGP says it now expects to emerge from Chapter 11 bankruptcy on or about November 8, 2010, increase its capital structure flexibility and improve investment terms. Prior to its Chapter 11 filing, GGP had almost $28 billion of mostly short-term debt and a broad range of real estate assets. GGP says it is now positioned to emerge from bankruptcy as two focused companies with $15 billion of extended maturities and approximately $7 billion of equity capital provided by new investors. In addition, all pre-petition GGP creditors will be satisfied in full. As previously announced (see below), the investment agreements with affiliates of Brookfield Asset Management, Fairholme Capital Management and Pershing Square Capital Management (the sponsors) provide $8.55 billion of capital commitments to GGP in connection with its plan for emergence from Chapter 11. In addition, the Teacher Retirement System of Texas, a public pension plan, has agreed to invest $500 million in shares of New GGP common stock at $10.25 per share, which will replace the sponsors’ $500 million equity backstop. UBS Investment Bank and Miller Buckfire & Co., LLC are serving as financial advisors to General Growth Properties, and Weil, Gotshal & Manges LLP and Kirkland & Ellis LLP are acting as legal counsel to the company.

GGP Reinstates Bonds, Enhances Clawback

The key modifications to the plan of reorganization and investment agreements include:
  • Reinstatement of $1.3 billion of Rouse Bonds due in 2012 and 2013. GGP’s emergence financing needs will be satisfied in part by the reinstatement of these bonds, so the company does not expect to need the previously contemplated term loan.
  • Enhancement of the clawback feature of the investment agreements, which gives GGP the ability to issue equity at higher prices and retire a portion of the lower-priced equity in the investment agreements, to extend the length of GGP’s clawback right after the company emerges from bankruptcy. In addition, $350 million of Pershing Square’s shares will be available for clawback for a period of 180 days after emergence. In order to facilitate the extension of Pershing Square’s clawback, $350 million of Pershing Square’s initial investment will be in the form of a note rather than equity. In the event these shares are not clawed back from Pershing Square, the company has the option to retire the note by putting to Pershing Square 35 million shares at a price of $10 per share.
  • Conversion of the $250 million backstop equity commitment for a rights offering by Spinco to a $250 million stock purchase by the sponsors at closing. The price of the stock has been set at the economically neutral price of $4.76 per share, reflecting the originally contemplated backstop investment at $5 per share, net of fees associated with the original rights offering. This modification is expected to provide greater immediate liquidity to Spinco and allow the company to avoid the need for short-term financing.
  • Consent to a sale at closing by the sponsors of up to $500 million of their allocated equity to an affiliate of The Blackstone Group on a pro rata basis. The closing commitments of each of the sponsors are unaffected by these equity sales to Blackstone.
The full amended plan of reorganization and accompanying disclosure statement can be found here [pdf].

GGP Expects Improved Balance Sheet, Less Debt

GGP expects to emerge from its financial restructuring with an improved balance sheet and substantially less debt. Under the plan, GGP will satisfy its debt and other claims in full, provide recovery for shareholders and implement a recapitalization with $7 to $8.5 billion of new capital. At emergence, GGP will split itself into two separate publicly traded companies (“New GGP” and “Spinco”), and current shareholders will receive common stock in both companies.

Agreements Provide $8.55B in Capital

The plan is based on investment agreements with affiliates of Brookfield Asset Management, Fairholme Capital Management and Pershing Square Capital Management, which have committed to provide $8.55 billion in capital as follows:
  • $6.3 billion of new equity capital at $10 per share of New GGP.
  • $250 million backstop equity commitment for a rights offering by Spinco at $4.76 per share.
  • $1.5 billion backstop debt commitment for a New GGP credit facility by Brookfield, Pershing Square and Fairholme.
Key features of these agreements provide GGP the option to replace a portion or all of the capital being provided by Fairholme, Pershing Square and TRS with the proceeds of equity issuances at more advantageous pricing. To determine whether it can utilize these options, GGP intends to access the public capital markets. As a result, GGP intends to file a registration statement on Form S-11 with the Securities and Exchange Commission to raise equity capital prior to or shortly after emergence from Chapter 11. A PowerPoint presentation summarizing GGP’s reorganization process and its proposed new capital structure is available. [pdf] UBS Investment Bank and Miller Buckfire & Co. LLC are serving as financial advisors to General Growth Properties, and Weil, Gotshal & Manges LLP and Kirkland & Ellis LLP are acting as legal counsel. GGP has undergone numerous twists and turns since initially filing for Chapter 11 bankruptcy in April 2009. Following is an overview of some of the previous highlights of the process, in approximate reverse chronological order.

GGP Sets July Deadline to Select Plan for Emergence

On May 5, 2010, GGP sought approval from the United States Bankruptcy Court, Southern District of New York of bidding procedures and compensation for the financial commitments to be provided pursuant to a revised $6.55 billion equity investment and $2 billion capital backstop offer from Brookfield Asset Management, Pershing Square Capital Management and Fairholme Funds. GGP said it will continue to consider competitive proposals and expects to select its plan for emergence from bankruptcy in early July 2010. Under the terms of the amended agreements, GGP expected to emerge from Chapter 11 as two separate companies: General Growth Properties ("New GGP"), which would own traditional shopping mall properties, and General Growth Opportunities ("GGO"), which wouldl own a diverse portfolio of assets with attractive longer-term growth prospects. The investors would commit $6.3 billion of new equity capital at a value of $10 per share for New GGP and $250 million to backstop a rights offering for GGO at $5 per share to facilitate GGP's emergence from bankruptcy. The principal changes from an earlier proposal (see below) submitted by the Brookfield-led investors included:
  • The investors agreed to backstop an additional $2 billion of capital to be raised at closing, including $1.5 billion of debt and a $500 million equity rights offering;
  • The interim warrants to be issued to the investment parties as part of the transaction would vest over time rather than immediately as follows: 40% upon Bankruptcy Court approval, 20% on July 12, 2010, the remainder would continue to vest pro rata through expiration of commitment;
  • The permanent warrants would include 120 million seven-year warrants for reorganized GGP stock at a strike price of $10.50 and 80 million seven-year warrants for GGO at a strike price of $5;
  • Brookfield agreed to enter into a strategic relationship agreement to use GGP as its primary platform for any regional mall opportunities it or its affiliates pursue in North America; and,
  • Several closing conditions were eliminated or made less restrictive.

GGP Completes Restructuring of 107 Loans

On April 29, 2010, GGP received bankruptcy court confirmation that its last two major secured mortgage loans have been confirmed for restructuring. This decision on GGP’s Fashion Show LLC Loan and Phase II Mall Subsidiary, LLC loan restructures another $895.5 million of debt. In total, GGP has now restructured 107 of its 108 secured mortgage loans, equaling approximately $14.8 billion USD combined. GGP says that as a result, 220 of its debtors have now consummated their plans of reorganization and exited Chapter 11 bankruptcy. More than 140 properties have also emerged from bankruptcy. Both of the loans most recently approved for restructuring now mature on May 5, 2017. Interest on both loans was lowered 3% from their November 2008 rate, so they now float 3% higher than the London Inter-Bank Offered Rate (LIBOR). Including these two loans, the weighted average contract interest rate for all $14.8 billion of the confirmed loans is 5.07%, while the all-in-interest rate after amortization of fees paid in connection with all of these loans is 5.26%. The weighted average duration of the loans is 6.5 years from January 1, 2010. Of the 107 loan restructurings confirmed by the court, seven are still awaiting final closing.

GGP Seeks Approval of $6.65B Investment

On March 31, 2010, GGP initially petitioned for bankruptcy court approval of a combined $6.65 billion equity capital investment that would allow the company to emerge from bankruptcy. GGP said at the time it believed that this combined equity capital along with its anticipated new $1.5 billion debt issuance, or the reinstatement of a comparable amount of existing debt, would, if approved, deliver substantially all of the cash required to fulfill the company’s capital needs in connection with its emergence from bankruptcy. As part of the proposed transaction, GGP would form a new company, General Growth Opportunities (GGO), which would own a diverse portfolio of real estate assets. The proposed plan provided unsecured creditors with par plus accrued interest and, before taking into account the warrants, the existing shareholders with approximately 34%of the equity of reorganized GGP and 86% of the equity of GGO. GGP said it intended to continue to explore alternative transactions that may deliver greater value for the company’s stakeholders. In March 2010, GGP received a proposal from Fairholme Capital Management and Pershing Square Capital Management, one of GGP’s largest equity holders and a significant unsecured creditor, in which Fairholme and Pershing Square would commit $3.925 billion of new equity capital at a value of $15 per share to facilitate GGP’s emergence from bankruptcy. Combined with a previously announced $2.625 billion proposal from Brookfield Asset Management, Inc. (see below), this proposal, if accepted, would have provided GGP with more than $6.5 billion of committed equity capital. In a press release, GGP said it believed that this combined equity capital along with its anticipated new $1.5 billion debt issuance – or the reinstatement of a comparable amount of existing debt – would, if accepted, deliver substantially all of the cash required to fulfill its capital needs in connection with its emergence from bankruptcy and provide unsecured creditors with par plus accrued interest in cash. Under the terms of the proposal, $3.8 billion would be used to purchase shares of GGP stock at $10 per share, and $125 million will be used to backstop the remaining portion of a $250 million rights offering by General Growth Opportunities, a new company that will own certain non-core assets, at a price of $5 per share. Furthermore, the company would have the right to reduce the $3.8 billion by $1.9 billion to the extent it is able to raise equity capital on more attractive terms. In February 2010, GGP reached a deal in principle with Brookfield Asset Management Inc." The agreement [pdf], which is subject to bankruptcy court approval and other conditions, would involve a $2.625 billion equity commitment from Brookfield. GGP said the proposed plan was designed to maximize value for all GGP stakeholders and enable a restructured GGP to emerge from bankruptcy on a standalone basis with a diverse portfolio of high-quality income-producing assets, strong cash flow and a solid balance sheet capitalized principally with long-term non-recourse debt. Brookfield had already obtained interest in GGP by acquiring some of its approximately $18.4 billion in debt.

Simon Maintains Pursuit

In April 2010, GGP was considering a revised $10 billion purchase offer from Simon Property Group Inc. Although GGP was not publicly enthusiastic about the $10 billion-plus purchase offer it initially received from Simon Property Group Inc. on February 15, 2010, Simon did not give up without a fight. Simon revamped its bid to essentially match a competing deal from Fairholme Capital Management, LLC, one of its largest unsecured creditors, and Pershing Square Capital Management (see above). However, Simon’s restructured proposal eliminated warrants and fee payments it says are included in the competing proposal. As a result, Simon says its proposal could provide a benefit to GGP’s stockholders worth at least $895 million. Simon’s proposal also agreed to governance mechanisms designed to eliminate possible antitrust concerns. In addition, Simon's offer provided a 100% cash recovery of par value plus accrued interest and dividends to all General Growth unsecured creditors, the holders of its trust preferred securities, the lenders under its credit facility, the holders of its Exchangeable Senior Notes and the holders of Rouse bonds, immediately upon the effectiveness of a definitive transaction agreement. This consideration to creditors totaled approximately $7 billion. Simon Property Group is the largest real estate investment trust (REIT) in the U.S. and owns or has an interest in 387 properties comprising 263 million square feet of gross leaseable area in North America, Europe and Asia. The publicly-owned S&P 500 company is headquartered in Indianapolis, IN and employs more than 5,000 people worldwide. In Q3 2009 (ended September 30, 2009), Simon reported funds from operations of $473.1 million, a 2% increase from $463.9 million in Q3 2008. Quarterly net income dropped 6.5%, from $112.8 million to $105.5 million, which Simon attributed to share dilution caused by the release of common stock.
Adam Metz
In an open letter to Simon Property Group dated February 17, 2010, Adam Metz, CEO of GGP, wrote, “As we have previously stated, our objective is to maximize value for the company and its stakeholders and we are engaging in a process that is intended to accomplish that result in an expeditious manner. Understandably, your objectives are not aligned with ours. We hope you will, nonetheless, participate in our process.”

GGP Escapes Pink Sheets

Bankrupt mall owner/developer General Growth Properties, Inc. (GGP) was reinstated on the New York Stock Exchange (NYSE). GGP, which had been trading in the over-the-counter securities market operated by Pink OTC Markets since its April 2009 bankruptcy, is trading under the NYSE ticker symbol "GGP" as of March 5, 2010. The seamless transition to the NYSE required no action on the part of GGP shareholders.

GGP Receives Exclusivity Extension

On March 3, 2010, GGP received an extension of the exclusivity period during which it has the right to file a plan of reorganization through July 15, 2010. In addition, GGP received an extension of the period to solicit acceptances of a plan of reorganization through September 15, 2010. During the exclusivity period, no other party is permitted to file a competing plan of reorganization.

Retail Segment Results Down in Q4 ‘09 with Some Bright Spots

Selected fourth quarter and annual highlights from GGP’s retail/other segment in fiscal year 2009 follow:
  • Total net operating income dropped 13.5% in Q4, from $701.8 million to $606.9 million. During the fiscal year, total net operating income dropped 6.6%, from $2.59 billion to $2.42 billion.
  • Revenues from consolidated properties declined 7.5%, from $828.6 million to $768.8 million in Q4 2009.
  • Revenues from unconsolidated properties at the company’s ownership share fell 0.2%, from $162.2 million to $161.9 million, in Q4 2009.
  • Comparable tenant sales, on a trailing 12 month basis, decreased 7.4% compared to the same period last year.
  • Tenant sales per square foot, on a trailing 12 month basis, decreased 7.2% compared to the same period last year.
  • Retail center occupancy decreased to 91.6% at December 31, 2009 from 92.5% at December 31, 2008. Occupancy rates stabilized in the last four months of 2009, rising from 91.3% at the end of the third quarter to 91.6% at the end of the fourth quarter.
GGP cited the impact of an $11.9 million insurance settlement related to Hurricane Katrina, as well as one-time non-recurring items relating to bankruptcy and property upkeep, as negatively affecting total net operating income. This was partially offset by an 8.8% reduction in annual common area recoverable costs such as janitorial and security expenses, which fell from $412.7 million to $376.3 million. In addition, GGP engaged in three major retail property renovations/expansions during fiscal 2009:
  • Following a remodel and 110,000-square foot expansion of its Towson Town Center mall in Baltimore, MD in 2009, the property opened Louis Vuitton, Crate & Barrel and Burberry stores and will be opening a Tiffany’s in 2010.
  • GGP added a “streetscape” addition to its Natick Collection mall in Natick, MA, as well as restaurants including Cheesecake Factory and California Pizza Kitchen, as well as a 33,000-square-foot Crate & Barrel and the only American Girl store in New England.
  • GGP renovated the Christiana Mall in Newark, DE, adding new stores including H&M, Sephora, Urban Outfitters, Barnes & Noble, Forever 21, and Anthropologie. During the next two years, the property will also finish leasing a new 700-seat food court and add a new Target store and a 122,000-square-foot Nordstrom.
In its Q3 fiscal 2009 (ended September 30, 2009), GGP reported declines in most financial areas of its retail/other segment.

GGP Receives December ’09 Restructuring Approval

On December 15, 2009, GGP received approval from the Bankruptcy Court in the Southern District of New York for reorganization of 87 secured mortgage loans totaling approximately $10.25 billion. The plans of reorganization covered 194 of GGP’s debtors owning 85 regional shopping centers, 15 office properties and three community centers. Confirmation of the plans of reorganization for 26 additional debtors owning 10 properties associated with an additional $1.7 billion of secured mortgage loans were adjourned pending satisfaction of various conditions. Key provisions of the agreements included maturity date extensions resulting in an average loan duration of approximately 6.4 years from January 1, 2010, with no such loan maturing prior to January 2014, and continuation of interest at the current non-default rate. The weighted average contract interest rate for the 70 loans covered by these agreements is 5.35%. The all-in-interest rate after amortization of fees paid in connection with these loans is 5.54%. The plan of reorganization provided that all undisputed claims against the emerging debtors for pre-petition goods and services would be paid in full. To settle the remaining $3 billion of secured mortgage debt, GGP’s board of directors and management said they were evaluating alternatives to reduce overall leverage and raise the capital necessary to emerge from bankruptcy in 2010. Financing alternatives included a public offering of GGP equity. In addition, the board of directors and management said they were considering all indications of interest in the company (see "Multiple GGP Suitors Emerge," below).

Court Approves Incentive Plan

In October 2009, GGP received bankruptcy court approval for a two-year incentive plan. The plan includes extra employee bonuses if GGP emerges from Chapter 11 bankruptcy by September 30, 2010. According to The Daily Record, GGP was authorized to pay out $11.6 million in bonuses to its top 12 executives, $6 million in bonuses to 35 senior executives, and $30 million in bonuses to 706 regional shopping mall managers and 2,122 additional employees during the next two years. Bonuses were set to be entirely cash-based as the bankrupt company’s stock was worth less than $2 a share. GGP will receive an extra $5 million bonus pool if its exits bankruptcy between July 1 and September 30, 2010, and no extra bonus pool money after that date. The Daily Record quoted a GGP spokesperson as saying the company’s creditor committee supported the bonus plan. This may have resulted from a favorable bankruptcy court ruling on August 11, 2009 that holds the potential to make it harder for creditors to obtain repayment.

Heiress Sues GGP Attorneys

In August 2009, Mary Bucksbaum Scanlan, an heiress to what was once the GGP fortune, filed suit against attorneys Marshall Eisenberg and Earl Melamed and their law firm, Neal, Gerber & Eisenberg, along with trustee General Trust Co., for alleged improprieties relating to the handling of GGP-related stock and trusts. According to the Chicago Tribune, Scanlan said she had lost $1.7 billion since the collapse of GGP, and she blamed the defendants in her suit for $300 million of those losses.

GGP Proposes Seven-year Plan

In June 2009, GGP proposed a seven-year plan to fully repay all creditors. The company had been trying to restructure and refinance its debt for months. According to Commercial Real Estate Examiner, GGP's plan involved a seven-year extension of its secured and unsecured loans at their current interest rates. GGP says this would allow it to create a cash flow large enough to pay off all debts. In a presentation [pdf] at a recent investment research conference, GGP made arguments in favor of the plan such as the mall industry is more stable than retail in general due to its reliance on long-term leases, 82% of its debt is fixed-rate, and its malls have a 90.9% occupancy rate. The bankruptcy court is still determining a restructuring and repayment plan for GGP. GGP's proposal followed recent motions by a number of lenders to its malls requesting the properties be removed from GGP's bankruptcy filing. According to Reuters, lenders were saying the loans in question are not in default danger and that GGP is using Chapter 11 bankruptcy to obtain leverage in debt negotiations.

GGP Files Chapter 11 in April 2009 - A Summary

GGP says Pershing Square Capital Management, L.P. committed to a debtor-in-possession financing facility of about $375 million, which, once approved by the court, will keep the company running during the bankruptcy process. Day to day operations are to continue and stores will remain open. Given the current economic climate and how is is affecting retail, the prospect of a large REIT bankruptcy had been looming for months (see for instance this February 2009 article from Retail Traffic). William Ackman, head of Pershing Square, told Bloomberg last month that bankruptcy seemed all but certain for General Growth. Now the company intends to deleverage its balance sheet through a quick Chapter 11 restructuring. Adam S. Metz, CEO since October 2008, defended the company's operational performance based on long leases and high occupancy rates from a diversified tenant customer base spread across in geographic and demographic terms. He stated in his declaration (pdf) to the court:
"GGP has approximately $18.4 billion in outstanding debt obligations that have matured or will mature between now and the end of 2012, including past due maturities of $2.0 billion, $1.3 billion more coming due in the remainder of 2009, and $6.4 billion in 2010. Despite extensive efforts over many months to refinance or extend this debt, and attempts to sell certain properties to generate cash sufficient to satisfy mortgage debts as they mature, GGP has been unable to do so because the commercial real estate finance markets have ceased to function and effectively are closed, even for loans on quality properties generating stable income."
In December 2008, GGP hired AlixPartners to help it turn around. Its team is lead by Managing Director James A. Mesterharm, whose declaration in support of first day motions can be found here (pdf). Weil, Gotshal & Manges LLP and Kirkland & Ellis LLP have been retained as counsel and co-counsel to the debtors. The case has been jointly filed under number 09-11977 with the United States Bankruptcy Court, Southern District of New York. The court, headed by judge Stuart M. Bernstein for the last nine years, has had many high profile "mega cases" under its jurisdiction since the current recession began, including BearingPoint, Star Tribune and Lehman Brothers.
This filing lists many entities but excludes some third-party businesses and joint ventures. Along with retail locations, 11 office properties, one master planned community and six properties still under development are part of the filing properties, while many operating properties are not involved in the filings. More details, including contact information for the attorneys representing GGP, are available from a website maintained by noticing agent Kurtzman Carson Consultants. (In a sign of the times KCC was acquired by Computershare). With roughly 200 million square feet of retail space and 24,000+ stores across 44 states, GGP is the second-largest mall owner in the US behind Simon Property Group. It employs approximately 3,700 people directly and many more indirectly.

Get free retail and ecommerce headlines every day in your inbox. No spam, easy to unsubscribe.


On-topic and civil comments are welcome. Comments are moderated by the editorial team.

Please enter the word you see in the image below: