Distressed Debt News: GGP Files for Bankruptcy

The big news this morning in Distressed Debt Investing is the filing of General Growth Properties (GGP). GGP bonds and bank debt look significantly higher post the filing. You can find significant information on the filing here GGP's Docket and here GGP's Filing

If you don't read anything else, just know that Pershing Square is getting a fantastic deal on their DIP Financing - At a minimum, they will receive a 15% rate. And 4.9% of the post-re org company. I have to think other people will be trying to outbid them though. It may not matter though. More details below.

Filing in the Southern District of New York, professionals on the case look to be: AlixPartners as financial advisory, Miller Buckfire as debtor advisor, and Weil, Gotshal & Manges as counsel. First day motions are typical, and nothing jumps out at me as out of the ordinary - except of course the Organizational Chart which is nearly 20 pages long - lots of subsidiaries in this case. Not all subsidiaries were filed though - including the mall management company (GGMI) and a number of the JV malls and office properties.

As noted in our first Distressed Debt Investing Example, we like to read the affidavit's to get a general sense of what is going on at the company. It looks like there are two declarations in the GGP filing: 1. James Mesterharm of AlixPartners and 2. Adam Metz, GGP's CEO.

Quick Takeaways from Adam Metz's Declaration:
  • GGP's core business is cash flowing well (GGP owns about 200 shopping centers and other properties in 44 states)
  • Company cannot refinance mortgages or the Rouse bonds.
  • Market Cap was $20B in April 2007. Ouch.
  • Company wide NOI was $2.59B in 2008. I want to see the breakdown of this per subsidiary.
  • Occupancy Rates still above 90%
  • Blames the broken commercial real estate market - specifically the CMBS market
  • Development spend budgeted in 2009 at $224M and $108M in 2010
  • Company is requesting $375M DIP. Will pay mortgage lenders throughout the GGP bankruptcy. At the non default rate.
  • Plan will try to extend mortgage maturities, and reduce corporate debt
I am still going through James Mesterharm's declaration...at a cool 106 pages. Here are my takeaways:
  • GGP in aggregate (debtor and non debtor subsidiaries) has 92.5% of its mall and freestanding space leased with an average lease term greater than 9 years
  • Main debtor subsidiaries: GGPLP, LLC., The Rouse Company LP (TRCLP)
  • As of Dec 31, 2008: $27.3B of secured and unsecured indebtedness. The affidavit goes on to list the various debt instruments, who guarantees what, who is on the hook for how much etc.
  • More blame on the CMBS market and lots of upcoming maturities. They finally listed a good schedule of who was on the hook for what mortgage debt.
  • DIP Facility does not prime ("go in front of") anyone's security interest
And finally, here are some takeaways from the 8K released this morning:
  • Pershing Square will provide GGP with the $375M DIP
  • DIP will be used to refinance certain pre-petition secured indebtedness and will be available for working capital requirements. Rate = LIBOR + 12%, with a 3% LIBOR Floor. Good lord - that is a great deal for Pershing Square. I'd buy that thing all day long. Maybe the real reason they bought their equity stake was to be the gorilla in the room when all the negotiations were taking place.
  • Commitment Fees of $15M going to Pershing Square in addition to some exit fees.
  • Other stipulations: When the company reorganizes, GGP will issue to Pershing Square warrants to acquire (at a nominal price) 4.9% of the stock of GGP and subsidiaries.
  • The unsecured Term Loan has $1.99B outstanding and the revolver has $590M outstanding
  • $1B of guaranteed loans are passed due.
Currently, I am coming up with about a 50-60 cent recovery for the Rouse bonds. I am still sharpening my pencil on all the other debt. Assuming the bankruptcy is less than 2 years, that looks like a decent return - not blockbuster - but fair. If its longer, I get less excited. I have yet to look at the GGP bonds. GGP's bankruptcy is a perfect example of what investing in distressed debt in all about. If you are following the GGP bankruptcy at your fund or have questions, email me: hunter [at] distressed-debt-investing [dot].com. Those that are looking to get involved in a situation that will help their hedge fund career, this is the place to be.


Dexter,  4/16/2009  

i just posted a comment on 1 of your previous posts and you already came up with snapshot on GGP debt opportunity. keep up the good work! as DIP market is still pretty much very tight, most willing lenders are getting compensated quite well (like Per Square).

Jae Jun 4/16/2009  

Im in GGP as an equity holder but maybe I should look into the debt as well?

Great info: putting up on my twitter.

CP 4/16/2009  

What do you think of the equity? Zero?

Aaron Pressman 4/16/2009  

Fascinating and highly useful post. Just linked here from our Investing Insights blog.http://www.businessweek.com/investing/insights/blog/archives/2009/04/general_growth.html

market folly 4/16/2009  

good stuff thanks for taking the time to comb through everything. look forward to reading your insight!


Ryan,  4/17/2009  

How do you come up with a "50-60 cent recovery for the Rouse bonds?" I fail any argument that backs that statement up.

dawase,  4/17/2009  

I guess that's a decent return for Ackman on the DIP, but on a blended basis, his equity and debt returns aren't looking so hot.

Lawrence D. Loeb 4/18/2009  

According to the 13-Ds filed by Ackman, the total cost of his equity position is $14,803,824 (he doesn't disclose the cost of his swap positions).

If that gave him the ability to make 15% (minimum, assuming repayment of the DIP) on $375 million, I would say his blended return looks pretty good.

Lawrence D. Loeb 4/18/2009  

I just noticed that Ackman received a $15 million commitment fee for the DIP, so the cost of his equity position has effectively been returned.

Even better blended return!

John Fox 4/20/2009  

Great work on profiling this situation.

Mark,  4/21/2009  

Lawrence, where did you read that Ackman got a $15M commitment fee for the DIP? Thanks.

Anonymous,  4/23/2009  

A question from Finland, Europe:

I am not familiar with the US banktruptcy law, but one writer asked a question of what the residual value of equity (common stock) might be after the reorganization. This puzzles me, because if the recovery rate for bond debt is 50 per cent of face value, how could equity have ANY value? At least here in Finland the pecking order is very clear: each level in the capital structure must be compensated IN FULL before the next level can get anything. So, if GGP was a European company, bond-holders would need to get 100% of bond's face value + accrued interest before there would be any survival for equity. My question may sound stupid to you - but as I said I am not really that familiar with US banktruptcy code. Can someone please explain?

To me it does not make any sense that equity would have value if bond-holders do not get 100% back. I do own some American bonds, so this worries me a bit. It sounds like American bonds are not really pure debt-instruments at all. In Europe, we would call them hybrid-bonds or debenture loans, but senior bonds in Europe are true debt - and the pecking order is very clear.

Thanks in advance if you care to answer!


hunter [at] distressed-debt-investing [dot] com

About Me

I have spent the majority of my career as a value investor. For the past 8 years, I have worked on the buy side as a distressed debt and high yield investor.