Comments on Distressed Debt Investing: Distressed Debt Investing Concept - GGP and Substa...

From one distressed analyst to another: Great anal...

2009-06-20T20:25:23.891-04:00

From one distressed analyst to another: Great analysis! Also, what does everyone think of the latest development in the case? It looks like the converts have ditched Greenhill and have hired Moelis & Co. instead. Does Moelis have real estate experience? Thoughts?

With the 166 SPE's going bankrupt and GGP now able...

2009-05-12T15:03:00.000-04:00

With the 166 SPE's going bankrupt and GGP now able to grab the SPE cash and even perhaps deprive bond holders interest payments, would this give equity investors a big boost?

Does this change the cap rate? Or will it just boost the balance sheet?

Any particular reason why the rouse assets can be ...

2009-04-27T15:31:00.000-04:00

Any particular reason why the rouse assets can be valued at a greater than 9% cap rate? Any recent comps you can point to where these assets trade? Thanks.

In today’s distressed CRE market savvy investors t...

2009-04-22T09:48:00.000-04:00

In today’s distressed CRE market savvy investors that “Think Outside the Box” can acquire valuable distressed properties at discounts through a number of §1031 Tax Deferral Strategies, while holding onto their scheduled relinquished properties for the market to stabilize and get their best prices.

These §1031 Tax Deferral Strategies can help investors acquire discounted valuable REOs, short sales and also take advantage of discounted non-performing (as well as performing loans) to acquire those quality properties at deep discounts.

They can structure the acquisition of the REOs, short sales and/or the notes now (and the subsequent acquisition of the underlying properties) and afford themselves enough time to sell their scheduled relinquished properties.

In addition, an investor that is holding a non-performing property (or even a performing property) may be able to mitigate or eliminate onerous tax consequences due to COD (recourse and non-recourse debt) via “§1031 Workout Strategies”.

These §1031 strategies can create Win-Win Scenarios (for investors, lenders and borrowers).

Great post! Curious, what's the ticker symbol for ...

2009-04-21T18:37:00.000-04:00

Great post! Curious, what's the ticker symbol for the converts?

Upon further reflection, the Hughes contract calls...

2009-04-21T15:55:00.000-04:00

Upon further reflection, the Hughes contract calls for payment of excess cash produced by the properties sold by Hughes. Equity was just the currency prescribed for repayment.

According to the 10K, "in February 2009, we were not obligated to deliver any shares of stock under the CSA." This would seem to indicate that there was no excess generated by those properties at the end of 2008. It seems likely that any excess would be minimal prior to the termination of the Agreement in 2010.

Regardless, I believe that the claim from the Hughes beneficiaries will be treated along with the other unsecured claims at the value of the payments determined under the Contingent Stock Agreement, and will receive the same haircut as the other unsecureds. The currency to pay the Hughes beneficiaries may be stock or cash, depending on the negotiations.

I wouldn't expect that the Hughes claim would result in a significant equity position at the end of the case.

Does that make sense?

Great post! Are taxes from sales proceeds as impo...

2009-04-21T10:22:00.000-04:00

Great post! Are taxes from sales proceeds as important as you make it out to be, since GGP is a REIT and taxable gains would be distributed to equity investors? Do REITs lose their REIT status in bankruptcy?

Neil - I have answered your comment in an update i...

2009-04-21T08:42:00.000-04:00

Neil - I have answered your comment in an update in the post - I have received a few emails about the same topic.

Each of their malls can be considered it's own...

2009-04-21T07:51:00.000-04:00

Each of their malls can be considered it's own unconsolidated company with it's own debt and equity.

Those with 0 or less equity can be called zero and those > 0 will accrue to GGP equity holders.

Therefore, due to the non-recourse nature of the loans, 75% of their malls could have debt > enterprise value (mall value) and there will still be value left for GGP equity.

As you say, unless you had all the data, you couldn't possibly value GGP equity. However, it seems likely that there will be value for equity as you effectively have a call option on each mall.

Just want to say your articles have been tremendou...

2009-04-21T02:44:00.000-04:00

Just want to say your articles have been tremendously educational. It fills a void in the blogsphere filled with equity analyses, not to mention my zero knowledge in the DDI area. Look forward to your future posts.

It seems, from the writing in the 10K, that the Hu...

2009-04-21T02:14:00.000-04:00

It seems, from the writing in the 10K, that the Hughes Agreement with Rouse was never modified in relation to the GGP merger. My comments are based on the original Agreement.

The Agreement states in Article III(e) that it is subject to the automatic stay, which is consistent with other liabilities. This liability, however, is to be paid in equity.

The Agreement requires compensation to the Hughes Beneficiaries in Common Stock, or, if the issuance of Common Stock "would be a breach or violation of any then effective New York Stock Exchange Listing Agreement to which the Company is a party," then Preferred Stock.

The NYSE has a rule requiring shareholder approval for the issuance of 20% or more shares, which would seem to (until GGP is delisted) limit the number of Common Shares to be distributed and require the issuance of Preferred Shares (as defined in the Agreement).

Whether the compensation is to be paid out in Common or Preferred, this would seem to put the Hughes beneficiaries in a difficult position in relation to the value of their claim. If the claim were to be paid in cash, the value could be quantified. Since the payment is required to be in Common or Preferred, I would expect the Court to base the value of the claim on the value available to the equity at the end of the case.

If there is some equity value remaining, the beneficiaries might be entitled to some compensation, but I would expect it to be minimal given that their claim was to be paid in prepetition equity.

Does that make sense?

Great blog, keep up the good work

2009-04-21T01:20:00.000-04:00

Great blog, keep up the good work

I see. Thanks

2009-04-20T20:54:00.000-04:00

I see. Thanks

Yes - The malls are being valued on a run rate NOI...

2009-04-20T20:28:00.000-04:00

Yes - The malls are being valued on a run rate NOI basis...i.e. Run Rate NOI / Assumed Cap Rate

I think a number of the malls are held at cost on ...

2009-04-20T20:20:00.000-04:00

I think a number of the malls are held at cost on balance sheet, some as far back as 02-03. Was this taken into account in the asset analysis? Looks like it may have been BOE on financials.