Advanced Distressed Debt Lesson #4

It has been a few months since we had our last advanced distressed debt lesson. More the previous editions, here you go: Advanced Distressed Debt Lesson #1, Advanced Distressed Debt Lesson #2, Advanced Distressed Debt Lesson #3 (needs a follow-up post).

A friend asked me my opinion of something Whitney Tilson said in his most recent email regarding GGP. Here is the relevant text.

"Hovde’s most serious mistake is misunderstanding (or misrepresenting) what will likely happen to GGP’s unsecured debt. Hovde assumes that it either remains outstanding (throughout its presentation, Hovde calculates GGP’s leverage and interest payments assuming that the debt remains outstanding, which is the main reason its analysis differs from Pershing’s and ours – see page 63, for example) or that it converts to equity, which will result in “significant dilution” (page 72). Hovde makes explicit this assumption when it claims that Pershing “does not use consistent assumptions” regarding what happens to the unsecured debt on page 35 of its report.

Hovde doesn’t appear to understand bankruptcy law and what will likely happen to the unsecured debt. There is almost no chance that it will remain outstanding: it will either be refinanced or, more likely, be converted into equity (this is what Pershing assumes – there is no inconsistency). But here’s the key: it will NOT BE DILUTIVE because it will convert AT FAIR VALUE, as determined by the bankruptcy judge. Of course, if the judge determines that fair value is $1/share, then it would be massively dilutive, but that’s not going to happen. The judge has a great deal of discretion in determining fair value, but will certainly take into consideration the current stock price, comps and the price of any equity offering(s) GGP might do.

For example, as soon as GGP exits bankruptcy and its stock is relisted (it currently trades on the pink sheets, which means most institutional investors can’t own it), it will be a must-own stock for every REIT fund (a big catalyst Hovde misses). To meet this demand and pay down some debt, GGP might issue equity – and the negotiated price at which this stock is sold would likely weigh heavily on the judge’s determination of fair value (and would not be dilutive). Of course, if someone like Simon were to buy GGP at, say, $20, the debt would convert at this price – and again, it wouldn’t be dilutive."

This in response to Hovde's response to Pershing Square's response to Hovde's short thesis on GGP. What a mouthful! And like a lot of financial bloggers out there, I love the back and forth. And why not jump into the fray and learn something here? For all those following along at home, I have embedded Hovde's presentation below.

There has been a number of press reports recently about Brookfield Properties buying GGP's unsecured debt. Here is a WSJ article that also mentions Simon Properties buying GGP's debt. Now, who knows what instrument either enterprise is buying. It could be the Rouse bonds or it could be GGP's unsecured term loan on the GGPLP LLC side.

We know from the original Rouse proxy (when GGP acquired Rouse in 2004), that there was indeed a bidding war for Rouse's assets. Read the background of the merger here: Rouse and GGP background of merger. So it is likely that yes, assuming that Company A or Company B in the merger agreement were Simon or Brookfield, people indeed have interest in Rouse. Why would Brookfield or Simon buy the unsecured debt of GGP or Rouse? Well, they could be making an investment thinking the bonds are undervalued and will be taken out at par+accrued.

Or they could be positioning themselves to have a nice big seat at the table.

Let's talk about incentives for just a little bit, because it is crucially important to any analysis of a possible distressed debt investment. Rational players want to maximize their return on capital given like amounts of risk. They would much rather have a 100% return than a 10% return on the same amount of capital. Who wouldn't? An example that has been discussed on this blog in the past is Six Flags. The HoldCo note holders want to maximize their return, and not get rail-roaded by the Op-Co note holders plan, so they propose their own plan, backstopping an equity rights offering taking out the opco note holders, reinstating the bank debt, and getting the vast majority of the equity. Likewise, the op-co holders want the equity (they believe they are creating it cheap), have offered a plan to take out the bank debt, de-lever the company with a rights-offering, get the majority of the equity and give a sliver of the equity to the holdco.

Similar to what is going on in the Trump bankruptcy between Carl Icahn/Beal Bank and the Ad-hoc Committee / Donald Trump. Both parties want the equity. Owning the equity of levered company in an economic recovery can be lucrative (see: DTG stock). Both have submitted plans, objected to one another plans, maybe a compromise is made, votes are cast, votes are tabulated, judge approves, plan confirmed, and off we go.

Trouble is, valuation is always subject to disagreement. As noted in a previous post on this blog (Now you too can value GGP's equity), small changes in cap rates have enormous effects on the valuation of GGP's common stock. I can argue just as well that cap rates should be 6%, as I can that they should be 9%. In the very fun case back in 2007, Nellson Nutraceutical, had 4 different valuation experts representing the company, and three different creditors group (each with their own). These valuation experts did what we all do: They applied assumptions to discounted cash flow analysis along with using multiples applied to different metrics and came up with a value for Nellson. The debtor's valuation of its own business was ~$75M higher than the other valuation business - why? It is my belief, that the equity sponsor wanted to be in the money. Higher valuation accretes value to lower claimants...i.e. stockholders.

Valuation is rarely litigated in the court. More often, different creditor or equity constituents will offer submit a plan of re-org and disclosure statement that has an implicit valuation based on testimony/work of a valuation expert. For example, from an earlier disclosure statement from the Trump bankruptcy:

"Solely for purposes of providing a distribution for Allowed Second Lien Note Secured Claims and Allowed General Unsecured Claims as set forth in the Plan, and in order to avoid a lengthy and expensive litigation process in these cases, the Plan Proponents refer to the valuation analysis prepared by the Ad Hoc Committee in connection with the AHC Plan (the “AHC Valuation Analysis”), which estimates the range of reorganization value of the Debtors to be approximately $464 million to $534 million (with a midpoint value of $499 million) as of September 17, 2009"

What is interesting: in the Trump case, Icahn and Beal Bank use the valuation proposed by the Ad-Hoc equity committee. The difference lies in who gets what via the plan. And how well they argue their case. For example, Icahn/Beal may say that the plan proposed by the Ad-Hoc committee may put too much debt on the company or maybe the fees proposed are too high etc etc. In one hand, the subscription/rights offering winds up in Icahn/Beal's hands, in the other, in the hands of the Ad-Hoc committee...the winner gets control of the company.

So what does this all mean for GGP? Unsecured debt sometimes is not converted at fair value. If it were converted at fair value, why would distressed debt investing even exist? Why would I buy a distressed piece of paper that I think is fully valued? And using prevailing security prices to determine where a judge may/may not confirm a plan is foolish. See: Delphi's bonds and equity circa Jan 1, 2007. Security prices do changes when different plans are filed. See: Visteon in the last few weeks...Term Loan skyrockets, bonds get hammered. Why? Because current plan proposes the vast majority of the equity goes to the Term Loan lender. No doubt this will be fought.

So why would Simon or Brookfield be buying unsecured debt? Like I said, to get a seat at the table. Let's take a hypothetical example here. Shall we? And as noted in previous posts, I have no position one way or the other, and am just laying out an instructive scenario that may or may not occur in the future.

Let's say the rumors are true. Brookfield and Simon have bought $1 billion of GGP unsecured debt. And let's say specifically they bought $1 billion of the Rouse bonds. They do not want to overburden their investment grade ratings, so they want Rouse to emerge with less debt. So they offer to backstop a $1.5 billion dollar rights offering, and cancel their bonds for, lets say 75%, of the equity at Rouse. Remember, you cannot look at GGP as one consolidated entity ... you have to bifurcate between Rouse and GGPLP LLC.

What did they do here? They spent (call it) 80 cents on the dollar for the Rouse bonds (so $800m spent) and put up an additional $1.5B to retire the remaining Rouse bonds they do not own. They spent $2.3B of value to acquire 75% of Rouse's equity.

How much did GGP's stock holder get from this transaction - They are left with 25% of Rouse. And that affects valuation greatly.

Could this happen? Maybe. Simon and Brookfield want to buy this asset on the cheap, NOT at fair value. Once exclusivity is done, they could propose their own plan (i.e. backstopping a rights offering to buy Rouse), arguing that the Debtor (Rouse in this case) would be woefully over-levered upon emergence. If the equity holders do not like it, then they should do an equity offering to take them out...$2.7B of claims ($2.44B of face at 110%...par+accrued)...versus a current market cap of $3.6B. You do the math.

In the bull case of course, which is also just as likely, every piece of debt gets reinstated (or unsecured bonds across the cap structure get refinanced by committed bond financing, and the judge does not think the company overly levered), operating results shoot to the moon, equity holders see their stock go to $40 and some acquirer top-ticks it. Pershing looks like a miracle worker and Hovde ends up flat out wrong. Look to Pilgrim's Pride as an example of an acquisition a Chapter 11 company where equity holders kept their interest, but got diluted (current ownership now 36%), where the stock could be really cheap (trading at 4.0x EV) and could surely take off...it definitely can happen.

Remember distressed debt valuation is only one piece of the puzzle - figuring out which plan will get confirmed and what / how much of the pie they are getting is really where the money is made in this business.

General Growth Properties - 2 - Hovde

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GGP - A Distressed Investment Opportunity

Last week, I wrote a post on valuing the distressed investing situation that is GGP. A quick point to clarify: The numbers in the spreadsheet I created was simply an example. When the likes of Todd Sullivan and Whitney Tilson claim I value GGP's equity at $5, this is my response (cut/pasted from a comment I left on ValuePlays.net)

Todd - As always, great analysis. A few points I would like to clarify: 1) My post was not to peg GGP's equity value. I have no idea what the value of GGP's equity is worth, hence the reason I can be neither short nor long the name. The only security I have had conviction on in this case was the Rouse bonds when they were trading in the 30s-40s as they offered substantial margin of safety (alas, I sold them way too early). The $5 you reference was essentially the midpoint of the numbers I threw in the mini-valuation grids. If I were less lazy I would of made the grids 10x10 for even more fun

Now that that is out of the way, I thought I would also post Pershing Square's response to Hovde Capital's short thesis. As always, this is an interesting situation. The easy money has been made in my opinion.

Pershing Square's Latest Presentation on General Growth Properties

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Now you too can value GGP's Equity

Everyone likes talking about GGP's equity these days. So I thought I would take my massive model that I have been working with for over a year now, and condense it to the bare essentials to value GGP's equity. Now you too can value GGP's equity.

Please follow this link to a quick model I brewed up: Value GGP's equity. The best thing to do, as I locked it so crazies can't play with this masterpiece, is download as an Excel and play around with the highlighted values.

Here are the listings of highlighted values, and the rationale behind them.

1. The first highlighted value is the "Mall Value" of Rouse. You can see slightly above the input box a quick and dirty valuation matrix based on various cap rates and NOI.
2. Further down the page, you will see the next assumption, which is the implied value of all non Rouse malls and properties. I.E. Malls at GGPLP, LLC etc. Again, you can see a quick and dirty valuation matrix to choose whichever value you like. You may notice that I am using slightly higher cap rates for the non-Rouse malls. It has been discussed by consultants and real estate professionals alike that the Rouse portfolio contains better malls on the whole than the GGP side of the fence.
3. Next is cash. Now technically, you would not net out admin fees here because they would be spread around various entities, but I was not trying to be perfect here. You can look at GGP's most recent Monthly Operating Results (linked here), to see how much cash is on the balance sheet (remember not to double count Rouse's cash) and how much fees have been accrued.
4. Finally is payables. This would also include any tax claims at the company. Again it is quite hard to pin down this number, so I will let you cook your own dinner on this one.

Note: The NOI numbers I am using are the CONSOLIDATED NOI. I.E. Ex unconsolidated entities.

Now, theoretically speaking, there are hundreds of other assumptions in this case. A big one I hear about touted is the value of the master plan communities. If you want to know how that business is doing, please check out GGP's 3rd quarter 2009 supplemental. I do not think it worth much at all.

Again, another assumption you have to make is how much leverage the judge will let the entity emerge with. Under this spreadsheet, all debt and preferred equity is reinstated at current terms. I doubt this happens. More likely, GGP will sell equity, or a creditor class will do a rights offering to raise cash and pay off some of the Rouse bonds or the 2006 credit facility. This obviously changes the dynamic of the spreadsheet (more shares outstanding for example). A big possible twist for equity holders would be if a strategic buyer backstopped an equity rights offering - maybe by being in the converts or another creditor class.

And finally, you may simply hate all the numbers I hard coded in there for value of ancillary assets. Well you know what? It doesn't really matter. According to my simple calculations, and you can play with this yourself, a 50 bps change in Rouse cap rates, moves the stock ~$2.00.

Again, this is a simple model. I know. But it gets to the point that whether you believe Hovde's analysis or Pershing/Tilson/Sullivan's analysis, the needle swings wildly on this one. Have fun valuing GGP's equity. And let me know any thoughts/suggested changes in the comments.

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Short Case for GGP

In one corner, Bill Ackman and Pershing Square's Long Thesis on GGP. In the other corner, Hovde Capital's Short Case for GGP.

A very well laid out presentation. For full disclosure, I am completely flat in the name.

General Growth Properties - Short Case

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Bill Ackman on Mall REITS

Fantastic Presentation. Enjoy!
ICSC Mall REIT Presentation 12-7-2009

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Distressed Debt Investing Concept - GGP and Substantive Consolidation

As I begin to flesh out this blog as a site for distressed debt investing and distressed debt case studies (i.e. distressed debt research), I want to also write about certain concepts so that those new to the field can follow along with what we are talking about

Warning - this post turned into something much more complicated - I apologize in advance, but if you want to hear my thoughts on GGP read on.

The reason I want to bring up substantive consolidation is that it relates in one way or another to GGP, which, already, I get a great amount of email about.

Now I am not saying that GGP is going to be consolidated. I actually believe it will not be consolidated in the bankruptcy process because the assets (malls) are very distinct assets. In other words, I can tell Mall A apart from Mall B very easily because they have their own records, own physical assets, etc. Further, the fact that Rouse has its own financial filings (as an exhibit in GGP's 10Qs and 10Ks...Exhibit 99.1) gives me more belief that the chance of substantive consolidation is small. If GGP were liquidated, something I consider a remote possibility, substantive consolidation would make more sense.

In short, substantive consolidation is the merging of assets and liabilities of a debtor into one big pool where creditors look for recovery. In principle, by consolidating units (i.e. disparate corporate entities, divisions, malls, etc) a debtor is essentially simplifying the process of how it will settle with all its creditors. In a substantive consolidation, certain parties are helped and certain parties are hurt.  If a better capitalized subsidiary with better assets is consolidated with a worse capitalized subsidiary with more debt, the lenders to the former subsidiary get hurt - the assets they were going to get to get their loans paid off now are in a bigger, more toxic pool.  Read this for more legal info: (Bulletin):

I will not go into detail the tests the court uses to determine if the path of substantive consolidation is followed.  The simplified version:

1. Did the creditors or lenders deal with the entities as a single unit?
2. Are the affairs so entangled that consolidation will benefit all creditors? I.E to avoid harm and realize some benefit.

So in relation to GGP, and Test #1, did a mortgage lender of a mall in Iowa look to the financials of a mall across the country in extending credit?  Of course not. The mortgage lender of the mall in Iowa looked to the financials and asset coverage of that mall relative to the loan he or she was granting.

Now the reason I bring this up is that I have seen a number of people applying a cap rate across GGP consolidated NOI, subtracting the debt, and coming up with some sort of equity value. Unfortunately, and solely in my own opinion, that is not how it's going to work.  You have to break GGP into two entities: Rouse and GGPLP LLC, as well as GGMI (which was not filed).  You then compare each of these entities values to how much its on the hook for, distinct andseparate from the other entities, to see if value eventually flows to the GGP shareholders.

As an aside, if a reader thinks there is indeed equity value, why would you not buy the convert, which I believe to be trading at 10 cents on the dollar? Same entity as the common for all intents and purposes, and has $1.55B of contractually seniority to the equity. 

Nonetheless, I digress. Let's get back to some distressed debt research.

Rouse's 2008 NOI, after stripping out the land sale business, is approximately $860M.  There was ~$9.7B of mortgage debt and bonds at year end, and $2.241B are the the five remaining corporate bonds issued under two distinct indenture (1995 and 2006). So that means, there is approximately $7.46B of Rouse mortgages outstanding on 12/31/2008. And of course, things could have changed, since then.  Assuming those mortgages are worth par, the bonds, which are currently trading at 40 cents on the dollar, are implying a residual value of $900M to the bondholders...or a total distributable enterprise value of approximately $8.36B ($7.46B of mortgages at par + 900M of market value of bonds).  Which on the surface, is slightly over a 10% cap rate, exclusive of other assets and liabilities. Probably fair given we are using 2008 NOI. 

Talking to some market participants, people are assuming a 10% drop in NOI...or around $775M of run rate NOI.  At a 9% cap rate, that gives us an EV of $8.6B translating into a bond value of 51 cents on the dollar.  Add in cash generated during the bankruptcy (I doubt they upstream cash to GGPanymore), less fees, and you can comfortably come up with a valuation around 55, plus or minus 5 points.  

If you think cap rates are going to turn out to be a lot less than 9%, then you would be buyers of these bonds.  I, unfortunately, think we have a massive oversupply of malls right now with no natural buyers and tend to err on the conservative side.

This analysis though, unfortunately, is so simplistic as to be laughable.  Why? Rouse has a lot of assets. Many market participants would classify their malls as significantly better than GGPLP LLC's malls. On the balance sheet, excluding the NOI producing properties and intangibles, and including developments in progress, there are:

• $476M of developments in progress
• $1.471B of loans to/from unconsolidated affiliates
• $1.698B of investment in land and land held for development and sale
• $25M of cash  
• $154M of AR
• $135M of Deferred expenses
• $606M of prepaid expenses and other (these consist of a litany of things which admittedly I am having trouble to value)

As we noted in previous posts, and in distressed debt investing in general, we have to figure out what this pool of assets is really worth. The big chunk of assets which comprise of loans to JVs and investment in land...well that probably is not worth all that much.  Does anyone think there are going to be big buyers of land in the coming years?  And loans to JVs? Many of these loans in the industry were granted at an LTV of 75% on a 5% cap rate.  There probably is some value, but until I see a detailed schedule it would be tough to pick a number.

Unfortunately, it becomes even more challenging when you add in the liabilities outside mortgage debt and bonds:

• $860M of Deferred Tax Liabilities
• $570M of AP and other accrued expenses
• And who knows how the Howard Hughes agreement is going to be handled (if you don't know what that is, well, read the GGP 10K again).
• And very important: taxes on proceeds from asset sales

So, we are at a standstill.  Until I have more information on each of these assets and how the liabilities will be treated in bankruptcy (especially the tax ones), I cannot in good faith get excited about these bonds at 40.  Assuming a 55 cent recovery in two years, translates into a 17% IRR - in my opinion low given all the risks and uncertainties.  At 30, where the Rouse bonds were trading a few days before the bankruptcy, well, that translates into a 35% IRR. I applaud all those that bought those bonds there.  Fantastic call in my opinion. 

Where does that leave us on the GGP equity. Well in short, I am still working through it. A cursury view: As my analysis above shows, I do not think equity holders will see much value coming from the Rouse subsidiary.  GGP's NOI ex Rouse is approximately $1.75B ($2.6B per the supplement - $850M Rouse NOI). Lop of 10%, run rate NOI of $1.575B.

According to the declaration filed on the first day, GGP group had $27.3B of prepetition debt (including JV debt).  Netting out Rouse, this leaves us with $17.6B of debt at GGP standalone. ($27.3B-$9.7B).  On the surface, vs a $1.575B of run rate NOI, implies to receive any recovery to the equity holders, cap rates must be below 9.0%. Unfortunately, GGP standalone does not have the benefit of substantial ancillary assets that Rouse does.  They have some, but more worrisome is the liability side...i.e. $1B of accounts payable, accrued expenses, and lots of "other liabilities." (see the 10K for further details).  And do not forget bankruptcy fees, taxes from asset sales (if they decide to sell any malls), the DIP, etc. 

So I would say you would have to have a pretty strong opinion on cap rates below 7-7.5% to get excited about the equity - possibly a lot lower really.  The bank debt is in the 20s, the Rouse bonds at 40 and the converts are trading at 10ish, so a lot of people do not think GGP's equity has value.  In my opinion - there is no margin to safety in the equity investment. Like all investing, distressed debt investing is value driven.  The first rule is not lose money. Unless you can show me otherwise, I would rather play in the Rouse bonds (which I believe Pershing Square is also a holder).

*Update* Neil, a commenter, and no doubt in the industry, brought up the argument that unsecured creditors and equity are effectively "long calls on the mall." I agree with this argument, though I have to point out that a number of the malls (Fashion Show, Shoppes at Palazzo and a few others), are recourse to the larger entities. Further, due to the 2008 Secured Portfolio Loan facility, GGP, GGP LP, GGPLP LLC are on the hook for $875M via a guarantee. I have an old version on a detailed listing of all of GGP's malls that a Sell-Side firm put together. They estimated mall 2007 NOI at each mall. I applied a 7.5% cap rate to all the malls (including JVs) and subtracted the debt at each mall. If there was negative value, I gave it 0 weighting and if it was positive I gave it full weighting. This came back with a "long the call" value of $6.6B, on 2007 NOI and a 7.5% cap rate, which I think is generous. Now I know this is simplified because I have not broken out the various debts per subsidiary (i.e. Rouse vs GGP LP), but according to the first day filings, these claimants are ahead of you:

• $225M of Goldman Sachs loans 
• $875M of guarantees from the 2008 Secured Portfolio Facility
• $1.55B of converts
• $2.25B of Rouse Bonds
• $1.99B of Term Loans
• $590M of Revolver borrowings
• $206M of Junior Subs
• $900M of Fashion Show and Palazzo Debt
• $95M Oakwood Loan
• Some other amount of undisclosed guarantees on a few other malls (pg 17 of Mesterham's declaration)
• And the DIP.  But let's leave that out for now as they will generate cash throughout the bankruptcy.

That aggregates to $8.7B. Let's take out the $875M of the Secured Portfolio as I've included that above, leaves ~$7.8B. And I still haven't included any of the operating debt, legacy tax liabilities, bankruptcy fees, or taxes on asset sales... equity still underwater unless you can show me another $1.2B+ of assets I am missing.

As this post shows you, and as further posts will show, lots of variables and assumptions go in the beginning innings of a bankruptcy case and distressed debt investing. As the bankruptcy process takes hold, plays out and asset and liability values can be more readily discernible, market participants can become more confident in their security selection. This is why there are so many inefficiencies in distressed debt investing - they are complex situations (i.e maybe half the people that started reading this post actually finished reading it), but for those that work hard - one can get a serious information advantage and make an educated guess when the odds are surely in your favor.  Stay tuned for more thoughts on distressed debt investing.

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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.

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