CHICAGO-General Growth Properties Inc. will emerge from Chapter 11 restructuring early next month. With the company’s plan of reorganization confirmed by Judge Allan Gropper of the U.S. Bankruptcy Court for the Southern District of New York, GGP has become one of the few REITs to emerge from bankruptcy, and certainly the largest one to do so.
“From a purely technical point of view, GGP is a great illustration of why bankruptcy works,” says a source close to the transaction. “For the right kind of situation, bankruptcy is the only way to protect everyone’s interests.”
GGP will emerge from its financial restructuring with a strong balance sheet and substantially less debt, having secured $6.8 billion in equity commitments from Brookfield Asset Management, Fairholme Funds, Pershing Square Capital Management, Blackstone and The Teacher Retirement System of Texas. GGP has also successfully and consensually restructured approximately $15 billion in project-level debt, renegotiating terms and extending maturity dates.
All pre-petition GGP creditors will be satisfied in full. As part of its plan of reorganization, GGP will split itself into two separate publicly traded corporations upon emergence, and current shareholders will receive common stock in both companies.
Previously, most industry experts doubted GGP’s ability to file bankruptcy, let alone emerge from restructuring without wiping out its equity shareholders. Historically, most REITs that filed for bankruptcy ended up dissolving. Even worse, their equity shareholders ended up with nothing, while creditors feasted on their remains.
The difference with GGP, according to GlobeSt.com’s source, was the planning and shareholder involvement. The REIT tapped Miller Buckfire & Co. LLC as its investment banker and restructuring advisor. UBS Investment Bank also served as a financial advisor, while Weil, Gotshal & Manges LLP and Kirkland & Ellis LLP acted as legal counsel to the Company.
“GGP planned its bankruptcy for four months before it actually filed, which allowed the company to maintain control of its assets and arrange for DIP (debtor-in-possession) financing,” says the source. “Most REITs that go into bankruptcy file – they wait until they run out of money and then they file. That’s why most of them don’t work out.”
As part of that planning, GGP’s restructuring team was able to work around the special-purpose entity (SPE) structures that held the company’s mall assets. Prior to GGP’s bankruptcy, industry experts assumed these SPEs would cause the company to lose control of its income-producing assets. “SPEs are bankruptcy remote vehicles, but they’re not bankruptcy proof, and GGP’s team was able to drive a truck through the old structure,” the source points out.
Of equal importance was GGP’s ability to nail down DIP financing. At the time, the credit markets were frozen, and the industry doubted the company’s ability to find investors that would be willing to provide liquidity during the company’s restructuring period.
The new GGP will remain the second-largest shopping mall owner and operator in the country, with more than 185 regional malls in 43 states, and will focus on largely stable, income-producing shopping malls and other real estate assets. The spin-off company, The Howard Hughes Corporation, will consist of GGP’s portfolio of master planned communities and other strategic real estate development opportunities.
Continue Reading for Free
Register and gain access to:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
