General Growth files plan to exit bankruptcy
General Growth Properties Inc. has an agreement to reorganize with $6.55 billion from Brookfield Asset Management Inc., Pershing Square Capital Management LP and Fairholme Capital Management LLC that will give the three investors a 65 percent stake in the second-largest U.S. mall owner.
The company filed for Chapter 11 bankruptcy protection last April involving about half its company's 200 malls, including Lincolnshire Commons in Lincolnshire and Spring Hill Mall in West Dundee. Not part of the filing were other General Growth-owned malls in the Chicago area - Northbrook Court in Northbrook, Oakbrook Center in Oak Brook, Golf Mill Shopping Center in Niles and Water Tower Place in Chicago.
General Growth filed a request in Manhattan bankruptcy court yesterday seeking approval of the proposal April 29 as part of a procedure to auction itself to the highest bidder. The company also said it plans to file a plan of reorganization around July 2, and will give its stakeholders the chance to evaluate higher and better offers while avoiding risks from changes in the financial markets.
The company will continue to explore other alternative deals, said Adam Metz, Chief Executive Officer, in a separate statement.
"This proposed transaction represents an important step toward our goal of creating the greatest value for all our stakeholders," said Metz.
The financing proposal will give Brookfield 26 percent ownership for its $2.625 billion investment, Fairholme a 28 percent stake for its $2.8 billion investment, and Pershing an 11 percent stake for its $1.1 billion investment. The investors will be paid by receiving warrants, exercisable for 120 million shares at a price of $15.
Creditors would be repaid in full, and the transaction would give protection for minority shareholders, according to court documents. Brookfield's investment is through an affiliate, REP Investments, separate from the Pershing and Fairholme investments. The investors won't receive expense reimbursement, underwriting fees, breakup fees, or any other form of compensation aside from the warrants, according to court documents. The investors will seek an administrative expense claim if General Growth goes with another offer, however.
General Growth said the proposal will let shareholders get upside if there is a better offer, because the investors have agreed to commit money for nine months without requiring the company to commit to ever using their funds.
"In fact, the commitment of capital by the Commitment Parties has set a floor value on the equity of General Growth, thereby facilitating a bidding process that may result in General Growth obtaining other more attractive financing," lawyers for the company wrote.
The financing plus a new $1.5 billion debt issuance would provide all the cash needed to fulfill the company's capital needs, General Growth said in a statement.
Unsecured creditors would receive par plus accrued interest and existing shareholders would get 34 percent ownership in the reorganized company and 86 percent equity in a newly formed entity called General Growth Opportunities. The new company will own real estate properties, including South Street Seaport in New York, whole General Growth Properties will concentrate on shopping malls, according to the statement.
Chicago-based General Growth, which has also weighed a bid from Simon Property Group Inc., was given by U.S. Bankruptcy Judge Allan Gropper until July 15 to file a disclosure statement outlining the exact terms of a reorganization plan. The reorganization is for its holding company, referred to as TopCo. Most of the company's property-owning subsidiaries have already been reorganized, as it exits bankruptcy in stages. About $14 billion out of $15 billion worth of property loans have won approval to exit bankruptcy, company lawyer Anup Sathy said at a March 26 hearing.
General Growth's proposal filed today would give creditors from Aug. 6 to Sept. 17 to vote on a plan of reorganization, and seek final court confirmation to exit Chapter 11 on Sept. 30.
The case is In re General Growth Properties Inc., 09-11977, U.S. Bankruptcy Court, Southern District of New York (Manhattan).