General Growth, lenders dispute equity

General Growth Properties Inc. scheduled a May 27 hearing to settle a dispute with some of the lenders over whether the mall owner waived the right to convert financing into equity as part of a reorganization plan.

Lenders who provided $400 million in financing for the reorganization contend that General Growth was required to give notice of the election to convert the debt to equity when the bankruptcy court on May 7 selected a group including Brookfield Asset Management Inc. to be the lead bidder in providing equity- purchase and financing commitments underpinning a reorganization plan.

General Growth contends the lenders are misreading the loan documents. Properly read, the company isn't required to give notice of the conversion election until a backstop party is approved by the court, General Growth says. That didn't occur on May 7, the mall owner submits.

Blackstone Group LP is talking with Brookfield about contributing $500 million of the $7 billion that the group will provide General Growth in return for equity.

The May 7 court order set up a procedure to determine who makes the best offer to finance the holding company's reorganization and end up owning part of the stock. Other investors can submit competing proposals by June 2. General Growth will pick the best proposal by July 2. The hearing for approval of a disclosure statement will take place July 30, with the confirmation hearing for approval of the plan to take place Sept. 30.

General Growth began the largest real-estate reorganization in history by filing under Chapter 11 in April 2009. The books of Chicago-based General Growth had assets of $29.6 billion and total liabilities of $27.3 billion as of Dec. 31, 2008. The company owns or manages more than 200 shopping-mall properties.

The case is In re General Growth Properties Inc., 09-11977, U.S. Bankruptcy Court, Southern District of New York (Manhattan).