General Growth to arbitrate Hughes investors

General Growth Properties Inc. was rebuffed yesterday by the bankruptcy judge, who ruled that an arbitration panel could decide the basis for the claim that former investors of Hughes Corp. will receive under the Chapter 11 plan.

Hughes Corp., some of whose investors include heirs of the late Howard Hughes, owned a master-planned community outside Las Vegas named Summerlin. The 22,500-acre project eventually will have a population exceeding 200,000.

Through a predecessor, General Growth acquired Hughes Corp. under an agreement that provided for paying the purchase price over 14 years. For the last payment at the end of 2009, the Hughes investors were to be paid approximately half of the fair market value of the remaining assets, plus other items such as excess cash flow.

If there were disagreement over the final payment, the 1996 agreement calls for the amount of determined by a panel of independent appraisers.

The Hughes investors filed a motion in June asking the bankruptcy judge to force General Growth into the appraisal proceeding. General Growth responded by urging the judge to estimate the claim in bankruptcy court. At yesterday's hearing, the judge concluded that an arbitration wouldn't prevent confirmation of the reorganization plan in October.

At the hearing the judge also approved replacement financing reducing the interest rate by 8 percent on $400 million in debt for the reorganization.

Since Chapter 11 in April 2009, General Growth has been paying interest on the so-called DIP loan at an interest rate 12 percentage points higher than the London interbank borrowed rate. The new loan from Barclays Bank PLC will have a 5.5 percent fixed rate, saving General Growth $2.7 million a month in interest.

General Growth's property-owning subsidiaries already have confirmed Chapter 11 plans paying their creditors in full. The four top-tier companies filed a plan this month also promising full payment while preserving some of the stock for existing shareholders. The plan is financed with an $8.55 billion debt and equity commitment from a group led by Brookfield Asset Management Inc. Teacher Retirement System of Texas has a separate commitment to buy $500 million of new stock at $10.25 a share.

General Growth hopes to emerge from reorganization in October and remain the second-largest mall owner in the U.S. with 180 properties in 43 states.

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