General Growth’s $6.55 Billion Plan to Exit Bankruptcy

The nation’s second largest mall owner, General Growth Properties Inc. has requested approval from the bankruptcy court for a $6.55 billion plan to reorganize its operations and finances.  Under this plan, made April 29, three major investors will be given a total of 65% ownership of General Growth.  The three investors are Fairholme Capital Management LLC. that will be given a 28% stake in General Growth in exchange for its investment of $2.8 billion, Brookfield Asset Management Inc. that will receive 26% ownership for its investment of $2.625 billion and Pershing Square Capital Management LP that invested $1.1 billion and will be given an 11% ownership.

This plan is part of General Growth’s process of auctioning itself to the highest bidder.  A reorganization plan is also on the cards July 2 that will give its stakeholders the opportunity to review higher and better offers while at the same time avoiding risks from financial market fluctuations.  But these plans may not be the only ones implemented as the company continues to seek other deals that will bring the most benefit to its stakeholders.

In its bankruptcy documents, creditors will be fully repaid and General Growth’s deal with the three major investors will protect minority shareholders.  Among the three investors, Brookfield made its agreement with General Growth through an affiliate, REP Investments, unlike Fairholme and Pershing.  There will not be any expense reimbursement, underwriting fees, breakup fees or other means of compensation for the investors.  They will only receive the warrants according to court documents.  But if General Growth goes with another offer then they are entitled to make an administrative expense claim.

According to General Growth, shareholders will benefit if there is a better offer because the investors have agreed to invest their money for nine months without requiring that the company use their funds.  This injection of cash from investors will set a value for the equity of General Growth that will augur well for a bidding process that may draw in other more lucrative financing.

The investors’ money added to a $1.5 billion debt issuance would supply all the cash the company needs for its capital needs.  It would be able to pay off unsecured creditors at par plus accrued interest and existing shareholders would receive 34% of the company once it is reorganized in addition to 86% ownership of a newly formed company called General Growth Opportunities.  This new company will own real estate properties, including South Street Seaport in New York.  General Growth Properties, on the other hand would focus on the shopping mall business.

General Growth has been given until July 15 by the bankruptcy court to file a disclosure statement that outlines its reorganization plan.

General Growth’s $6.55 billion plan 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.