General Growth Properties (GGP) on Thursday announced that a bankruptcy judge had approved its restructuring plan and it will scrape through the Chapter 11 filing around the beginning of next month in what is dubbed as the biggest real estate bankruptcy case in US history.
The Judge of the US Bankruptcy Court for Southern District of New York, Allan Gropper confirmed the news about the Chicago, Illinois based company. General Growth, the country’s second largest mall operator, plans to finish its restructuring and reorganizing on or about November 8, 2010.
CEO Adam Metz said that the confirmation of their plan was an important milestone as they lay the groundwork for a successful future for General Growth. He also said that they were now prepared to begin a new era for GGP on a firm financial footing.
General Growth filed for bankruptcy protection on April 16, 2009 after amassing debts of around $28 billion in liabilities. GGP collapsed after it went on an acquisition spree during the flourish of the real estate sector, only, to later get caught up in the credit crunch where it failed to refinance its debt.
GGP will emerge with an improved capital structure in equity commitments totaling up to $6.8billion from Brookfield Asset Management, Fairholme Funds, Pershing Square Capital Management, Blackstone and The Teacher Retirement System of Texas and a restructured debt of around $15 billion. Also in a rare scenario for bankruptcy cases, every creditor will receive payments in full.
As a reorganizing plan, the company will be split in two, General Growth and the newly established, The Howard Hughes Corporation. Current shareholders will have common stock in both the companies. General Growth will emerge with over 185 malls spread across 43 states and hold its position as the second largest mall operator (first being Indianapolis based Simon Properties Group Inc. which made a failed attempt at acquiring GGP at the commencement of 2010). The Howard Hughes Corp. will take over the GGP’s planned communities and other real estate development opportunities.
The company last month said that the present CEO Adam Metz and COO Thomas Nolan will continue to serve positions up to a year from the emergence of the company from restructuring. By the time General Growth exits bankruptcy, a new board will finalize the managing team during the change of stands. At The Howard Hughes Corp., CEO of Pershing Square Capital Management, William Ackman will chair a board consisting of 9 members.
As per the terms of restructuring, GGP will not have any secured loans before January 1, 2014, however some debt associated with joint venture properties is scheduled to become due earlier. One of the key features of the agreement GGP has with its Investor group is that it has a provision wherein GGP can replace up to $2.15 billion of the capital being committed by the group with proceeds of equity issuance at a more advantageous time.
Documents have already been filed with the Securities and Exchange Commission for raising equity shortly after General Growth steps out of bankruptcy protection.
On Thursday, GGP closed 43 cents down at $16.93.
