Real estate investment trust General Growth Properties, Inc. (GGP) filed a Chapter 11 bankruptcy reorganization proposal earlier this week that it claims will improve its balance sheet and “substantially” reduce its debt. At the time of the filing, General Growth had already restructured about $15 billion in project debt. The company said that its plan “will satisfy its debt and other claims in full, provide a substantial recovery for shareholders and implement a recapitalization with $7.0 billion to $8.5 billion of new capital.”
Today the company filed a registration statement with the SEC proposing to offer up to $2.15 billion in mandatorily exchangeable notes, subject to conditions including approval of its Chapter 11 reorganization plan. The notes are set to mature on January 31, 2011. Earlier this year a rival REIT, Simon Property Group Inc.
(SPG) withdrew an offer to acquire General Growth.
The notes are offered by New GGP, Inc., a new subsidiary of General Growth, that will become the indirect parent of the existing company when General Growth emerges from bankruptcy protection. New GGP will operate as a REIT.
The notes will pay an annual interest rate at 0.5% from the date of issuance to the 90th day after the issue, and an annual rate of 1.0% thereafter. The proceeds will be held in an escrow account and will rank equally with all unsubordinated debt and guaranteed as senior unsecured debt by the existing company. If the funds are unused, they will be returned to investors together with accrued interest.
The New GPP does not plan to list the notes on any exchange, but does expect them to trade on Pink Sheets. A mandatory condition of the exchange of the notes is that the shares will be listed on the NYSE. The symbol for New GGP shares will be ‘GGP’.
The company has raised a total of $8.55 billion from Brookfield Asset Management, Fairholme Capital Management, and Pershing Square Capital Management. The largest portion of that amount, $6.3 billion, comes from the issuance of new equity at $10/share. General Growth also received $500 million from the Teacher Retirement System of Texas in exchange for shares priced at $10.25/share in New GGP. The remaining funds come from backstop commitments made either on a rights offering or on a credit facility to be obtained by New GGP.
If everything goes according to plan, General Growth will emerge from bankruptcy protection as the second-largest shopping mall property owner in the US, behind Simon Property Group.
As a group, REITs have done well over the past year, though they are giving some of the gains back now. General Growth shares are off about 2.5% this morning on very light trading. Simon Property Group shares are also down, about 2%.
