General Growth files Chapter 11, secures $375 million in DIP loan

By Caroline Salls

Pittsburgh, April 16 - General Growth Properties, Inc. filed Chapter 11 bankruptcy Thursday in the U.S. Bankruptcy Court for the Southern District of New York to reduce and restructure its debt, according to a company news release.

The company said 158 regional shopping centers owned by General Growth and its subsidiaries have also filed for bankruptcy. According to the release, all day-to-day operations and business of all of the company's shopping centers and other properties will continue as usual.

General Growth said the decision to file bankruptcy came after extensive efforts to refinance or extend maturing debt outside of Chapter 11.

The company said it tried to negotiate with its unsecured and secured creditors over the last several months to get more time to develop a long-term solution to the credit crisis, but it was unable to reach an out-of-court consensus.

While in bankruptcy, General Growth said it will continue to explore strategic alternatives and search the markets for available sources of capital.

"Our core business remains sound and is performing well with stable cash flows," chief executive officer Adam Metz said in the release.

"While we have worked tirelessly in the past several months to address our maturing debts, the collapse of the credit markets has made it impossible for us to refinance maturing debt outside of Chapter 11."

The company said it intends to negotiate a plan of reorganization that extends mortgage maturities and reduces its corporate debt and overall leverage to establish a sustainable, long-term capital structure.

DIP financing

In conjunction with the filing, General Growth has received a commitment for $375 million in debtor-in-possession financing from Pershing Square Capital Management, LP, as agent.

According to an 8-K filed with the Securities and Exchange Commission, the DIP financing will be used to refinance pre-bankruptcy secured debt and will be available to fund the company's working capital requirements.

Interest will be Libor plus 1,200 basis points, with a 3% Libor floor.

The facility will mature 18 months after the funding date.

Lender warrants

Under the DIP loan agreement, the company will issue warrants to Pershing on the plan effective date to purchase 4.9% of each class or series of General Growth equity for a nominal exercise price, as well as 4.9% of any class of equity securities of such subsidiary issued in connection with Chapter 11 claims.

If General Growth or the Rouse Co. LP offers to sell any newly issued securities in connection with a plan of reorganization, they will be obligated to offer to sell up to 4.9% of that security to Pershing, and if the company launches a rights offering for securities in connection with the plan, it will be obligated to convert a portion of the DIP loan obligation into those securities.

In addition, if General Growth has repaid any of the DIP loan before the maturity date, the company will have the right to cause the lenders to purchase the offered securities in an amount equal to the lesser of $375 million and the retired amount of the DIP loan.

However, the conversion rights cannot result in Pershing and its designees receiving stock equaling more than 5% of the company's common stock.

Debt details

According to court documents, General Growth had $29.557 billion in total assets and $27.294 billion in total debt as of Dec. 31.

The company's largest unsecured creditors include:

• Eurohypo AG New York Branch, with a $1.988 billion 2006 senior term facility claim and a $601.52 million 2006 revolving facility claim;

• Wilmington Trust FSB of Wilmington, Del., with a $1.55 billion GGPLP notes claim and a $798.45 million Rouse bonds claim;

• Indenture trustee the Bank of New York Mellon Corp., based in Chicago, with a $450 million claim for 5 3/8% Rouse bonds, a $400 million claim for 7.2% Rouse bonds, a $395 million claim for 3 5/8% Rouse bonds and a $200 million claim for 8% Rouse bonds;

• LaSalle Bank NA of Chicago, with a $206.2 million Trups claim;

• Pepco Energy Services Inc. of Arlington, Va., with a $1.79 million trade claim;

• Sephora of San Francisco, with a $1.54 million trade claim;

• Borders Books & Music, based in Ann Arbor, Mich., with a $1.41 million trade claim;

• Aurora Health Care of Milwaukee, with a $1.34 million trade claim;

• Microsoft Licensing, GP, based in Reno, Nev., with a $1.19 million trade claim; and

• Mandalay Bay Resort & Casino of Las Vegas, with a $1.12 million trade claim.

Defaults triggered

The company's bankruptcy filing constituted an event of default under its 2006 credit facility and various other debt instruments, according to the 8-K, and the maturity on a total of $4.55 billion of debt was accelerated.

However, the creditors' ability to enforce the accelerations is subject to application of the automatic stay imposed by the bankruptcy filing.

General Growth is a Chicago-based real estate investment trust that owns regional shopping malls, master planned community developments and commercial office buildings. Its Chapter 11 case number is 09-11977.

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