General Growth gets court OK to enter commitment, exercise clawback

By Caroline Salls

Pittsburgh, Oct. 8 - General Growth Properties, Inc. received court approval to exercise its investment agreement clawback rights and enter into a commitment for up to $1.8 billion in exit financing, according to a Friday filing with the U.S. Bankruptcy Court for the Southern District of New York.

General Growth said it launched a comprehensive process in the spring to select investment partners that would provide it with committed exit capital and the flexibility to take advantage of market conditions, source additional capital or replace existing capital.

These efforts culminated in previously reported commitments for the purchase of New GGP common stock and Spinco common stock.

The company said the investment agreements also give it the latitude to propose a plan that allows General Growth to source additional financing through debt commitments and replace some of the equity commitments through either a pre-emergence public exchangeable notes offering, which would enable new investors to purchase notes mandatorily exchangeable into New GGP common stock, or through a post-emergence public stock offering.

Although it plans to complete the post-emergence public equity offering, the company said in the motion that it was seeking court approval to take actions necessary to complete either underwritten offering to maintain maximum flexibility.

Regardless of which offering is completed, General Growth said it expects to replace a substantial portion of the New GGP common stock that will be issued to investors in accordance with the clawback mechanism in the investment agreements.

Clawback terms

Under the clawback election, the company has the right to reserve for repurchase from Fairholme and Pershing Square up to 155 million shares of New GGP common stock and to repurchase a specified number of shares from Fairholme and Pershing Square within 45 days of the plan effective date at a per share price of $10.00.

The company also can reserve for repurchase up to 24.39 million shares of New GGP common stock from investor Teacher Retirement System of Texas before the plan effective date and repurchase up to 24.39 million shares from Texas Teachers within 45 days of the plan effective date at a per share price of $10.25.

Exercising the clawback election following the plan effective date would require General Growth to pay a fee of $0.25 per reserved share, or a total of $38.75 million to investors Fairholme and Pershing Square on the effective date.

The Texas Teachers clawback election does not include a fee.

If the clawback election is made, the investment agreements also allow General Growth to elect to have $350 million of Pershing Square's equity capital commitment delivered in cash at closing in exchange for bridge notes, in which case the company will also have a put right whereby up to 35 million shares of New GGP common stock can be sold to Pershing Square 180 days after the effective date to fund repayment of the bridge notes.

General Growth said this would give it more time to complete the post-emergence public equity offering.

Exit financing commitment

In addition, in order to provide a post-emergence source of liquidity and ensure a source of funding if reinstatement of some of the company's Rouse notes is not permitted, General Growth also has sought outside exit financing sources.

As a result, the company has secured commitments from Deutsche Bank Securities Inc., Wells Fargo Securities, LLC and RBC Capital Markets Corp. to act as joint lead arrangers to structure and arrange an exit facility in the form of a $300 million three-year standalone revolving credit facility or a $300 million three-year revolver and $1.5 million five-year term loan under a combined facility.

Interest on the standalone revolver would be Libor plus 450 basis points.

The interest rate on the combined facility would depend on the company's corporate family rating assigned by Moody's Investors Corp. and Standard & Poor's.

If the rating is greater than or equal to Ba3/BB-, the rate would be Libor plus 450 bps; if it is B1/B+, the rate would be Libor plus 500 bps; if it is B2/B, it would be Libor plus 550 bps; and if it is less than B3/B-, the rate would be Libor plus 625 bps.

Under the commitment letter, the company can, but is not obligated to, borrow up to $1.8 billion to fulfill its exit financing needs, depending, in part, on whether the Rouse notes are reinstated under the plan as proposed.

General Growth, a Chicago-based real estate investment trust that owns regional shopping malls, master planned community developments and commercial office buildings, filed for bankruptcy on April 16, 2009. Its Chapter 11 case number is 09-11977.

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