General Growth Properties Inc filed the biggest real estate bankruptcy in US history after amassing $27 billion in debt as it became the second-largest US shopping mall owner.
The mall owner will continue operating its more than 200 properties, including South Street Seaport in Manhattan and Boston’s Faneuil Hall, after it sought Chapter 11 protection in US Bankruptcy Court in New York. The company listed $29.5 billion in total assets and debts of about $27.3 billion.
“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,” Chief Executive Officer Adam Metz said in a statement on Thursday.
The filing lists Eurohypo AG, a unit of Commerzbank AG, as General Growth’s largest unsecured creditor with claims totalling $2.59 billion under two loans. Noteholders are owed about $4 billion in total. Much of the company’s debt can be traced to its $11.3 billion purchase of commercial-property developer Rouse Co in 2004.
Warnings
The Chicago-based company lost 81 per cent of its market value in six months after saying repeatedly it may have to file for bankruptcy. General Growth closed at $1.05 in New York Stock Exchange composite trading on Wednesday, valuing the company at $329 million. The shares traded as high as $67 in March 2007.
“It was a disaster waiting to happen,” said Patrick Sumner, head of real estate securities at Henderson Global Investors in London. “They didn’t realise the market was going to get like this and that they were going to be in the front line when the guns went off.” Henderson doesn’t own any shares in General Growth.
Also Read
Rouse and 165 other units were also included in the bankruptcy. General Growth said several properties that are part of joint ventures weren’t included.
The company on March 23 said that a deadline for bondholders to agree to new terms for $2.25 billion in debt expired without the minimum number of holders accepting the agreement. The company said on March 30 it was continuing to negotiate with creditors.
Pershing’s stake
Standard & Poor’s in November removed General Growth from the Standard & Poor’s 500 Index, saying the mall owner’s stock- market value of about $128 million at the time ranked it last in the index. Two weeks later, William Ackman’s Pershing Square Capital Management LP bought a 20 per cent interest through shares and swaps. The hedge-fund manager has since boosted its General Growth stake, and now owns about a quarter of the company, Ackman, 42, said on March 16.
Pershing Square agreed to provide General Growth with $375 million in bankruptcy financing to help run the company during the Chapter 11 process, Thursday’s statement said.
General Growth’s history stretches back to 1954, when brothers Matthew and Martin Bucksbaum expanded their family’s grocery business by building the Town and Country Center in Cedar Rapids, Iowa, one of the Midwest’s first regional shopping malls. General Growth became the second ranking US mall owner in 1989 when it bought the assets of Center Cos, and in 1993 raised about $300 million in an initial public offering.
For the first time in its history, General Growth in October was turned over to someone outside the family when it replaced CEO John Bucksbaum, Matthew’s son, with 47-year-old Metz. John Bucksbaum, 52, replaced his father as chairman last year, and remains in that position.
Martin Bucksbaum died in 1995.
Undisclosed Loan
John Bucksbaum’s removal as CEO followed the October departure of Chief Financial Officer Bernard Freibaum after he sold 2.95 million shares to meet margin calls. An affiliate of a Bucksbaum family trust had loaned Freibaum $90 million to pay margin debt. Bucksbaum’s failure to disclose the loan violated company policy, a review by General Growth’s independent directors found.
Only Simon Property Group Inc, based in Indianapolis, owns more US malls than General Growth.
Marcia Goldstein of Weil Gotshal & Manges LLP and James Sprayregen of Kirkland & Ellis LLP are the lawyers representing General Growth in the bankruptcy. The company also hired turnaround firm AlixPartners LLP and investment bank Miller Buckfire & Co, court papers show.