The big news overnight was the announcement that Judge Allan Gropper of the U.S. Bankruptcy Court for the Southern District of New York confirmed General Growth's plan of reorganization. It will emerge on November 8 with most of its debt restructured and infusions of equity from a list of big name partners. Overall, the reorganization process will have lasted about 19 months. GGP's riskier assets will be part of the new Howard Hughes Corp. entity, which includes many remnants of the land and development portfolio GGP acquired as part of its takeover of Rouse Corp. several years ago. What remains of GGP proper will be a company boasting a large portfolio of stabilized assets. It plans to follow the reemergence by raising roughly $2.3 billion in equity in a public offering.
From the firm's release:
GGP will emerge from its financial restructuring with a strong balance sheet and substantially less debt, providing it with a solid financial foundation on which to execute its growth strategy. Upon emergence, GGP will have a significantly improved capital structure, having secured $6.8 billion in equity commitments from Brookfield Asset Management, Fairholme Funds, Pershing Square Capital Management, Blackstone and The Teacher Retirement System of Texas. GGP has also successfully and consensually restructured approximately $15 billion in project-level debt, renegotiating terms and extending maturity dates. In addition, all pre-petition GGP creditors will be satisfied in full.
The momentous announcement prompted me to look back at a story we published in February 2009. At the time, GGP had not yet filed for bankruptcy, but it only seemed a matter of time. We had never seen a REIT bankruptcy of that magnitude and no one was entirely sure how it would play out. So we interviewed attorneys and REIT experts and had them spell out what they thought would happen.
It turns out that things played out much as we predicted. The story concluded that REITs were better candidates than traditional C-Corps. to emerge from bankruptcy intact.
What we wrote then:
The sector may not have been tested by a big bankruptcy yet, but enough is known about how the companies are structured and how a bankruptcy proceeds that experts think the industry should emerge fine, even from a series of bankruptcies. Further, there is reason to believe that because REITs control a tangible base of assets through large portfolios of real estate, these firms may be more likely to survive bankruptcies than other companies that's value is harder to pin down or could be subject to liquidation.
The piece also said that it was likely that given the state of credit markets that white knights investing equity would be a better bet than traditional debtor-in-possession financing. (In fairness, experts did say finding white knights after the bankruptcy filing might be difficult. In GGP's case, it was able to find them.)
The story also said that REIT shareholders would be more likely than traditional shareholders to come out okay in a bankruptcy filing. As it turned out, GGP's stock ended up appreciating from about $0.25 per share at its low point to $16.80 today. In fact, General Growth has the rare distinction of regaining a spot on the New York Stock Exchange while still in bankruptcy reorganization. It was briefly delisted when its stock was trading under $1.00 per share. But anyone that bought then ended up making a killing as its stock recovered when it became clear that GGP was going to survive in good shape.
At any rate, revisiting the story made for an interesting read. And it's nice to know that we--at least sometimes--know what we're talking about.