GGP's Bankruptcy -- Day 2

The immediate blast of news covering the bankruptcy is now over. Now it's time for the more analytical pieces and the stories picking up on specific interesting angles that will play out as the bankruptcy unfolds.

First, make sure you check out our write-up, which includes reaction from key industry figures. Most think General Growth will survive the bankruptcy in some form. However many wonder whether the company will be able to do it without selling some of its choice assets--something General Growth executives said they want to avoid doing. We'll have more reaction from other figures soon. So keep your eyes here or on our home page for more updates.

The New York Post writes up a mini-profile of William Ackman--an unlikely figure that now has waded chest deep into General Growth's choppy waters. Between the stake in voting securities that his Pershing Square Capital Management, L.P. has in the company (7.4 percent according to GGP's bankruptcy filing) and other swaps Ackman controls, it's estimated that Ackman controls about 25 percent of GGP's equity now. Further, he's now providing the DIP financing ($375 million), which comes with rights to purchase more GGP stock under certain conditions. Reuters has another look at his exposure. And the New York Times DealBook blog has yet another look at Ackman, this one focused on his track record up to now.

Bloomberg, meanwhile, looks at how GGP's debt situation could open the door for rivals to come in and buy some of its properties. CNBC treads similar ground with its report, which also includes highlights from the network's interview with President and COO Thomas Nolan yesterday morning. However, in another Bloomberg piece, Ackman says “The probability of Simon (Property Group Inc.) or the other mall REITs buying any of General Growth's properties on the cheap is zero." General Growth is “not going to be forced to do anything because they're in bankruptcy.”

Interestingly, the Bloomberg story points out how many other regional mall REIT stocks rallied yesterday off speculation that the firms might benefit from GGP's bankruptcy through being able to snap up some of its assets. Before GGP's bankruptcy, I had heard a lot of speculation that GGP's collapse would hurt other regional mall REITs by sowing fears about the sector and sending investors fleeing. So it's quite interesting that the initial reaction, at least, was the opposite of that. Similarly, Seeking Alpha offers some technical analysis of the effect of GGP's bankruptcy on commercial real estate stocks.

Next, the Financial Times looks at how credit-default swaps played a role in GGP's bankruptcy. There's not much detail on the exact role CDSs played. But the instruments are mentioned explicitly in GGP's filing. (We have links to many of the key documents from GGP in yesterday's post.)

The Wall Street Journal compares the terms of GGP's DIP financing with the terms other firms have on their loans. GGP will pay interest of LIBOR + 12 percent (with a LIBOR floor of 3 percent). Further, the financing comes with warrants to acquire equity securities upon "consummation of a Chapter 11 plan of reorganization."

The interest rate on General Growth's DIP is higher than that paid by chemicals company LyondellBasell Industries on its $8 billion DIP. Lyondell's included $3.25 billion term loans priced at 10% over LIBOR and a $1.515 billion asset-based revolving credit facility at 7% over LIBOR.

It's also higher than the 8% General Motors Corp. (GM) could end up paying in the event of a default on up to $13.4 billion of loans put in place by the U.S. government. The interest on these loans is currently 3%.The interest rate on these loans is also over LIBOR.DIP loans are provided for companies in Chapter 11 bankruptcy protection. They have priority over a company's existing debt, equity and any other securities.

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