Bill Ackman discusses General Growth Properties on CNBC May 11
Those of you readers who, like me, have taken a position in General Growth Properties (GGP) at the time of its bankruptcy filing, will be very interested to watch CNBC’s Squawkbox on Monday morning, May 11. Bill Ackman of Pershing Square, is appearing as a guest host on the morning show and will discuss his investments in Target (TGT) and also GGP. I don’t know the exact time he will discuss GGP, but I will be DVDing the entire show (which runs from 6am to 9am EDT) so I don’t miss a thing.
So far, so good with the bankruptcy process. The market for financing commercial real estate is slowly improving, as shown by the high yield debt interest rates continuing to decline (and bond values continuing to appreciate). The major casino stocks (LVS, WYNN, MGM) are also improving in price after being near the brink of bankruptcy themselves. Because there was so much casino construction activity in Las Vegas and elsewhere in the past five years, all done with loads of debt, the casino stocks are a good proxy for GGP’s prospects.
GGP stock has actually improved in price since its bankruptcy filing, moving from around $0.60 per share to the current $0.90 per share. It is impossible right now to know how much that stock will be worth in two months or two years, but antecdotally, the stock price increase is a positive. The common stock will certainly undergo significant dilution coming out of bankruptcy. It is typical for debt to be converted to common to alleviate excess debt and improve the balance sheet and reduce interest payments. But only time will tell how much dilution is experienced. I am hoping for 3:1 dilution. Under this scenario, when the economy returns to full strength, it may be possible for GGP to get to $15 per share. The actual result may be better or worse.
I have emailed CNBC just now to ask the Squawk staff to query Bill Ackman on the reason he is being replaced as the Debtor in Possession financier on the bankruptcy of GGP. It is unclear the actual reason.
It made very good sense for common shareholders to have Ackman aligned with our interests as the DIP financier. This debtholder status offers the highest priority in claims against assets. The reason for the change may have been a conflict between GGP upper management and Ackman (he is seeking at least one board seat and probably wants to sell off the GGP assets as that is his M.o.) or, the current debtors may have asked the court to appoint a different DIP financier as they saw Ackman’s position as a conflict of interest (which is why I liked it!). Hopefully, we can find out the answer Monday morning.
Here is the report from the Bloomberg on the change of financing partners:
“General Growth Properties replaces lender”
May 7, 2009
Chicago-based General Growth Properties Inc., which filed the biggest real-estate bankruptcy in U.S. history, asked a judge to approve an increased $400 million loan from new lenders to continue operations while under court protection.
In court documents filed Wednesday in U.S. Bankruptcy Court in New York, General Growth said it replaced its earlier lender, William Ackman’s Pershing Square Capital Management LP, with new investors. It didn’t give a reason for replacing Pershing, which had agreed to provide a $375 million bankruptcy loan.
The new proposed loan includes a commitment of as much as $210 million from San Francisco-based private-equity firm Farallon Capital Management LLC and as much as $110 million from New York-based Luxor Capital Group, according to the filing.
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