General Growth Wins Key Extension on Debt

By KRIS HUDSONArticle Debt-laden mall owner General Growth Properties Inc. won a two-week extension of its deadline to pay a $900 million debt, avoiding for the time being what would be one of the largest real-estate bankruptcies in recent U.S. history. Alamy General Growth is locked in debt talks. Above, Fashion Show Mall in Las Vegas. General Growth executives spent the weekend locked in tense negotiations with lenders. The loan had an initial payment deadline Friday, but that passed without an agreement on new terms for the loan. The sides couldn't reach an accord after Citigroup Inc., one of roughly half a dozen lenders in the pact, balked on agreeing to the extension, according to a person familiar with the talks. It couldn't be determined on Sunday what demands Citigroup made that held up the accord. A representative of the bank declined to comment, as did General Growth. Among other banks involved in the loan are Deutsche Bank AG, Bank of America Corp. and Wachovia Corp. The talks are particularly complicated because all banks must agree on an extension for one to be approved. If General Growth, the second-largest U.S. mall owner, had failed to clinch an extension and the lenders had opted to declare it in default, that could have triggered cross defaults of other General Growth debts and forced the company to seek bankruptcy protection. But the lenders refrained from declaring General Growth in default after the Friday deadline passed and talks continued. General Growth, based in Chicago, owns and manages more than 200 U.S. malls, including well-known venues such as Water Tower Place in Chicago, Ala Moana Center in Honolulu and Mizner Park in Boca Raton, Fla. It is the second-largest U.S. mall owner by number of properties behind Simon Property Group Inc. Two malls on the Las Vegas Strip are pledged as collateral on the $900 million in debt. Analysts and General Growth's competitors had considered a deadline extension for General Growth the most likely scenario because most lenders prefer not to foreclose on property if the borrower is making efforts to meet its obligations. In this case, General Growth on Oct. 27 put on the market three luxury malls in Las Vegas -- including the two pledged as collateral -- in a bid to raise capital to pay down the loan. Real-estate observers are watching General Growth's plight for signs of how lenders will handle imperiled borrowers in this financial crisis. Analysts predict that, as billions of dollars of commercial loans come due in the coming months, many borrowers will seek extensions of payment deadlines from their lenders if new capital remains scarce. "The last thing lenders want when it comes to commercial real estate these days is to bring the problems onto their own balance sheet" by foreclosing, said Mike Kirby, head of research at Green Street Advisors Inc. All told, General Growth amassed a debt load of $27 billion in recent years, mostly to finance acquisitions. Even if the company resolves the matter of the $900 million debt on the Las Vegas malls, it has $58 million in bonds due today, $3.3 billion in debt due next year, $4.5 billion in 2010 and $8.4 billion in 2011. The company has little cash on hand or borrowing capacity to meet those obligations. That debt load, rather than the relatively healthy operations of General Growth's malls, is what has landed the company in a credit crunch. General Growth warned in a Securities and Exchange Commission filing on Nov. 10 that it may have to seek bankruptcy protection if it fails to refinance or pay its debts. The company also hired law firm Sidley Austin to advise it should it need to file for bankruptcy. General Growth's stock closed Friday at $1.38, up 22 cents, in 1 p.m. composite trading on the New York Stock Exchange in a shortened trading session. The stock has declined by 97% in the past year as investors fretted about the company's crushing debt. Even so, some institutional investors such as Fidelity Management & Research Inc. and William Ackman's Pershing Square Capital hedge fund have bought large stakes in General Growth as the stock declined, betting the stock will either rebound or the equity will keep some value in a bankruptcy. Should General Growth eventually end up in bankruptcy, it would be the largest real-estate collapse since Canadian developer Olympia & York Developments Ltd., developer of London's Canary Wharf, sought bankruptcy protection in 1992 with $18.6 billion in debt. As General Growth's stock fell in recent months and debts became more difficult to refinance, General Growth shook up its management team. The company dismissed Chief Financial Officer Bernie Freibaum on Oct. 2 and accepted the resignation of Chief Executive John Bucksbaum on Oct. 26. He remains chairman. Board members Adam Metz and Thomas Nolan took over as interim CEO and interim president, respectively. -- Liquidity from 10Q 2008 The Company has $900 million of property secured debt and $58 million of corporate debt that is scheduled to mature by December 1, 2008. The Company is working with its syndicate of lenders to extend the November 28, 2008 maturity dates for its property secured debt (related to Fashion Show and The Shoppes at The Palazzo, both in Las Vegas, Nevada). In addition, we have undertaken a comprehensive examination of all the financial and strategic alternatives to generate capital from a variety of sources, including, but not limited to, both core and non-core asset sales, the sale of joint venture interests, a corporate level capital infusion, and/or strategic business combinations. Given the continued weakness of the retail and credit markets, there can be no assurance that we can obtain such extensions or refinance our existing debt or obtain the additional capital necessary to satisfy our short term cash needs on satisfactory terms. Even if we are successful in addressing these 2008 maturities, an additional $3.07 billion of property and corporate debt is scheduled to mature in 2009. In the event that we are unable to extend or refinance our debt or obtain additional capital on a timely basis and on acceptable terms, we will be required to take further steps to acquire the funds necessary to satisfy our short term cash needs, including seeking legal protection from our creditors. Our potential inability to address our 2008 or 2009 debt maturities in a satisfactory fashion raises substantial doubts as to our ability to continue as a going concern. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, our consolidated financial statements do not reflect any adjustments related to the recoverability of assets and satisfaction of liabilities that might be necessary should we be unable to continue as a going concern. --reference for detailed detailed outstanding debt by maturities http://www.sec.gov/Archives/edgar/data/895648/000095012308014370/c47435exv99w1.htm