General Growth Properties
The agreement applies mostly to mortgages and leaves the company negotiating other property debt as well as more than $6 billion of corporate-level debt.
What's important is that it represents $9 billion of the $14 billion of property-level debt, said General Growth attorney Marcia Goldstein, of Weil Gotshal. It's a linchpin to concluding the plan of reorganization at the corporate level.
The agreement is with six special servicers that oversee troubled commercial mortgage-backed securities (CMBS) and with life insurance company Prudential Financial Inc
It will allow about 170 of the General Growth-related entities that were put under bankruptcy protection to emerge by the end of the year. A tentative hearing date for a plan of emergence from bankruptcy was set for December 14.
The Chicago-based company, which owns or has an interest in more than 200 U.S. malls, has until February to submit a plan of reorganization.
It's progress, and I give them a great deal of credit, RBC Capital analyst Rich Moore said. But the company still has to tackle loans that may be worth more than the properties to which they relate, in addition to other obligations, he said.
The hard stuff is yet to come, Moore said.
Simon Property Group
An agreement with lenders could help Simon and General Growth reach a deal, Moore said.
The loans covered under the agreement range from tens of millions of dollars to more than $1 billion, Anup Sathy, an attorney at Kirkland & Ellis, which also represents General Growth, told U.S. Bankruptcy Court Judge Allan Gropper. The $1.2 billion mortgage on the Ala Moana mall in Hawaii, the largest cash-generating mall in the United States, is included.
But the deal came at a price to General Growth.
The lenders are recouping all the costs and lost amortization that happened as a result of the bankruptcy and the deal is structured in a way that it ensures they're going to recover all their principal and interest moving forward, said Venable LLP attorney Greg Cross, who represented a group of lenders and helped hammer out the deal.
Under the terms of the agreement, a loan could be extended to last six years from January 2010. For example, if a loan was set to mature in two years from that date, it could be extended another four years.
Lenders will get all their money back including costs related to the bankruptcy. From a lender perspective, it will be as if the company had not filed for bankruptcy.
The loans, many of which were interest only, will be subject to amortization of the principal and that will increase every two years. Initially the principal will be amortized for a 30-year repayment schedule, but that will change to 25 years and then to 20, translating into bigger repayments of the principal each year.
Secondly, the company will have to set aside additional reserves and there will be more stringent triggers for setting aside insurance and other monthly payments if the operating income on the property falls below a certain threshold.
Additionally, the agreements now include provisions that would make it harder for the property to fall into bankruptcy should the borrower default again.
General Growth shares rose 16.7 percent, or 97 cents, to $6.79. Earlier the shares reached a 12-month high of $6.94.
(Editing by Andre Grenon, Gary Hill and Steve Orlofsky)