Source: IDD Magazine
 
Like many businesses, General Growth Properties found it could not borrow money readily in the corporate bond market, and what would normally be another key source of financing, the commercial mortgage-backed securities market, was frozen for over a year.
 
"They had an asset and liability mismatch," recalls Ken Buckfire, co-founder of Miller Buckfire & Co., which advised the Chicago real estate investment trust on its bankruptcy. "They could not raise enough money to pay off maturing debt."
 
GGP, which runs some of the nation's most renowned malls, had $27 billion of debt when it filed for bankruptcy protection in April of last year. This case had more than its share of moving parts and produced a restructuring that earned the title of Real Estate Deal of the Year.
 
The court-supervised workout was complicated by the fact that GGP's hundreds of subsidiaries filed for protection along with the holding company. The multiple filings likely threw off many observers and creditors but proved crucial in managing the restructuring.
 
Each subsidiary was tied to a trust that oversaw principal and interest payments on mortgages for mall properties. Many of these monthly payments went to commercial mortgage-backed securities investors.
 
Another thing that made the bankruptcy tricky: GGP had to retain its equity in its malls for the workout to succeed. If it lost the properties (and their income) through foreclosure, the holding company could not service its own debt obligations. The situation led to a courtroom battle that tested various assumptions about the bankruptcy remoteness of securitizations. The CMBS bondholders and secured lenders-with $12 billion of securities in their portfolios-wanted to seize the properties, but the judge overseeing the bankruptcy ruled against the move.
 
After the tug of war between the bondholders and GGP was settled, loan servicers approved an extension for the mortgages bundled into the loan securities. Today each GGP subsidiary has confirmed bankruptcy plans, and the next step is to work out the issues with the holding company.
 
"Until we restructured the CMBS [trusts], we didn't have any idea of what cash flow we had coming through," Buckfire said. "If they picked the company apart and had taken the malls, the estate would be hurt."
 
Another critical aspect of GGP's workout process were the terms of its debtor-in-possession loan.The $400 million loan has a longer-than-average maturity (18 months) and can be converted to equity.
 
The flexible DIP terms allowed the company to focus on working out issues with CMBS investors and secured lenders.