General Growth Rallies Again

Shares of General Growth Properties (GGP - Analyst Report) were up 8% yesterday, after jumping 35% Monday, despite two down days for the sector. Volumes have spiked as well, 46 million shares were traded yesterday and 25 million today, vs. three months daily average of about 8 million shares.

GGP issued a statement after an inquiry from the NYSE which stated that the company is “unaware of any corporate developments that might explain the unusual market activity.” GGP has been in continuous negotiations with bond holders and lenders to try to extend debt maturities and modify payments. Deadlines continue to be extended as not all bondholders have agreed to the company’s proposed modifications.

The company is already technically in default on debt covenants. So why the sudden interest in GGP’s common stock? Barring the possibility that any news that has leaked out, it seems that debt holders are reluctant to push the company into bankruptcy and the ensuing chaos that this would create.

If there is no bankruptcy, and somehow GGP can get bondholders and secured lenders to rework debt, then the common shares could be a steal. GGP still has valuable assets and the company is trading well below the liquidation value of its portfolio.

We still think bankruptcy is probable in this environment where the retail landscape continues to weaken. All it takes is one lender to lose patience, which could force a bankruptcy filing.