General Growth Files Chapter 11

In one of the largest real estate bankruptcies of all time, General Growth Properties (GGP - Analyst Report) announced early this morning that the company will file Chapter 11. After months of negotiations, bondholders finally lost patience. Unable to refinance maturing debt amidst the credit squeeze, the company was forced to file for protection from creditors.

GGP got drunk on debt during the boom times by making pricey, ill-timed acquisitions over the past several years. The company has about $27 billion in debt, with $3.5 billion maturing this year and about $7 billion next year.

GGP is filing chapter 11, not 7, so the company will try to reorganize and come out intact as an operating company. Most of the company’s 200+ malls are part of the filing, although about 70 are not.

Complicating the process is a myriad of unsecured creditors and a rapidly declining retail landscape. We expect many assets to be sold as the proceedings progress, although the market for high-end malls is uncertain (there have been few if any sales lately), and prices continue to drop.

GGP will emerge from bankruptcy intact; the company has some valuable assets that still make money, although it will be a much smaller company down the road.

In any event, GGP also announced that it has received a commitment for a debtor-in-possession financing facility of $375 million from Pershing Square Capital Management, a hedge fund, which, if approved, will give the company the liquidity to keep malls open during the bankruptcy proceedings.