General Growth, lenders agree on mall debt rework

AP News
Posted: Nov 19, 2009 8:53 PM

Mall operator General Growth Properties Inc., which filed the largest U.S. real estate bankruptcy case in history earlier this year, said Thursday its lenders have agreed to restructure some $8.9 billion in shopping mall mortgage loans.

The agreements, which cover loans on more than 70 malls, could enable some of the shopping centers to exit bankruptcy before the end of this year, the company said.

Thomas Nolan, Jr., General Growth's president and chief operating officer, said he hoped the deals announced Thursday would lay the groundwork for restructuring another $6 billion in mortgage loans on other shopping malls.

General Growth is "hopeful that our other secured mortgage lenders will work with us to reach agreements quickly," he said in a statement.

The company, which is based in Chicago, is the second-largest mall operator in the nation and owns or manages more than 200 malls.

The real estate investment trust and roughly 166 regional shopping centers and subsidiaries filed for Chapter 11 protection in April.

At the time, it reported $27 billion in debt, making it the largest U.S. real estate bankruptcy case in history. The company racked up the heavy debt load in an aggressive expansion during the height of the real estate boom and was unable to service it when credit markets dried up during last year's financial crisis.

Some lenders complained that General Growth had unfairly dragged healthier subsidiaries into bankruptcy with it.

The lenders agreed to extend the due dates on the loans to between January 2014 and as far off as 2018. But in return, they will be getting back what they originally were owed, plus interest and other bankruptcy-related costs.

In addition, General Growth will be held to stricter oversight on its loans, including a requirement that it beef up its reserves in certain conditions.

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Because the plan calls for General Growth to pay off the loans in full, it will retain the equity in the shopping centers, including the Ala Moana Center in Honolulu and the Harborplace & The Gallery in Baltimore.

"They're making the lenders whole for the cost of the bankruptcies and they're going to significantly pay down the loans over time so that the lenders are more likely to recover the amounts they're owed," said Greg Cross, an attorney who represents the largest block of secured General Growth creditors.

The agreements must be approved by the bankruptcy court.

Shares of General Growth added 97 cents, or nearly 17 percent, to $6.79 in over-the-counter trading Thursday.