Monday, November 10, 2008

And now, the dreaded going concern statement for GGP

Yup. GGP has released its 10-Q with the following statement:

In the event that we are unable to extend or refinance our debt or obtain additional capital on a timely basis and on acceptable terms, we will be required to take further steps to acquire the funds necessary to satisfy our short term cash needs, including seeking legal protection from our creditors. Our potential inability to address our 2008 or 2009 debt maturities in a satisfactory fashion raises substantial doubts as to our ability to continue as a going concern.
What does that mean? Bankruptcy if some big loans are not extended or refinanced. And these deals are requiring big bucks, including lower LTVs and higher interest rates. This double whammy may mean that even if the loan agreement is on the table the deal may not be able to be done. The CC bankruptcy didn't help. And some say it is time that GGP go away.

(AIG had a going concern statement in its 10-Q, by the way. But it gets a bailout.)


David Bodamer said...

I have some questions about this. What would a REIT bankruptcy actually look like? Has there been one before? Would it proceed differently than a bankruptcy of other corporations?

What would happen to GGP's debt in this scenario? Would the bankruptcy court restructure the loans on its assets? Would its assets be available at fire sale prices?

Would some other company come in and buy its assets? When retailers go bust, we see the excess space firms jump in to deal with the real estate. Could they deal with an inventory like GGP's portfolio?

David Stejkowski said...

You know, these are good questions, David. I believe there were a bunch of REIT bankruptcies in the 1970s and others from time to time.

I am not a bankruptcy or a REIT expert, but I would think the court would want to try to preserve the tax benefits of the REIT, since it has to distribute almost all its income, and IIRC the elimination of dividends could be problematic.

Assuming it goes in that direction: The bankruptcy court has pretty broad powers. What would presumably happen is a fire sale auction, where cash is king, either piecemeal or in whole.

The question here is whether some of the competitors -- I have a name or two in mind -- jump in and do something, perhaps in a white knight scenario, a prepackaged BK filing or perhaps as a stalking horse for the trustee in a BK.

The portfolio can be dealt with -- look at EOP/Blackstone. Going out on a limb: I think you may have an announcement after the close today or before market open tomorrow.

I would encourage anyone with more expertise on this side of the legal equation to add some thoughts.

David Stejkowski said...

P.S. The company's market cap is $117 million as I type. This means the market values the company's equity in its portfolio as...ouch.