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General Growth investors add $3.93B to Brookfield plan

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General Growth Properties Inc. said its biggest debt and equity holders have offered to jointly invest $3.93 billion in the company, bolstering a plan with Brookfield Asset Management Inc. to bring the mall owner out of bankruptcy.

The investments from Bruce Berkowitz’s Fairholme Capital Management LLC and William Ackman’s Pershing Square Capital Management LP would allow unsecured creditors to be paid in full with cash, General Growth said in a statement. Their funds are in addition to $2.63 billion pledged by Brookfield.

The cash payment matches a provision of a competing bid by Indianapolis-based Simon Property Group Inc., which has offered to buy its biggest competitor for more than $10 billion and pay all unsecured creditors. Chicago-based General Growth rejected that bid and lined up the Brookfield investment last month with plans to split into two companies, part of a proposal that creditors called risky because of a reliance on debt and equity sales.

“If BAM moves ahead with this structure, it removes most if not all uncertainly from their previous bid, and removes any doubt to whether it’s credible or not,” said Jim Sullivan, an analyst at Green Street Advisors in Newport Beach, Calif.

New York-based Pershing Square is General Growth’s biggest equity investor, with a 25-percent economic interest, including 7.5 percent of its shares. Fairholme is the largest creditor with about $1.9 billion of General Growth debt, while Brookfield has about $500 million and Pershing Square owns about $434 million, according to a person familiar with the investments.

Brookfield’s new plan calls for Fairholme and Pershing to buy about 380 million new General Growth shares at $10 each. The investments would combine with 250 million shares Brookfield would buy, $1.5 billion in new debt Brookfield is raising, and a $250 million rights offering for a new company, General Growth Opportunities. Brookfield will backstop $125 million of that sale, and Fairholme and Pershing Square will backstop the rest. Combined, more than $8 billion would be raised.

“The proposal from Fairholme and Pershing Square builds on the significant momentum we have created to return GGP to a strong financial foundation for the future,” General Growth CEO Adam Metz said in the statement. “Our goal is to raise capital in the most cost-efficient way to maximize value for all of our stakeholders. We are pleased with the support shown by one of our largest unsecured debt holders and one of our largest equity holders.”

The proposal must be approved by General Growth’s board and the bankruptcy court, and better offers may still emerge, the company said. Also, General Growth would have the right to reduce the $3.8 billion investment by $1.9 billion should it be able to raise equity capital on better terms.

Ackman stepped down from General Growth’s board as part of the plan, the company said.

“Bill Ackman has made significant contributions to GGP during his time on the Board,” Metz said. “We understand his decision to resign to facilitate Pershing Square’s participation in this proposal.”

Simon Property spokesman Les Morris declined to comment.

Brookfield’s plan gives General Growth equity holders $15 a share, compared with about $9 a share under Simon’s offer. The previous version of Brookfield’s plan called for General Growth to raise as much as $5.8 billion by issuing shares and new debt and through the sale of properties.

The new plan “would, if accepted, deliver substantially all of the cash required to fulfill the company’s capital needs in connection with its emergence from bankruptcy and provide unsecured creditors with par plus accrued interest in cash,” General Growth said.

Unsecured creditors said in a March 2 bankruptcy-court filing that the previous plan was too risky. Simon, in a separate filing, supported the creditors.

“While Simon has offered to pay unsecured creditors in full in cash, the consideration to be offered to unsecured creditors under the ‘recapitalization’ is entirely subject to market risk,” David C. Bryan, Eric M. Rosof and Emil A. Kleinhaus, Simon’s attorneys, wrote in the filing. “If General Growth does not raise enough money to pay unsecured creditors, they will be stuck with the equity securities of a highly leveraged company.”

David Fick, an analyst with Stifel Nicolaus & Co. in Baltimore, said the new plan is likely an effort to compel Simon to boost its offer.

“These guys don’t have the ability to run these assets without the existing GGP management,” he said. “The Pershing Square and Brookfield interests are best aligned with getting a sale done.”

General Growth, owner of New York’s South Street Seaport and Boston’s Faneuil Hall, filed the largest real-estate bankruptcy in U.S. history in April after amassing $27 billion in debt making acquisitions. Under its plan with Brookfield, General Growth would split into a company owning shopping malls and another that would own buildings and land with redevelopment possibilities.

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  • A Future Bargin
    Perhaps, after a year or so, if the Canadian company Brookfield is unable to manage US based mall properties, Simon might consider making a purchase at $6 billion instead of $10 billion. Perhaps it will be a bargin for Simon, but, sadly, a loss for GGP shareholders.

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  1. If I were a developer I would be looking at the Fountain Square and Fletcher Place neighborhoods instead of Broad Ripple. I would avoid the dysfunctional BRVA with all of their headaches. It's like deciding between a Blackberry or an iPhone 5s smartphone. BR is greatly in need of updates. It has become stale and outdated. Whereas Fountain Square, Fletcher Place and Mass Ave have become the "new" Broad Ripples. Every time I see people on the strip in BR on the weekend I want to ask them, "How is it you are not familiar with Fountain Square or Mass Ave? You have choices and you choose BR?" Long vacant storefronts like the old Scholar's Inn Bake House and ZA, both on prominent corners, hurt the village's image. Many business on the strip could use updated facades. Cigarette butt covered sidewalks and graffiti covered walls don't help either. The whole strip just looks like it needs to be power washed. I know there is more to the BRV than the 700-1100 blocks of Broad Ripple Ave, but that is what people see when they think of BR. It will always be a nice place live, but is quickly becoming a not-so-nice place to visit.

  2. I sure hope so and would gladly join a law suit against them. They flat out rob people and their little punk scam artist telephone losers actually enjoy it. I would love to run into one of them some day!!

  3. Biggest scam ever!! Took 307 out of my bank ac count. Never received a single call! They prey on new small business and flat out rob them! Do not sign up with these thieves. I filed a complaint with the ftc. I suggest doing the same ic they robbed you too.

  4. Woohoo! We're #200!!! Absolutely disgusting. Bring on the congestion. Indianapolis NEEDS it.

  5. So Westfield invested about $30M in developing Grand Park and attendance to date is good enough that local hotel can't meet the demand. Carmel invested $180M in the Palladium - which generates zero hotel demand for its casino acts. Which Mayor made the better decision?

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