Wednesday, Fairholme Capital Management, L.L.C. on behalf of The Fairholme Fund (FAIRX) and The Fairholme Focused Income Fund (FOCIX), each a series of Fairholme Funds, Inc., announced a proposal pursuant to which the Funds would acquire approximately 271.3 million shares or approximately $2.713 billion of new equity capital of the reorganized General Growth Properties, Inc. (GGP) at $10.00 per share to facilitate GGP's emergence from bankruptcy.
In addition, under the proposal, the Funds would provide funding of approximately $67.5 million in connection with the $250 million rights offering of General Growth Opportunities, a new subsidiary of GGP, at $5 per share. The Funds currently hold approximately $1.83 billion in face amount of GGP's unsecured indebtedness.
On March 8, GGP said that Fairholme Capital Management, LLC, and Pershing Square Capital Management, had offered to invest $3.925 billion of new equity capital at a value of $15 per share to facilitate the Chicago-based mall owner's emergence from bankruptcy.
Under the terms of the proposal, Fairholme has committed to purchase $3.8 billion of common stock of the new reorganized company or New GGP at $10.00 per share. The company also provided a commitment to provide the currently unfunded $125 million of capital to backstop a $250 million rights offering by General Growth Opportunities at a price of $5 per share.
Together with the previously announced $2.625 billion proposal from real estate and asset management firm, Brookfield Asset Management, Inc. (BAM), this proposal, if accepted, would provide General Growth with more than $6.5 billion of committed equity capital.
On February 24, GGP revealed an agreement with Brookfield Asset Management, whereby Brookfield will invest about $2.625 billion in a proposed recapitalization of GGP at a plan value of $15.00 per share and provide par plus accrued interest to unsecured creditors.
Under terms of the agreement, Brookfield will invest $2.5 billion in cash in exchange for GGP common stock that will provide sufficient liquidity to fund GGP's bankruptcy emergence needs.
Brookfield will own about 30% of GGP and have the right to nominate three directors. The investment will provide flexibility for GGP to pursue additional capital-raising alternatives up to a total of $5.8 billion, including the issuance of new equity, asset sales and limited new debt issuance.
General Growth, which has been fending off an unsolicited $10 billion takeover offer from rival Simon Property Group (SPG), said the proposal is designed to ensure that the company will be able to emerge from bankruptcy on a standalone basis.
On March 1, 2010, GGP said that its fourth quarter loss widened significantly from last year due to substantially higher impairment provisions reflecting reduced holding periods for non-strategic operating assets and indefinite delays in major development products.
General Growth Properties owns more than 200 regional shopping malls in 44 states and is the second-largest mall operator in the U.S. after Simon Property Group by number of properties. The company sought Chapter 11 bankruptcy protection in April 2009 after failing to refinance portions of its $27 billion debt as they became due, filing the biggest real-estate bankruptcy in U.S. history.
In mid-December of 2009, the bankruptcy court approved GGP's plans of reorganization for about $10.25 billion of secured mortgage loans. The loans are associated with 194 debtors owning 85 regional shopping centers.
GGP is currently trading at $14.73, up $0.18 or 1.24%, on a volume of 1.47 million shares on the New York Stock Exchange.
BAM is currently trading at $24.39, down $0.19 or 0.77%, on a volume of 338 thousand shares on the New York Stock Exchange.
SPG is currently trading at $80.86, up $0.04 or 0.05%, on a volume of 876 thousand shares on the New York Stock Exchange.
For comments and feedback: editorial@rttnews.com