General Growth down to its last magic trick
Today's Financial News - Posted March 23, 2009
The markets are soaring today on hopes of resolving the toxic asset conundrum. But it may be too late for General Growth Properties (NYSE:GGP). Unless it gets bondholder consent, bankruptcy could be just around the corner.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): There are countless investors not sleeping well at night these days, but few folks are doing as much tossing and turning than the crew that holds a stake in General Growth Properties (NYSE:GGP). The nation’s second-largest mall owner is doing the best it can to survive the spring.
Its success is doubtful.
With over $27 billion in outstanding debt and over $2.25 billion due by 2013, General Growth needs a miraculous economic turnaround if it is to have any chance of getting out of this mess while resembling anything close to the operation it is today. So far, every time the company makes progress, it gets clobbered by more bad news.
Shares are on the rise today as the Treasury unveils its toxic-asset program and on the news that General Growth has extended its deadline for lender consent to Friday, March 27. Wall Street is taking the deadline extension as a sign of good news because company officials tell us it received more votes in favor of bondholder concessions than expected.
General Growth needs as many as 90% of short-term debt owners to consent to new terms or face a Chapter 11 filing in the very near future. The company is asking to cancel interest payments in exchange for a cash payment of $0.625 per every $1,000 held in bonds. The interest obligation would still accrue but would be added to the bonds’ principal.
Extending the pain
Even with this convoluted good news, investors are dealing with the fact General Growth is losing its handle on its remaining assets. As of Friday, four of the company’s 200 shopping centers are under court supervision. Even if the mall owner can get itself out of this debt bind, the concessions it has to make and the absolute halt to any strategic growth while it puts every penny of available cash flow into debt obligations will certainly hamper future operations.
Investors must realize General Growth is down to its last magic trick. Unless it can pull a fluffy, white rabbit out of its hat by this Friday, next week could bring a trip to a bankruptcy court.
It is nearly impossible to predict how bondholders will vote. There are simply too many stakeholders with too many divulging financial positions. Some may wish to fight for their stake in court, in hopes of some cash in their pocket now. Others will want to vote for concessions believing it will lead to a higher long-term payout.
As share price indicates today, the chances of concessions are higher than they were Friday, but anything could happen in the next five days. Do not be surprised to see this company making headlines this week.
Unless you are an investor with an iron stomach and can stand some high-risk speculation, stay away from this company. There is the potential of a strong reward, but you could also lose the vast majority of your investment by the end of the week.
This is not investing. It is gambling.
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March 29th, 2009 at 4:35 pm
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