General Growth Faces Deadline to Extend $2.3B Debt

General Growth Properties Inc. faces another decisive moment today in its long struggle to avoid bankruptcy. The nation’s second-largest retail REIT is awaiting a response to the request it extended to creditors last week for forbearance on $2.25 billion in debt that matures this year for its Rouse Company L.P. affiliate. Of that total, a combined $595 million is due today and on April 30. “We believe that the deadline posed by these particular maturities suggests that some clarity to the GGP situation will be forthcoming,” said RBC Capital Markets lead REIT analyst Rich Moore in a research note published earlier this month.In General Growth’s favor, its 200 million-square-foot retail portfolio continues to perform well enough to provide solid income flow. The company’s net asset value is still positive at $3.01 per share based on what Moore described as a conservative 8 percent cap. He also suggested that its stock is probably trading for less than its real value. However, the gravity of General Growth’s financial situation seems difficult to overstate. In a federal 10-K report filed last month, the company disclosed that its past-due debt totals $1.18 billion. Besides its 2009 debt maturities, the company has $7.1 billion coming due next year and another $5.9 billion in obligations for 2011. After General Growth’s request for forbearance last week, Fitch Ratings promptly downgraded the REIT’s outstanding debt from “C” to “restricted default.” The agency noted that last week’s consent solicitation of its creditors means that General Growth would make neither principal payment on notes maturing in April and May nor interest payments on Rouse’s maturing notes before Dec. 31. “Absent the consent solicitation, there is a high probability of a Rouse bankruptcy or insolvency over the near term, resulting in the consent solicitation being coercive (de facto even if necessary),” Fitch stated last Tuesday in explaining the downgrade. RBC’s Moore agreed that General Growth’s situation is deteriorating, although as of the beginning of the month, its lenders had shown no eagerness to force the company into bankruptcy. Given that trying to sell or operate a giant retail portfolio would be unattractive to creditors, secured lenders seem more likely to grant General Growth’s request for extensions. Some have speculated that General Growth is a takeover target for the largest retail REIT, Simon Properties Group Inc. However, Simon’s CEO, David Simon, has ruled out acquiring the massive General Growth portfolio. But Moore notes that Simon and Westfield Group have the cash reserves to buy some General Growth assets. Such acquisitions would keep General Growth out of bankruptcy, at least for now.