General Growth’s bankruptcy plan can’t move forward because the heirs wouldn’t receive the same recovery as the company’s creditors or shareholders, they said in a court filing today in U.S. Bankruptcy Court in New York.
“There is no legitimate reason to provide the Hughes heirs with any other treatment, which is blatantly discriminatory and precludes confirmation of the plan,” they said.
General Growth, based in Chicago, is scheduled to go to court next week to ask Judge Allan Gropper to allow its creditors to begin voting on the plan. The company hopes to exit bankruptcy by October.
The Hughes heirs were among several parties involved in the bankruptcy case that filed objections to the plan today and asked Gropper to order changes. They included the committee representing unsecured creditors, Eurohypo AG and Halcyon Asset Management LLC.
Creditors oppose in part General Growth’s proposal for reinstating debt, including $1.35 billion in so-called Rouse bonds, when it exits bankruptcy instead of paying holders in cash. They say the plan discriminates against them because it allows investors that are financing the mall owner’s restructuring the option of receiving cash for their bonds.
$6.3 Billion in Stock
Brookfield Asset Management Inc., Fairholme Funds Inc. and Pershing Square Capital Management LP are providing financing for the bankruptcy plan. They have agreed buy $6.3 billion of new General Growth stock at $10 a share plus $250 million of new equity in a company General Growth intends to spin off.
Under the plan, Fairholme and Pershing intend to cash out $304 million of Rouse bonds, according to the unsecured creditors committee. Halcyon called this provision “blatant favoritism.”
David Keating, a General Growth spokesman, declined to comment about the objections.
The Hughes heirs’ involvement General Growth’s bankruptcy stems from the company’s acquisition of the Rouse Co. in 2004. Rouse had acquired Hughes Corp. assets in 1996 and agreed to pay the heirs and other Hughes shareholders over time. General Growth assumed that agreement when it bought Rouse.
Under the bankruptcy plan, General Growth has several options for paying the heirs, including giving them a note issued by the company that General Growth plans to spin off, according to the heirs. The heirs said General Growth doesn’t provide information about whether the spun-off company will be solvent.
The case is In re General Growth Properties Inc., 09-11977, U.S. Bankruptcy Court, Southern District of New York (Manhattan).