General Growth Plan Approval Resolves Biggest U.S. Real Estate Bankruptcy

General Growth Properties Inc., the second-largest mall owner in the U.S., won court approval of the last stage of its restructuring, a year and a half after filing the biggest real estate bankruptcy in U.S. history.

U.S. Bankruptcy Judge Allan Gropper in Manhattan signed off today on a plan that will pump billions of dollars of new capital into the company and split off a group of housing and other properties into a new company named after Howard Hughes.

Gropper’s ruling comes 18 months after Chicago-based General Growth filed for bankruptcy, weighed down by a $27 billion debt load it was unable to refinance because of the financial crisis and the collapse of the commercial mortgage- backed securities market.

As a result of the reorganization, General Growth is a company with “terrific assets in the hands of terrific sponsors,” Tom Nolan, the company’s president and chief operating officer, said in an interview.

“We’re very pleased. This has been a very, very successful” restructuring, he said.

General Growth hopes to exit bankruptcy by Nov. 8, Marcia Goldstein, a lawyer for General Growth, told the judge.

After filing for bankruptcy in April 2009, General Growth first focused on restructuring about $15 billion in mortgage debt tied to about 140 properties, an effort it completed earlier this year. It then turned to its corporate-level debt and became the subject of a takeover battle between rival Simon Property Group Inc. and an investor group.

Investors Prevail

Those investors -- Brookfield Asset Management Inc., Fairholme Capital Management LLC and Pershing Square Capital Management LP -- prevailed, committing more than $8 billion to take the mall owner out of bankruptcy.

The bankruptcy plan provides $7 billion of new capital for General Growth and results in “a substantial deleveraging” of the company, Goldstein said. About $1.6 billion in so-called Rouse bonds will be reinstated, Nolan said.

The plan provides a full recovery for creditors and a recovery for shareholders, which is rare in a bankruptcy reorganization. Shareholders are generally the last in line to get paid when a company files for bankruptcy and are typically wiped out.

Capital Markets

John Jerome, the lawyer for the bankruptcy committee representing General Growth shareholders, told Gropper at the hearing that the bankruptcy case gave the company time to realize the value of its assets while the capital markets recovered.

“It’s only in Chapter 11 where this could have happened. I’m very pleased your honor that we end this proceeding in Chapter 11 on the note that this is the way Chapter 11 should work,” he said.

General Growth fell 43 cents, or 2.5 percent, to $16.93 in New York Stock Exchange composite trading. Its closing price was 59 cents on April 16, 2009, the day it filed for bankruptcy.

Shareholders will receive new General Growth stock and stock in the spinoff company, Howard Hughes Corp., which will own a group of money-losing assets, including master-planned communities and mixed-used projects. With the spinoff, General Growth will concentrate on its retail business, owning or managing more than 180 shopping malls in 43 states, according to court papers.

The case is In re General Growth Properties Inc., 09-11977, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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