May 06, 2009
Ackman out as General Growth interim lender
(Crain’s) — General Growth Properties Inc. on Wednesday withdrew a request to make activist shareholder William Ackman’s hedge fund its lender during its bankruptcy case after creditors voiced objections.
Under the Chicago-based real estate investment trust’s new proposal, Mr. Ackman’s Pershing Square Management L.P. would be replaced as debtor-in-possession, or DIP, lender by group of six investment firms and hedge funds, including San Francisco-based Farallon Capital Management LLC and Minneapolis-based Whitebox Advisors.
The change in financing may affect a plan for Mr. Ackman to join the REIT’s board, a move that was contemplated by his DIP financing proposal.
Before General Growth filed for Chapter 11 protection, Pershing Square bought 7.5% of the REIT’s stock at prices of less than $1 per share and gained economic control of an additional nearly 20% of its shares. Mr. Ackman also bought up General Growth debt.
“As a substantial shareholder and debt holder of (General Growth), Pershing was unquestionably in a powerful position to exert leverage over (the REIT),” a group of lenders including Virginia-based J. E. Robert Co. said in a court filing.
The new DIP loan eliminates a provision under the Ackman proposal that would have given Pershing Square warrants to buy 4.9% of General Growth's equity if the mall owner emerges from bankruptcy.
The new DIP loan increases the maximum amount of the borrowing to $400 million, compared to $375 million under the Ackman plan, and increases the length of the loan to 24 months, from 18 months under the Ackman plan.
The interest rate remains unchanged, LIBOR plus 12%. The DIP financing must be approved by the Bankruptcy Court.
The changes to the DIP financing proposal were intended to placate creditors, according to the Wall Street Journal, which reported the new DIP financing Wednesday afternoon on its Web site.
