General Growth Dives On Debt Concerns

By Daniel Taub and Simon Packard
Bloomberg News
Wednesday, November 12, 2008

General Growth Properties, the second-largest U.S. shopping mall owner, had its worst trading day ever yesterday after saying it may seek creditor protection if plans to refinance $958 million in debt do not succeed.

General Growth, which bought the Rouse Co. in 2004, dropped 64 percent to close at 49 cents yesterday. The decline was the biggest since its April 1993 initial public offering of shares.

Investors have been dumping General Growth shares on concern that the company won't be able to refinance its debt. It has lost more than 98 percent of its market value this year. General Growth's problems stem from its $11.3 billion Rouse purchase, financed almost completely with debt, leaving the company highly leveraged ever since, said Rich Moore, managing director at RBC Capital Markets in Cleveland.

"They took a big, big gamble," Moore said in an interview, "and it did not pay off."

The company owns the Mall in Columbia and several others in Maryland and has proposed redoing the center of Columbia.

General Growth may not be able to refinance or reschedule the loans, due Dec. 1, because of the crisis in the credit markets, according to a filing the Chicago-based company made after the close of regular trading Monday. It may also fail to rearrange $3.07 billion in debt maturing next year, General Growth said in the Securities and Exchange Commission filing.

"Our potential inability to address our 2008 or 2009 debt maturities in a satisfactory fashion raises substantial doubts as to our ability to continue as a going concern," General Growth said in the filing. The steps it may take include "seeking legal protection from our creditors," the company said.

Chief executive John Bucksbaum was replaced last month with interim chief executive Adam Metz, and Chief Financial Officer Bernard Freibaum was fired after he sold 2.95 million shares to meet margin calls. Bucksbaum remains chairman.

RBC analyst Moore, who has an "outperform" rating on General Growth's shares, said he doesn't believe the SEC filing means the company is on the verge of filing for bankruptcy protection. Rather, Metz used the filing to both put pressure on creditors and alert investors to the risks confronting General Growth after the company's previous management team was criticized for not being "as upfront as they could be," he said.

"What management did is to say, 'Let's be real. This is what we're facing. If we don't get it done, there are going to be consequences,' " Moore said.

© 2008 The Washington Post Company