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apparent changes in assets liabilities-not to worry
while it appears assets and liabilities have been reduced between $3-$5 billion, you need to remember that a number of entities were not placed into bankruptcy and the financial report filed with the bk court only deals with those entities placed into bk. have cut and pasted the relevant portion of the dialog below which calls this out.
The Company cautions investors and potential investors not to place undue reliance upon the information contained in the Monthly Operating Report, which was not prepared for the purpose of providing the basis for an investment decision relating to any of the securities of the Company. The Monthly Operating Report is limited in scope, covers a limited time period, and has been prepared solely for the purpose of complying with the monthly reporting requirements of the Office of the United States Trustee, Region 2, and the Bankruptcy Court. The Monthly Operating Report was not audited or reviewed by independent accountants, is in a format prescribed by applicable bankruptcy laws and regulations, and is subject to future adjustment and reconciliation. A significant number of legal entities owned and controlled by GGP, and the related assets, liabilities and operating results of such entities, have been excluded from this Monthly Operating Report as such entities are operating outside of the provisions of Chapter 11. There can be no assurance that, from the perspective of an investor or potential investor in the Company’s securities, the Monthly Operating Report is complete. The Monthly Operating Report also contains information for periods which are shorter or otherwise different from those required in the Company’s reports pursuant to the Exchange Act, and such information might not be indicative of the Company’s financial condition or operating results for the period that would be reflected in the Company’s financial statements or in its reports pursuant to the Exchange Act. Results set forth in the Monthly Operating Report should not be viewed as indicative of future results.
current financial report filed with sec
http://www.sec.gov/Archives/edgar/data/895648/000095012309019246/c52119exv99w1.htm
ackman is long but he only bought about 300,000 of the 77 million shares he owns or controls after bankruptcy. ackman's purchases and swaps, for the most part, were made between december 2008 and march 2009. the bk filing was on april 16, 2009.
new ggp employee retirement plan filing
the annual report for the year ending 12/31/2008 has been filed with the sec and the link below will get you there.
of interest, as of 4/21/09, the plan would no longer accept any contributions to the ggp common stock fund. however, any funds previously invested in the common stock of ggp would be permitted to remain invested in ggp stock (now ggwpq).
of further interest is that vanguard appears to be the manager of the employee retirement fund. is this is correct, then it is also possible that the recent vanguard purchases of ggp stock were done on behalf of ggp employees and not for vanguard's own accounts.
am uncertain if old fumds of the plan could be transferred into ggwpq stock. if they could then again, any vanguard purchases during the second quarter of 2009 of ggwpq stock could have been done on behalf of ggp employees and not exclusively for vanguard. if that is the case, then the recently reported vanguard purchases might not be as bullish as thought. while not bad, it just might not mean any type of endorsement by vanguard of ggwpq stock.
http://www.sec.gov/Archives/edgar/data/895648/000095012309018114/c52028e11vk.htm
that's one way to look at it, but the way it's typically calculated in the real estate industry is as a discount rate used to determine the present value of a stream of future earnings. Typically this will be an appropriate risk-free return plus a premium to reflect the risk of that specific investment.
this is the way it was used by ackman in his presentation and by kirchner in his rebuttal. the cap rate (or discount rate) applied to the net operating income is an inverse relationship. i.e., the lower the cap rate the greater an income property is valued and the higher the cap rate the lesser an income property is valued.
if you take a property which is generating $1 million in net operating income and you think it will bring a sales price based on a 7.5% cap rate you would arrive at a property value by dividing the $1 million in noi by .075 (i.e. the 7.5% cap rate) and arrive at a value of $13.333 million.
if the person to whom you are attempting to sell the property places a cap rate of 10% on it, that potential buyer would only evaluate the property as worth $10 million. ($1 million noi divided by .1)
the current discussions centering around whether or not the value of the properties in ggp's portfolio is greater than its debt centers on the numbers which are found in ggp's annual report which presents financial information which states there is some $27 billion in debt (in one form or another) against $29 billion in property value (based on historical cost of the property)
the concern for equity holders is whether or not the current value of ggp's portfolio in greater than its debt. the way most professionals will analyze that is via a cap rate analysis. as you can see, if the debt holders argue that an appropriate cap rate for property valuation is higher than ggp argues, there will be a very wide swing in how the properties are valued. depending on what cap rate is used one can argue the properties are valued at more or less than the debt. that's where the courtroom gamesmanship will be played out.
hope that helps.
kirchner rebuts ackman, but concedes equity has some value
Thomas Kirchner of Pennsylvania Avenue Event-Driven Fund (PAEDX) has written a rebuttal to Bill Ackman's presentation on the merits of GGP that he gave at the recent Ira Sohn charity conference.
The crux of Kirchner's rebuttal is: NOI will be worse than Ackman expects, Ackman uses a flawed cap rate, Pershing uses faulty assumptions about the likely cost of GGP's debt (if it's successfully extended), and that dilution is likely which Ackman does not account for. Here is Kirchner's statement on Ackman's 7.5% cap rate:
Like most valuations, Pershing Square’s lives and dies with its cap rate assumption. Ackman contends that GGP should trade at a 7.5% cap rate, 100 bps better than Simon Property Group (SPG). 7.5% cap rates are not what malls trade at these days, if they trade at all. SPG itself trades at an implied 8.5% cap rate, and Pershing Square thinks that this cap rate discounts the risk of bankruptcy of SPG. Therefore, reasons Pershing Square, GGP should trade at a lower cap rate, resulting in a higher valuation. The problem with this argument is that it can be applied to GGP as well: if the maturity of the debt is extended by 7 years as proposed, the market will discount a potential liquidity squeeze at the new maturity date of the debt. In addition, we believe that an 8.5% cap rate for SPG only shows that SPG is overvalued. If we apply a more realistic cap rate (9%, in our humble opinion) to GGP, then the upside for the equity looks much less appealing. And we haven’t even mentioned dilution yet, which we will address in a moment. After dilution, the equity looks pretty close to fair value to us.
We at TILB think Kirchner was kind not to simply laugh at Pershing's 7.5% cap rate assumption. In fact, to rely on Simon's 8.5% cap in a market in which Simon has issued sub notes that were priced to yield 10.75% is lunacy.
In the end, Kirchner agrees that GGP equity likely has some value, though limited. In the footnote it is disclosed that Kirchner owns "securities" in either or both of GGP and Rouse (a wholly owned GGP subsidiary) which implies that Kirchner is a creditor.
So it seems that at least one creditor is laying the grounds for a battle over who will receive the economics of GGP. Obviously others are like-minded, despite Ackman's wishes that they simply obey his commands. We certainly look forward to an enjoyable fireworks display.
friday's court docket - YAWN!!!
http://www.kccllc.net/documents/0911977/0911977090625000000000004.pdf
if this is the extent of friday's court activity, don't expect anything vis-a-vis stock performance. maybe the judge will comment or issue an order on last wednesday's hearing which could be market moving, but this agenda certainly doesn't indicate any earth-shaking moves will be made tomorrow.
less than 400K shares traded so far. seems nobody willing to make a serious move one way or the other until some type of news comes out.
obviously, any radically increased share price assumes that equity survives. assuming that, $8 is not crazy, but the real question is "when?". multiples of 2 or 3 times from where we are now are possible if ggp receives favorable judicial rulings on some of the major issues on the table. however, i would think that any double digit pps cannot be achieved or held until some clarification about dilution is reached. the only wild card would be a really favorable ruling getting the price above $5 and then getting a short squeeze where there are not enough shares freed up for the shorts to cover. that could make things wild. you have probably noticed that the wild valuations seen elsewhere are never backed up with any facts, or fact-based fiction, for that matter. just mindless twitter.
great example why judge may slam spe's on wednesday
CONCLUSION
Because MetLife failed to comply with its Rule 30(b)(6) obligation that it adequately
prepare and present Rule 30(b)(6) witnesses with sufficient knowledge to bind the corporation on
the areas of inquiry, MetLife should be barred from offering testimony or evidence regarding its
ability to refinance or modify the terms of the loans at issue in MetLife’s Motion to Dismiss and
whether or not it would have done so
above is the conclusion to the motion linked below. it is a very good read and should give a lot of insight as to why the lenders are and apparently have just screwed with general growth on the matter of refinancing.
if the judge looks at this as i do, then i do not believe he will be very sympathetic to the motions to remove certain properties from the bk proceeding.
would really love to be in the courtroom tomorrow but hopefully information will be leaked or reported in a timely fashion regarding what happened.
http://www.kccllc.net/documents/0911977/0911977090623000000000014.pdf
spe's on docket for 9:00am wednesday
http://www.kccllc.net/documents/0911977/0911977090623000000000002.pdf
although the matters are set for argument tomorrow, that is no guarantee the judge will rule tomorrow. however, if the judge has read all of the motions and objections which have been filed on the spe matter, he may well in fact give his decision tomorrow since everyone has had a chance to put forth his two cents worth.
don't know if it is correct or not, but i read a post which stated there were some 40 million shorted shares of general growth. if funds like vanguard continuing buying large blocks with the intent to hold, and they are not doing so to merely set up a short squeeze, there may not be enough shares for shorts to purchase to cover their positions. i remember the post indicating a whole lot of the shares were shorted in the $5.00 range. if that is true and this stock spikes on any type of good news, AND those who hold shares continue to hold for the long term, shorts could be handed their heads. volume has been way down for quite some time now so i'm thinking/hoping that the availability of shares is drying up and the current price volatility is mostly due to manipulation and not any fundamentals. should be an interesting week if gropper rules on the spe's this week.
cmbs to begin tapping talf in july
http://www.distressedvolatility.com/2009/05/real-estate-ultrashort-srs-moving.html
will be interesting to see if ggpwq can get a piece of this in light of motions to knock out some properties from bk because they were performing and high quality.
Judge may rule at end of June on General Growth malls
Wed Jun 17, 2009 7:57pm EDT Email | Print | Share| Reprints | Single Page[-] Text [+]
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By Ilaina Jonas
NEW YORK, June 17 (Reuters) - A federal judge overseeing the bankruptcy of General Growth Properties Inc (GGWPQ.PK) may not decide until at least the end of the month whether to allow some of the property owner's malls from bankruptcy, in a case that is being closely watched by the securitized lending industry.
During a lengthy hearing on Wednesday, ING Capital Loan Services LLC, the special servicer for nine loans on eight malls, and Helios AMC LLC asked Judge Gropper to strip the properties from the case, the largest real estate failure in U.S. bankruptcy history.
Helios, is the special servicer for loans on Faneuil Hall Marketplace in Boston and Saint Louis Galleria LLC and wants them out of bankruptcy. Special servicers oversee troubled commercial mortgage loans that have been securitized into commercial mortgage-backed securities (CMBS). They argue that the malls were improperly swept into bankruptcy and that General Growth did not do enough negotiation to lengthen the loans or get waivers that would keep the malls out of bankruptcy.
General Growth said its malls were very profitable but the company was a victim of the credit crisis that left it unable to refinance its maturing debt.
The entities in bankruptcy were facing $24 billion of debt, about $15 billion of which consisted of commercial mortgage-backed securities.
Next week insurer MetLife Inc (MET.N) is scheduled for a hearing to request that the properties it has loans against also be dismissed from bankruptcy. The judge is expected to rule sometime after that hearing Wednesday.
The remainder of General Growth's other 200 or so malls are joint ventures and are not in bankruptcy, nor is the General Growth's management company.
Most of the properties were current on their loan payments when General Growth filed for Chapter 11 bankruptcy protection in Manhattan in April and swept 166 of its malls along with it.
"If you do not have a need to reorganize, then you are not entitled to the benefits of Chapter 11," said attorney Todd Meyers, of Kilpatrick Stockton, which is representing ING. "You must have a present need to reorganize. We think the filing is for the benefit of the parent and their constituencies,"
Chicago-based General Growth set up each mall as a special purpose entity -- a separate company -- that protected General Growth from each of the malls' obligations. Each SPE was be governed by independent directors, and each entity's cash was to be managed separately. They were intended to be "bankruptcy remote."
The organization left the parent company off the hook if the SPE defaulted on its mortgage. Lenders, on the other hand, did not have to be concerned with the parent company's financial affairs. But General Growth's inclusion of the SPEs into the bankruptcy has drummed into the financial industry that the agreements were bankruptcy remote, not bankruptcy proof, as Gropper said on Wednesday.
The entities in bankruptcy were facing $24 billion of debt, about $15 billion of which consisted of commercial mortgage-backed securities.
"This is the most important decision in the doctrine of good faith," Meyers said. "It's going to be a guide to debtors and lenders on how they finance."
The company said that it filed as a family because the malls are part of an integrated company, whose size allows the malls to benefit through better lease deals and lower expenses.
Tom Nolan, General Growth president and chief operating officer, said the company tried every avenue to refinance its loans and was "frustrated" by the unresponsiveness of the master and special servicers. The company tried late last year to put together its own property-based bond deal with the help of Goldman Sachs and Morgan Stanley. But that was scuttled by the collapse of the credit markets after Lehman Brothers Holding Co's bankruptcy. (Reporting by Ilaina Jonas; Editing by Marguerita Choy)
© Thomson Reuters 2009 All rights reserved
most spe withdrawal decisions kicked to next week
with the exception of one spe application to be withdrawn from the bk proceeding (which was granted with prejudice, menaing the spe can not later change its mind and again ask to be removed from the bk proceeding), it appear that the decision on all others has been moved to next week.
http://www.kccllc.net/documents/0911977/0911977090616000000000004.pdf
assets still greater than liabilities
current quarterly rpt filed with sec
http://www.sec.gov/Archives/edgar/data/895648/000095012309014156/c51839exv99w1.htm
went into the "by date" detail for one of the vanguard funds which purchased and find it interesting that they purchased on 5/6/09 which was the last reported date pershing square purchased.
http://thebuylist.com/drillbyfund.aspx?SYMBOL=VISVX&STOCK=GGWPQ
a little color re: wednesday's spe bk hearing
http://www.valueplays.blogspot.com/2009/06/owners-seek-to-remove-malls-from.html
thanks, that's why i hang out on this board. i too don't get much out of "too the moon, alice" as an example of critical or analytical thinking.
bankruptcy, plan of reorganization, stockholders
http://www.sec.gov/investor/pubs/bankrupt.htm
thanks for the post. i would agree with you that ackman made post bankruptcy purchases which shoots holes in my theory and is a fatal flaw in my analysis.
maybe it's because general growth didn't have any nol to preserve. what drove them into bk was a liquidity crisis, not the fact they were operating at a loss.
if this article is current, then i would agree that it is hugh, especiall in light of the upcoming hearing in bk court on the 17th. good find!
dwags, re: my background, i worked in commercial real estate for over 25 years including stints in internal auditing, tenant auditing, and real estate finance. i actually worked for one of the companies which is now merged into general growth but i was gone from that company before general growth was involved with it.
while the impact of the timing of stock purchases does appear to be unique to the various boards following general growth, i'm not sure it is unique in actual practice.
i would venture that most speculators in bk stocks only got into those stocks once they filed for bk and then traded in and out of those stocks but never really held them until the plan of reorganization was filed and approved to see what actually happened to their post-petition stocks. ggpwpq has been a volitile stock during bk and i'm sure a number of speculators have made some good money trading in it.
re: "why wouldn't general growth want all investors?", my answer would be they probably would in a perfect world. but that's not what this is. if there is precedent for treating pre- and post-petition stockholders differently, ggp would be able to reduce dilution by eliminating post-petition stockholders.
and finally, yes, any stock needs traders to keep it moving. but a stock in bk is only a temporary trading vehicle which i do not think has any relation to the value of a stock once it emerges from bk. i believe that ggwpq will not trade out of the low to mid single digits. why? because once the plan of reorganizaton is submitted and approved, a new stock will be authorized and issued and the ipo price will have nothing to do with how ggwpq traded during the bk process.
again, i would agree that my whole analysis can be thrown out the window if it can be shown that any major holder or insider has purchased ggwpq at any time after the bankruptcy filing. if not, i still feel comfortable with my analysis. farallon would be a poster child for this. they certainly were able to see more of general growth's financial picture than any outsider could ever hope to see as a result of being in the running for the dip financing. they are experienced real estate investors. why wouldn't they be buying ggwpq at $2.50 to be in line for a hugh return? i think it is because the post-petition stockholders will not be in line for the hugh returns. they should be able to get whatever value is associated with the entities not placed in bk, but i'm not convinced they will get anything else.
looks like a good site for general growth info
http://retailtrafficmag.com/finance/reits/general-growth-bankruptcy-ackman-reit-0609/
yes, i purchased 30,000 at $0.39/share during the first week of march, prior to the bk filing. i sold 5k shares at 2.35/share and recovered my cost basis and retain 25k shares which i intend to hold through the bk process. i'm long general growth and intend to stay long and i'm betting on the fact that ackman and the bucksbaums, as holders of at least 50% of the company, will do everything possible to preserve equity. however, i do believe that those equity holders who purchased stock prior to the bankruptcy will do better than those who purchased after the filing so long as any equity holders survive. the only thing which would make me get more shares at this point is to see that insiders or major holders have purchased additional shares after the bankruptcy filing. are you long as well and are you a pre or post petition shareholder?
plan of reorganization example:
assumptions:
first, this is an example. the numbers are close but not exact.
300 million outstanding shares currently
20% (60 million) of those shares traded during the bankruptcy and as such whomever now owns those shares are no longer considered as pre-petition shareholders
80% (240 million) of those shares were purchased prior to bankruptcy and were held throughout the bankruptcy process up to and including the date the plan of reorganization is approved
27 billion of debt of which 18 billion is secured
PLAN OF REORGANIZATION:
500 million new shares authorized at an issue price of $30/share. this implies a market cap of $15 billion which is about a 25% discount to general growth's april 2007 market cap
$18 billion secured debt survives intact, loan term is extended, an interest rate incentive is included as consideration for loan extension.
$9 billion unsecured debt is discounted by 40% and the $5.4 billion remainder is swapped for new equity. ($5.4 billion/$30 per share = 180 million shares of new stock issued to unsecured creditors)
the entities not placed into bankruptcy are valued at $3/share. for every 10 shares of old stock owned (regardless of when it was purchased) is traded for 1 share of new stock. (300 million shares/10 = 30 million shares of new stock to all holders of old general growth stock)
pre-petition shareholders (those who owned stock prior to the bankruptcy and continued to hold those same shares at the time the plan of reorganization was approved) to receive 3 shares of new stock for each 5 shares of pre-petition stock they hold. (240 million pre-petition shares/5 = 48 million x 3 = 144 million shares of new stock issued to pre-petition stockholders)
upon emergence from bankruptcy, float a 50 million share ipo of these new shares at $30/share and raise $1.5 billion in cash.
pay off $400 million dip financing from these proceeds and hold remainder as needed.
for the two years following emergence from bankruptcy, issue dividends which are 10% cash and 90% stock as a way of accumulating additional cash (assumes tax treatment for payment of stock dividends continues and is extended). assume the stock portion of the dividend is 3%. over the course of the two years this is in effect, 24.6 million shares of new stock which will be issued to all holders of new stock.
approximately 71.4 million shares of the 500 million shares authorized would still be held by the corporation for uses such as employee stock incentives, purchase of additional properties, open market purchase and retirement of ggp debt, or whatever else the company deems appropriate. the 71.4 million remaining shares would have a $2.1 billion value at the $30 issuance price.
assuming ackman's total common share and swap cost per share averages around $1.50, the above example would return him about a 13 fold increase. whatever debt instruments ackman holds would be handled in accordance with the above assumptions regarding secured and unsecured debt.
proof example for ackman's 13 fold increase:
assume he owns 30,000 pre-petition shares at $1.5/share = total outlay of $45,000 (i know he has a bazillion shares. just increase the example to account for his bazillions)
his consideration for entities not placed into bankruptcy would be calculated (30,000 shares/15 = 2,000 shares of new stock)
his consideration of pre-petition stock exchanged for new shares would be calculated (30,000 shares/5=6,000 shares x 3 = 18,000 shares)
new position value:
total new shares 20,000 x $30/share = $600,000
original cost = $45,000 x 13 = $585,000.
in this example,
secured debt is honored thereby not causing the commercial backed mortgage market to go berserk,
unsecured creditors and pre-petition stockholders are treated the same. each takes a 40% haircut, and
anyone who gambled on this stock and purchased it after the bankruptcy retained the value of the entities not placed into bankruptcy but did not get any protection/upside afforded to pre-petition stockholders.
i may be wrong on some, most, or all of this example, but since everyone following this stock seems to have opinions regarding how it will all come out i decided to put pencil to paper and do an example based on how i think it could work.
if you are a day trader, then pps during the bk process makes a difference. if you are long and intend to stay that way it really makes no difference what the pps is during this process. as i said before, the value of this stock will be determined by the provisions of the plan of reorganization, not vice versa. for day traders, truth is the enemy and hype is a friend.
my post didn't move the market. its people who are trading 100-500 share positions who are doing so. i would be willing to venture there are a number of "traders" who have accounts with different brokerage firms who place a low buy order in one account and then match it with a low sell order in another just to manipulate the market. as for money sitting on the sidelines until after the por is filed, by that time it will be too late to do much of anything. if pre-petition holders end up in a favorable position anyone who didn't have any pre-petition shares will still not have any and having sat on the sidelines will not have improved their chance of getting any. if all shares are treated equally this thing will move so fast you won't have a chance to get in on the cheap.
as i have said before, you may not agree with how i see this but you should at least be aware of the possibilities which have been addressed. if it causes you to think about how this might work out, then that's good. if you think all shareholders will be treated the same then why wouldn't you buy at these levels? you would in essence be getting options on $20 dollar bills for $2.50. if you think that ggwpq shares are only worth the value of the entities not placed into bankruptcy, then you need to come up with a value for those entities and invest accordingly.
as i've said before, i will agree with the opposing analysis when i see that any insider or major holder has purchased shares after the date of the bankruptcy filing.
upcoming hearing re: spe's in bk court
http://www.reuters.com/article/marketsNews/idINN0940564720090609?rpc=44
this letter doesn't address any of the concerns i raised. you are reading into his letter that being restricted from trading means restricted from buying as well as from selling. if ackman felt the value of ggwpq stock were so good, he would have just purchased additional shares of post-petition stock during the almost two months after the bankruptcy was declared and he was appointed to the board. he didn't.
that returns me to my question of why? i believe the answer to that question is that post-petition shareholders will be treated differently that pre-petition shareholders. i had also stated that the fear of this would be gone once i saw an insider or major holder purchase stock after the date of bankruptcy. that has not happened.
yes, they are restricted by the sec as to when they can buy and sell, but that restriction is not a total prevention. there is a window prior to each reporting period in which they are prevented from either buying or selling but there is also a window after reporting in which they may either buy or sell. there has been one such window after general growth reported first quarter earnings and there was no insider or major holder buying during that time.
regarding you comment that ackman's basis was $0.83 for his 24% stake, that might be correct. however, if you look at my post #2906, you will see all of the trades which were made by ackman or on his behalf. remember, ackman controls (as a result of the swaps) almost 50% of the stock. taking the swap trades into consideration, his basis is closer to $1.50/share. therefore, the 13 fold increase is closer to $20/share which corresponds to the price range he previously stated (13 fold increase and potentially significantly more with a price range from $20-$35).
anybody, inlcuding me, can read into something whatever they want to, but the proof for me regarding treatment of pre- and post-petition shareholders would be seeing insiders or major holders purchasing any of the ggwpq stock. aside from that, we are just going to have to keep pouring through information which is public and invest accordingly.
the plan of reorganization will be the ultimate document of enlightenment.
if your contention that pre- and post-petition shareholders will be treated no differently, then we should see ggwpq trading much closer to the 13 fold increase (i.e. around $20/share) as information comes out during the bankruptcy process that things are moving toward a settlement that does not involve any major sale or transfer of assets to satisfy bondholders. once it seems apparent that equity will survive, the stock should soar. i don't think that will happen with ggwpq because i think only pre-petition shareholders will experience the large upside to equity survival.
i would be most surprised (but definitely pleased) if ggwpq were to ever trade for more than $8.00/share in bankruptcy. the best i can realistically see it trading is for something at or around the value of the assets not placed into bankruptcy. trading emotion could take it to maybe two or three times that value. if you believe ackman that after the bankruptcy the total value of the company as reflected by the stock price would be around $20 at a low then that would lead you to believe that the value of the assets not placed into bankruptcy probably would not be valued at more than $2.00 to $4.00 share. to me, that is the realistic area around which ggwpq should be trading with both upside and downside from that range due to trading fever as information comes out.
don't get me wrong on this. i would love to see the price shoot to the moon since i own the stock, it's just that i don't think it will trading as ggwpq. the value of this company is not what the stock trades for during the bankruptcy process, it is what it's worth as a result of the plan of reorganization.
the determination of assets outweighing liabilities will not be determined until some time down the road. and, there have been arguments that the assets kept out of bankruptcy are lesser valued ones. when those arguments are made, there will be a lot of dogs circling the hydrant with raised legs.
another problem with this "stock" is that not all of general growth's entities were placed into bankruptcy. even assuming that all of the entities placed into bankruptcy were turned over to the creditors and absolutely no value was available to the shareholders (disregarding whether or not the shareholders were pre or post petition), there would be some type of residual value in those entities not placed into bankruptcy. presumably the stock would then trade at whatever value was placed on the remining entities by the market.
however, in the case we have, if the entities placed into bankruptcy survived via some type of cram down and the equity survived intact, a plan of reorganization would still have to be submitted and approved. i think that part of that submission would be provisions for the issuance of new stock which could pertain only to the portion of the company which was placed into bankruptcy. that could give rise to two classes of common stock. one for the surviving "old" company, lets say "ggp-old" stock and one for the "new" company, which could trade as "ggp-new". in this case i would think that anyone who held stock, regardless of whether or not it was purchased prior to or after bankruptcy would have or retain shares in "ggp-old". however, i believe that the "ggp-new" stock would only be issued to "pre-petition" stockholders and possibly unsecured bondholders as well as to any other bondholders who might be required by the terms of the plan of reorganization to exchange some debt for equity.
however this goes down, if equity holders receive anything, i do believe that those who owned stock prior to the bankruptcy (pre-petition stockholders) will be treated differently than those who bought this stock after the bankruptcy filing.
i'm only bringing this up to try to inform anybody who owns this stock of what i think are various possibilities. no one will know for sure until the plan of reorganization is filed and when that occurs, whatever path one has chosed to take regarding this stock will not be able to be changed.
no new stock has been issues, however, once the company gets permission to emerge from bankruptcy, new stock will be issued. while this may be a nuanced difference, my point is that i beleive that "pre-petition stockholders" will be the ones who will be offered some type of rights in the new stock. i agree that any stock being traded now is a stock that was issued prior to general growth filing for bankruptcy, and as such is a pre-petition stock, the difference is that anyone who purchased the stock after the company filed for bankruptcy is not a pre-petition stockholder. the stockholder is the person/company/entity holding the stock, not the actual stock itself. lawyers make a lot of money for a reason and in this case i believe the reason will be that pre-petition stockholders will be the favored group. in other words, i'm making the case that there is a difference between a pre-petition stock and a pre-petition stockholder.
Why no stock pop after ackman's board appointment?
if you are also asking yourself this question, you might want to consider the following:
i have done a lot of research on this stock and can not find one single instance of a major holder buying any of this stock after the bankruptcy filing date. that includes ackman, the bucksbaums, any officer or director of general growth properties, or any of the other half dozen institutions which were listed as major holders of ggp stock.
this observation also applies to farallon, the company which was chosen to provide dip financing to ggp. even after being chosen to provide dip financing, farallon has not purchased any of of the ggwpq.pk stock. why is that?
i believe it is because IF, and i do mean IF, any of the equity holders survive, it will be only those equity holders who bought stock prior to the bankruptcy filing. those equity holders are referred to legally as "pre-petition holders".
i have also done a lot of research regarding equity holders surviving a bankruptcy and will summarize what i have found. when a company is getting ready to emerge from bankruptcy it files a plan of reorganization ("por") with the bankruptcy court and the bankruptcy court must approve the por in order for the bankrupt company to emerge from bankruptcy. in this plan of reorganization, the company describes the manner in which stockholders will be treated. this can range from all stockholders being wiped out to stockholders surviving but possibly being significantly diluted. in all cases which i have researched, the only stockholders who survived were "pre-petition" stockholders.
anyone who bought stock after the company declared bankruptcy (assuming the stock continued to trade as stock in a bankrupt company) held worthless stock once the plan of reorganization was approved. if pre-petition equity holders survived in whole or in part, the por would provide how the pre-petition holders would receive stock in the new company. that typically would involve an exchange of old stock for new stock (it could be 1 share of old stock for 1 share of new stock or maybe 20 shares of old stock for 1 share of new stock).
in all cases i researched, the value of the stock traded during the bankruptcy period was whatever could be squeezed out of it by day traders or short-term buy and sellers. it's kind of like musical chairs, once the music stops, whomever is not in a chair loses. in this case, when the music stops (the plan of reorganization is filed) whomever is left holding this stock loses.
this is not to say that a lot of money could not be made buying and selling ggwpq.pk during this bankruptcy proceeding. its only to say that you should be advised of the possibility, and what i truly believe is a probablilty, that anyone holding ggwpq.pk stock (i.e. anyone who bought this stock after the company declared bankruptcy) will not participate in ackman's much-storied 13 fold (or more)increase.
IF YOU ARE HOLDING STOCK WHICH YOU PURCHASED PRIOR TO GGP FILING FOR BANKRUPTCY AND YOU BELIEVE IN THE ACKMAN THEORY, DON'T SELL IT. IF YOU WANT TO DAY TRADE THIS STOCK, BUY AND SELL STOCK OTHER THAN THAT WHICH YOU PURCHASED PRIOR TO THE FILING.
the following excerpts were taken from research on the matter of pre-petition stockholders.
Return to the Pre-Petition Stockholders
The value of the final distribution to the stockholders was compiled from a variety of sources, including reorganization plans, annual reports, press releases, and direct interviews with the firm's legal and/or investor relations department. Pre-petition stockholders are compensated according to the terms provided in the confirmed reorganization plan. If the plan provides any consideration, they are usually issued a combination of equity and/or warrants in the reorganized company. Seldom is any cash distributed to stockholders. An accurate assessment of the value of the final distribution would require information on the (a) type and amount of securities received and (b) the market value of these securities on the emergence date. This information is not available in the reorganization plans and other public documents and hence had to be obtained directly from the companies.(10) If the pre-petition stockholders retained their stock, the ending value would be the market price on the emergence date.
Return to Pre-Petition Shareholders
The Chapter 11 process is consummated with the approval of the reorganization plan by the court and distribution of assets to various claimants.(16) In this section, we focus exclusively on the distribution made to pre-petition stockholders.(17)
Table 3 shows the return to pre-petition stockholders of the 154 firms researched. The pre-petition stockholders usually received nothing or a small amount of new common stock and/or warrants to purchase additional shares in the reorganized firm. In 15 cases the stockholders retained their old common stock. The interests of the pre-petition stockholders, however were almost always significantly diluted by the issuance of common stock to satisfy the claims of various groups of creditors
To quote two prominent vulture investors:
* George Putnam of New Generation Research (WSJ, 1993): "Clearly, the bankrupt security market is not efficient. But that's why we like it;"
George Soros of Quantum Fund (Hedge, 1994): "In certain circumstances, financial markets can affect the so-called fundamentals which they are supposed to reflect. When that happens, markets enter into a state of dynamic disequilibrium, and behave quite differently from what would be considered normal by the theory of efficient markets." in other words, "Pros are selling the company's virtually worthless stock to foolish retail investors..."
be careful that you do not become one of those foolish retail investors.
i am long pre-petition ggp shares. i sold 1/6th of my position to fully recover my total costs and am holding the remaining 5/6ths waiting for the plan of reorganization.
think about this, ackman and the bucksbaums own or control over 50% of the common stock. probably another 4-6 institutional investors control another 15%-25%. the remainder is held by much smaller investors. ggp's annual report states there are about 330 million shares outstanding. if 15%-20% of the outstanding stock has been bought and sold after the bankruptcy filing (i.e. between 50-66 million shares) and those shares now are excluded because they are no longer pre-petition shares, the company could significantly reduce potential dilution to pre-petition shareholders. the more shares bought and sold during the bankruptcy period, the better off it is for pre-petition shareholders once the por is filed.
remember, the value of common shares is not what it trades for during the bankruptcy period, it is how they will be treated according to the plan of reorganization.
if anyone can find an instance of any insider or major holder of this stock prior to the bankruptcy filing purchasing ggwpq.pk after the date of bankruptcy, then i would consider this post to be baseless. if not, be careful purchasing this stock in bankruptcy.
i post and check back here as well because i also appreciate the absence of pumpers/bashers
ackman appointed to general growth's board of directors
http://finance.yahoo.com/news/General-Growth-Properties-bw-15456160.html?.v=1
ackman ira sohn ggp presentation
taken from todd sullivan's value play post of this morning
http://www.valueplays.blogspot.com/2009/05/ackman-ira-sohn-presentation-on-general.html
i still think the day traders are a whole different breed re: the general growth stock. i still go back to the references made in ackman's failed dip financing proposal where provisions were being made for "pre-petition" shareholders. i.e., those who owned shares prior to the bk filing. i don't know if there was similar language in the farallon proposal or not, haven't read that one in detail. i'm just holding on to the notion that pre-petition shares may have a premium over any shares purchased after the bk filing.
it's a foregone conclusion that when ggp emerges from bk that new share will be issued. i'm of the position that if any of the equity holders are not wiped out that pre-petition shareholders may receive warrants for shares in the new company which could be above and beyond anything given to anyone who acquired shares after the bk filing.
all of ackman's shares were pre-petition shares. all of the bucksbaum's shares are pre-petition shares. all of the other institutional investors who were listed as "major holders" prior to the bk are pre-petition shareholders. there was a report that ackman purchased an additional 3 million shares during the first quarter of '09. haven't researched his filing, but i would bet that any additional shares he purchased were done so prior the ggp filing for bk.
an easy way to get a few million shares out of the picture would be to discount or wipe out shares traded after the bk filing. am not saying that IS going to happen, but that is my fear. all of my shares were purchased in early march prior to the bk filing. based on yesterday's close, they have increased over 5 times since my purchase. i sold 1/6 of my holding yesterday at $2.35 which was at a 6 times increase over my purchase price. so i have completely recovered all of my costs and am holding 5/6's of my shares free and clear. if i were to day trade during bk, i would do it in an account in which i held no pre-petition shares so as not to risk any problems down the road with what is and isn't pre-petition.
i have noticed that my aol account shows shares purchased at four different times in early march as being the same cusip number. i find that curious. so much so that i do not want to risk purchasing additional shares in any of those accounts and risk their merger with any of my pre-petition shares.
don't know, maybe i'm being totally paranoid about pre-petition and post-petition shares but i do see that making a distinction between those shares could provide a way get rid of some equity holders without wiping out old-time holders and any newbies who purchased prior to bk.
re: if ackman has as much as i say he has, it's not me saying it, it is the sec filings which support this. if through later sec filings we find out that ackman has been trading in and out of ggp shares at any time after the bk filing, then everything i've posted above about a difference between pre and post petition shares is out of the window. however, if we see that ackman or any other holders whom the sec considers as insiders have made no purchases after the bk filing, then i think there needs to be some consideration given to how pre and post-petition shares may be valued.
this will be a nail biting ride waiting to see how this plays out.
if ackman's recent article about a 13 fold return was based on the $20/share number in the article, that would lead one to believe that his average cost is around $1.54/share. if that is the case, he is clearly in the money now. hedge fund managers don't make their money getting in and out stocks on a day trading basis. regardless of the fact that ackman has some of the debt instruments, his clear home run will come from saving the equity and having that go to the referenced 20-35/share. even if there is some type of cram down in bk on the bondholders and there is some portion of debt for equity swap and the common shareholders are diluted, it's still a home run for those equity holders who got in on the cheap. if this stock were diluted and only got back to a $10-$15 level AND it returned to paying dividends at a 5% level, that would mean anywhere from a $0.50 to $0.75/share dividend. with ackman holding or controlling roughly 75 million shares, his equity would be worth anywhere from $750 million to $1,125 billion and it would be generating from $37.5 to $56.25 million in annual dividends on stock with a basis of around $115 million. annual dividends would amount to anywhere from 33% to 49% returns against his original basis. those kinds of returns on invested capital, not to mention 10 to 15 times growth on the original investment would cure of lot of ills. i've got to believe that ackman is in this for the long haul, just as he has said.
ackman sees 13 fold increase:
http://www.reuters.com/article/marketsNews/idINN2835696420090528?rpc=44