CHICAGO-General Growth Properties Inc. will emerge from Chapter11 restructuring early next month. With the company’s plan ofreorganization confirmed by Judge Allan Gropper of the U.S.Bankruptcy Court for the Southern District of New York, GGP hasbecome one of the few REITs to emerge from bankruptcy, andcertainly the largest one to do so.

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“From a purely technical point of view, GGP is a greatillustration of why bankruptcy works,” says a source close to thetransaction. “For the right kind of situation, bankruptcy is theonly way to protect everyone’s interests.”

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GGP will emerge from its financial restructuring with a strongbalance sheet and substantially less debt, having secured $6.8billion in equity commitments from Brookfield Asset Management,Fairholme Funds, Pershing Square Capital Management, Blackstone andThe Teacher Retirement System of Texas. GGP has also successfullyand consensually restructured approximately $15 billion inproject-level debt, renegotiating terms and extending maturitydates.

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All pre-petition GGP creditors will be satisfied in full. Aspart of its plan of reorganization, GGP will split itself into twoseparate publicly traded corporations upon emergence, and currentshareholders will receive common stock in both companies.

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Previously, most industry experts doubted GGP’s ability to filebankruptcy, let alone emerge from restructuring without wiping outits equity shareholders. Historically, most REITs that filed forbankruptcy ended up dissolving. Even worse, their equityshareholders ended up with nothing, while creditors feasted ontheir remains.

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The difference with GGP, according to GlobeSt.com’s source, wasthe planning and shareholder involvement. The REIT tapped MillerBuckfire & Co. LLC as its investment banker and restructuringadvisor. UBS Investment Bank also served as a financial advisor,while Weil, Gotshal & Manges LLP and Kirkland & Ellis LLPacted as legal counsel to the Company.

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“GGP planned its bankruptcy for four months before it actuallyfiled, which allowed the company to maintain control of its assetsand arrange for DIP (debtor-in-possession) financing,” says thesource. “Most REITs that go into bankruptcy file – they wait untilthey run out of money and then they file. That’s why most of themdon’t work out.”

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As part of that planning, GGP’s restructuring team was able towork around the special-purpose entity (SPE) structures that heldthe company’s mall assets. Prior to GGP’s bankruptcy, industryexperts assumed these SPEs would cause the company to lose controlof its income-producing assets. “SPEs are bankruptcy remotevehicles, but they’re not bankruptcy proof, and GGP’s team was ableto drive a truck through the old structure,” the source pointsout.

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Of equal importance was GGP’s ability to nail down DIPfinancing. At the time, the credit markets were frozen, and theindustry doubted the company’s ability to find investors that wouldbe willing to provide liquidity during the company’s restructuringperiod.

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The new GGP will remain the second-largest shopping mall ownerand operator in the country, with more than 185 regional malls in43 states, and will focus on largely stable, income-producingshopping malls and other real estate assets. The spin-off company,The Howard Hughes Corporation, will consist of GGP’s portfolio ofmaster planned communities and other strategic real estatedevelopment opportunities.

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