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Sorvino Comments on Distressed Mall Giant, General Growth

Wall Street Journal
March 31, 2009

General Growth Properties Inc., struggling under a mountain of debt, said that its latest effort to win a reprieve from bondholders had fallen short. But a bankruptcy filing isn't imminent for the mall giant, according to people familiar with the matter, and General Growth's ability to remain out of bankruptcy shows the unusual dynamic between lenders and distressed companies in the recession-ravaged commercial real estate market.

Under normal circumstances a company with as much past-due debt as General Growth would have been forced into Chapter 11 bankruptcy protection by now. Creditors so far have been willing to let deadlines pass because they believe there is little to be gained and much to be lost through a bankruptcy. General Growth's mall operations are stable and many bondholders hope for a greater recovery outside of bankruptcy court.

General Growth has told lenders that they'll have more influence over the outcome if it restructures outside of bankruptcy court. A bankruptcy filing could force the company to liquidate its assets for less than the whole company would be worth if it remained a single entity for the long term, these people said. 

Another deterrent to an involuntary petition is that bankruptcy would not bring immediate payment of General Growth's debts. "It's such a large company that the bankruptcy would definitely last at least a couple of years," said Heidi Sorvino. The time frame could be shorter if General Growth did a prepackaged bankruptcy in which the creditors agree to terms prior to the company entering bankruptcy, Sorvino added. But wrangling so many creditors without the threat of a judge making and enforcing decisions is "almost impossible," she said.

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