A judge approved a $400 million loan for General Growth Properties Inc. and said the bankrupt mall owner may spend its cash, after the company resolved most of its mortgage lenders' objections.
Judge Allan Gropper of the U.S. Bankruptcy Court in Manhattan signed off Wednesday on the financing and the mall owner's use of the cash, both of which will support the company while it reorganizes in bankruptcy.
The judge's order cleared away a key hurdle to General Growth's restructuring.
Lenders on its malls initially fought the plan to sweep the cash generated from its properties into a central account and use the money to pay expenses throughout the company.
The lenders had argued that the malls they financed are separate from other properties and that the cash their malls generate should not be used to benefit other properties.
The plan, the lenders contended, would force profitable properties to support struggling ones and would violate various agreements governing the properties. But Gropper said such agreements "are inevitably breached in bankruptcy."
Though lenders might believe their rights to cash collateral "are inviolate," that "is not the law," he said.
Still, General Growth was able to resolve most lender objections by agreeing to provisions intended to protect the lenders' interest in the properties.
It agreed to give the lenders a first-priority lien on the cash held in the main account and to continue paying them interest.
The lenders would not have received such a lien under the company's first cash-collateral proposal.
Gropper said General Growth's revised proposal would adequately protect the lenders' interests. "There is no indication in the record that the replacement lien will not be sufficient," he said.
A group of bondholders led by Farallon Capital Management was to make the $400 million loan, which was expected to close today.
General Growth completed the loan agreement this week after weighing offers from the Farallon group and Pershing Square Capital Management, which is run by the activist investor William Ackman.
The Farallon loan is to have a two-year term and an interest rate equal to the London interbank offered rate plus 12 percentage points.
Unlike the financing Ackman proposed, the Farallon loan would not give the lenders second liens on General Growth properties that already have a mortgage.
This was a key change, intended to appease the property lenders.
Creditors had also opposed a provision in the Pershing Square proposal that would have given the hedge fund warrants to buy up to 4.9% of the equity in the reorganized company. Farallon's loan has no such warrants.
General Growth met Monday with the prospective lenders to negotiate the final loan agreement.
Besides the Farallon group and Pershing Square, Goldman Sachs Group Inc. teamed up with Brookfield Asset Management to make a proposal, according to a lawyer at Wednesday's court hearing.
General Growth, based in Chicago, filed for bankruptcy protection in April to restructure $27 billion of debt.
The company is the second-largest mall owner in the United States, owning and managing more than 200 malls in 44 states.
It plans to use the bankruptcy loan to support its operations and pay off a $225 million loan from Goldman.
