Tuesday, March 17, 2009

GGP Downgraded To "Default" By S&P

Not really news, but at least reflects that the rating agency has a pulse and still tracks companies. The reasons for the D rating (from C) is none other than yesterday's bond default by GGP and cross-default provisions which that event triggered.
On March 17, 2009, Standard & Poor's Ratings Services lowered its corporate credit rating on General Growth Properties Inc. (General Growth) to 'D' from 'CC'. Concurrently, we lowered our rating on the company's unsecured debt to 'D' from 'C', affecting roughly $5 billion of rated debt. Our '5' recovery rating on the company's unsecured bank credit facility and unsecured notes remains unchanged.

Today's downgrades reflect General Growth's payment default on an unsecured senior note obligation due March 16, 2009, and the company's intention to suspend interest payments on all of its senior notes (issued by The Rouse Co.) and its unsecured bank credit facility. While the company has not filed for bankruptcy protection, Standard & Poor's rating criteria indicates a 'D' rating when an interest or principal payment is due and is not paid.

Specifically, General Growth is unable to repay a total of $595 million in senior notes due March 16, 2009, and April 30, 2009. As such, a cross-default provision triggers the default of all other senior notes, which affects three additional issues totaling $1.65 billion. In addition, the company will not be making interest payments on any of the senior notes or on the unsecured credit facility (which had $2.6 billion outstanding as of Dec. 31, 2008). The company has launched a solicitation to obtain the consent of bondholders to forbear from exercising remedies with respect to various payment and other defaults under the notes through Dec. 31, 2009; the expiration of the consent solicitation has been extended to 5:00 p.m. EST on March 20, 2009. The company has received consents from lenders to forbear on actions related to the credit facility through Dec. 31, 2009.

General Growth also has roughly $1.18 billion in past-due mortgage debt (as of Feb. 26, 2009), which includes $900 million related to mortgage loans secured by the Fashion Show and Palazzo shopping centers in Las Vegas. The company's $1.51 billon secured loan facility (not rated) could be accelerated. In addition, debt maturities for the remainder of 2009 and 2010 are substantial, at $1.4 billion and $7 billion, respectively.

Chicago-based General Growth is one of the nation's largest owners and operators of regional malls, with a portfolio of more than 200 shopping centers in 44 states. The company continues to seek a longer-term solution to address its liquidity issues; although it is actively marketing a number of high-quality assets for sale, no transactions have been announced in light of the current extremely weak retail and capital markets. Fourth-quarter 2008 operating results were mixed, as healthy occupancy of 92.5% and average rent roll-up of 15% were offset by a 4.1% decrease in year-over-year same-property net operating income. The company remains very highly leveraged at 92% on a book-value basis.

Recovery analysis

Given the quality and still relatively stable operating performance of the company's underlying retail assets, we are maintaining our recovery rating of '5' for the unsecured credit facility and senior notes, which indicates our view that lenders can expect a modest recovery of 10%-30%. For the complete recovery analysis, see Standard & Poor's recovery report to be published on RatingsDirect following this article.
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