Even as the company scrambles to arrange a forbearance before its 5pm deadline tomorrow, rumors swirled earlier today that BoNY, the trustee on GGP's 3.625% 2009 which were supposed to mature this Monday, has served the company with a default notice. According to the notice, the company is obligated to pay past due amounts, and makes a full blown bankruptcy that much more likely.
As in the earlier discussed situation at Abitibi, a default notice could have repercussions on whether the CDS contracts are executed, and dealers were rumored to be deciding whether to hold on auction on underlying CDS. The reason for the scramble is that, as noted, March 20 is a CDS expiration date, and for longs of maturing CDS contracts, an event of default today or tomorrow before option expiration will make the difference between a huge payday and a worthless piece of paper.
As ZH previously noted, the only thing that could prevent a full blown GGP bankruptcy is the receipt of 90% of consents of 2009 bonds, however as discussed earlier, it is very likely that bondholders of the 2009 issues are also holders of CDS and are incented to block the consent and thus enforce a default. Since only three bondholder votes are needed to prevent a successful transaction, the odds of GGP to pull of a successful forbearance are marginal at best.
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