CHICAGO – The looming expiration of $958 million in short-term debt has caused Fitch Ratings Ltd. to downgrade its credit rating for General Growth Properties Inc. (NYSE: GGP) and its subsidiaries, but spurred investor William Ackman to boost his stake in the company.
The real estate investment trust (REIT) – which owns and manages more than 200 malls, including Providence Place and the Silver City Galleria in Taunton – last week announced two-week extensions of $900 million in mortgage debt and $58 million in corporate debt that had been slated to expire Nov. 28. (READ MORE)
But with those extensions set to expire this week, and no new financing in sight, “default of some kind appears imminent,” Fitch wrote in a report yesterday afternoon. Fitch therefore downgraded its issuer default rating (IDR) for General Growth to “C” from the previous “B,” while also downgrading various ratings for the General Growth’s GGP LP and The Rouse Co. LP subsidiaries, and continuing all three companies on Rating Watch Negative.
“Fitch believes that even if the company is able to agree to longer-term extensions for its recourse and non-recourse obligations, such extensions may constitute a distressed debt exchange and therefore a default under Fitch’s rating criteria,” the agency wrote, adding: “Fitch’s rating actions also acknowledge that conditions within both the secured and unsecured commercial real estate debt capital markets remain poor for borrowers, and are placing significant pressure on GGP’s ability to sell assets, enter into joint ventures or otherwise raise adequate capital.”
Meanwhile, Ackman’s Pershing Square Capital Management LP has boosted its stake in GGP to 68.6 million shares, or 25.6 percent, according to Bloomberg News.
Pershing Square already had a 20-percent interest in the mall owner after buying 20.1 million GGP shares between Nov. 13 and 17 and acquiring an interest in another 33.4 million shares via total-return swaps between Nov. 20 and 24, the hedge fund said in a previous SEC filing. (READ MORE) Since then, it has acquired another 15.1 million shares via total-return swaps, bringing the fund’s total investment in General Growth to $48.6 million.
The latest acquisition gives Pershing Square the largest single stake in the ailing REIT – ahead of the founding Bucksbaum family, with its combined holdings of about 24 percent, and mutual fund giant Fidelity Investments, which owned 13.8 percent of General Growth shares as of early last month. (READ MORE)
General Growth Properties Inc. (NYSE: GGP) – owner of Providence Place and the Silver City Galleria in Taunton and manager of the Swansea Mall – is a publicly traded real estate investment trust (REIT). GGP’s portfolio includes about 200 million square feet of retail space and more than 24,000 stores, as well as stakes in various master-planned community developments and commercial office buildings. Additional information is available at www.ggp.com.
Fitch Ratings Ltd. is an international credit-rating agency with headquarters in New York City and London. Additional information, including credit scores for corporate and municipal bonds, is available at www.FitchRatings.com.
