Thursday, October 9, 2008

General Growth's Problems Deepen

Investors are growing increasing wary of General Growth Properties' ability to repay its debt.

The company's stock plunged 42 percent earlier this week after an analyst raised questions about the way it borrowed money to finance the purchase of properties nationwide. Some of that debt will soon need to be refinanced, which could be a real problem in the current market.

General Growth's "stress is mostly due to over-leveraging acquisitions in the past five years," Stifel Nicolaus analyst David Fick said in a note to investors on Monday.

The Associated Press quoted Fick as saying there is a risk that management may have to raise money by selling shares, which would make current shareholders' holdings less valuable.

He added that there are no obvious catalysts that would force the REIT to seek bankruptcy protection, but that the unstable credit markets make the stock a risky investment nonetheless. the Chicago company that bought the developer of Columbia, -based owner and manager of more than 200 shopping malls across the nation, has fallen into deeper debt.

On Oct. 3, General Growth said its chief financial officer, Bernard Freibaum, had left the company and it suspended its dividends due to the troubles in the capital markets. The falling stock price has affected some company insiders, including Freibaum, who took out loans using their stock as collateral.

All continuing executive officers of the Company have informed the Company that they have repaid in full all previously existing margin loans and thus there will be no further sales of Company stock by those executive officers to satisfy margin calls. In addition, the Bucksbaum family interests have informed the Company that they have not sold any shares of Company stock and that they do not intend to sell any of their shares of Company stock. The Company has been informed by Mr. Freibaum that on October 2, 2008, he sold approximately 2.95 million shares of common stock to satisfy margin calls and applied all of the proceeds to repay outstanding margin debts. After those sales, Mr. Freibaum has informed the Company that he beneficially owns approximately 1.3 million shares of stock and has approximately $3.4 million of margin debt outstanding.

1 comment:

JessieX said...


This reminds me: the primary sentiment that hangs heavy in a Fourth Turning (reference William Strauss and Neil Howe's book by the same title) is that of guilt.

I believe the forthcoming stories, reflections and feelings of guilt -- as we naturally cycle deeper and deeper into a crises era -- may well be staggering and astounding.