* Judge approves $400 million DIP loan
* DIP loan awarded to Farallon group
* DIP loan can be paid off in part of stock in new co
By Ilaina Jonas
NEW YORK, May 13 (Reuters) - A federal bankruptcy judge on Wednesday approved a two-year, $400 million financing package put together by a group led by Farallon Capital Management to help mall owner General Growth Properties Inc GGWPQ.PK continue to operate.
Judge Allan Gropper, of Manhattan’s U.S. bankruptcy court, approved the debtor-in-possession (DIP) loan offered by the Farallon group after the plan was revised to provide greater protection for General Growth’s secured mortgage lenders.
Chicago-based General Growth, which owns and operates more than 200 malls in 44 U.S. states. filed for Chapter 11 bankruptcy protection on April 16, making it the biggest real estate bankruptcy in U.S. history.
The company blamed its collapse on the credit crisis, which it said left the company with no sources of loans to replace maturing mortgage and corporate loans. More than 160 of the malls were included in the bankruptcy.
After parenthetical nudges from the judge (“This isn’t rocket science”), General Growth, its creditors and its DIP lenders agreed to the financing package, which gives secured lenders a first lien on the extra cash the malls generate and a second lien on a group of properties.
General Growth also will continue to pay the interest on its mortgages at the pre-filing rate, under the plan.
The DIP, as it is referred to, calls for General Growth to pay interest of 12 percent above Libor on the loan. It also will pay the lenders an exit fee equal to 3.75 percent of the loan.
However, General Growth will have the option of using up to 8 percent of the stock in the post-bankruptcy company to repay the balance of the loan and the exit fee.
In a Monday evening auction, San Francisco-based Farallon beat out proposals by hedge fund Pershing Square Capital Management and by a Goldman Sachs Group Inc (GS.N)-Brookfield Asset Management team.
Pershing, a hedge fund headed by investor William Ackman, had been first to offer General Growth financing when it filed form bankruptcy. Farallon stepped in later, and Goldman/Brookfield entered the picture around May 8, about the time the hearing on the financing began.
“It’s a better DIP from a business perspective,” Gropper said, “particularly in these times when DIP loans are hard to find.”
Farallon, a hedge fund, is no stranger to mall investments. In 2007, Farallon teamed up with Simon Property Group Inc (SPG.N), the No. 1 U.S. mall owner, to buy mall owner Mills Corp. In that deal, Farallon and Simon also beat out Brookfield Asset Management.
Pershing has received $15 million from General Growth for its commitment, said Michael Stamer, a partner with Akin Gump Strauss Hauer & Feld LLP, which represents the Official Committee of Unsecured Creditors. The Goldman/Brookfield group is expected to ask for $5 million.
The DIP lenders include Open Air Investors LLC, managed by Farallon. Open air has agreed to commit $210 million, or more than half the financing. Luxor Capital LLC agreed to provide $110 million. Canpartners Investments IV LLC and Perry Principals Investments LLC, an affiliate of Perry Capital, each agreed to $25 million. Delaware Street Capital Master Funds LP put up $5 million. Affiliates of institutional investment managers Whitebox Advisors LLC agreed to put up the rest.
When General Growth filed for bankruptcy it had $18.4 billion of outstanding debt that either had matured or would mature before the end of 2012 including $2 billion past due, $1.3 billion more coming due this year and $6.4 billion due next year. (Reporting by Ilaina Jonas; Editing by Steve Orlofsky)