December 2, 2008

General Growth Properties Inc. said late Sunday that its lenders have granted the heavily leveraged Chicago mall operator a two-week "interim extension" on $900 million of debt, allowing General Growth a bit of breathing room as it struggles to avoid bankruptcy.

The real estate investment trust said it and the syndicate of lenders "are continuing their discussions" on a longer-term extension to the loan, which technically came due Friday.

As part of its ambitious and long-successful growth strategy, General Growth relied frequently on leverage over the years, purchasing properties with borrowed money and later, when those loans came due, borrowing new funds to refinance the original loans.

But the company loaded itself with an unusually large amount of debt theough an acquisition a few years ago, and when turmoil in the financial sector caused credit markets to tightened up, the REIT has been unable to refinance its loans as it has in the past.

The $900 million loan that came due is related to two malls that General Growth owns in Las Vegas, but in 2009 an additional $3.3 billion in loans for other properties are slated to come due.

As Wall Street watched the company's struggle to refinance the loans, investors grew increasingly concerned that General Growth could be declared in default -- a development that could trigger a domino-like series of defaults that would oblige General Growth to file for Chapter 11 bankruptcy protection. Those fears helped drive the REIT's stock down from a 52-week high of $49.79 to Friday's close of just $1.38.

The reprieve isn't a full-scale resolution -- the deadline has only been pushed back for two weeks -- but it suggests that General Growth's lenders aren't anxious to declare the REIT in default and foreclose on the Las Vegas properties at a time when real estate values are severely depressed.The more than 200 regional shopping malls that General Growth either owns or operates nationwide include a number of well-known, high-end retail centers such as as Water Tower Place in Chicago.

Source: http://www.chicagotribune.com/business