The General Growth Lottery Ticket
General Growth Properties, Inc. (GGWPQ) might be in bankruptcy court, but that’s not stopping some investors from buying the common stock. Investors like Bill Ackman believe it could be a huge winner if equity remains intact after emerging from bankruptcy.
General Growth Properties [[GGWPQ.PK]], a Chicago-based mall operator, has been in bankruptcy court for awhile now. The company found itself unable to roll over or refinance its $27 billion in debt due to the difficult debt markets and wound up in bankruptcy court. Now, the company is working with investors and creditors to sort out its problems.
Unlike most bankrupt companies, General Growth has more assets than liabilities and simply needs to roll over its debt for seven years to survive. Last month, the company received a debtor-in-possession bankruptcy loan for $400 million from an investor group led by Farallon Capital Management. This should help the company successfully emerge from bankruptcy.
The big question is whether or not existing shareholders will remain intact after bankruptcy. Bill Ackman, the biggest shareholder in the bankrupt company, believes he could gain 13 times his investment after the company reorganizes. General growth exhibits many of the elements as other reorganizations where equity holders remain some or all of their investment has remained.
Of course, purchasing stock in a bankrupt company is risky business for any investor. Most bankruptcies involve existing shareholders being completely wiped out, or at best, heavy dilution in order to pay off existing debt holders with equity. In fact, many traders refer to shares of bankrupt companies as lottery tickets on a successful reorganization.
Whether or not General Growth’s reorganization will keep shareholders in tact remains to be seen, but judging by the stock’s recent trend, many investors are gaining confidence and purchasing this higher-than-normal-probability lottery ticket.
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