* Cash-flow positive business sets GGP apart in bankruptcy
* Assets more than liabilities give equity holders upside
* By extending GGP debt 7 years ‘everyone comes out whole’
NEW YORK, May 28 (Reuters) - Bill Ackman, the biggest shareholder in bankrupt mall operator General Growth Properties Inc GGWPQ.PK, said he could gain 13 times his investment in a company he called "high quality" after it is reorganized.
The fact General Growth has more assets than liabilities was key to other reorganizations in which equity holders retained some or all of their investment, Ackman said. He spoke at the Ira Sohn Investment Research Conference on Wednesday.
Ackman, whose hedge fund Pershing Square Capital Management LP owns about 25 percent of the Chicago-based mall operator, believes extending most of the company’s $27.3 billion in debt for seven years would be enough to resolve its problems.
General Growth, the second-largest U.S. mall owner, filed for bankruptcy in April when it was unable to refinance maturing debt even though it had $29.56 billion in assets.
Even if General Growth comes out of bankruptcy with a 9.4 percent cap rate, which Ackman called "extraordinarily conservative" and more than what mall owner Simon Property Group Inc SPG.N trades for, "you get back 13 times your investment."
“This is not your typical bankruptcy,” he said. The cap rate determines the value of a property based on estimated future operating income.
General Growth is well managed, has the second-highest occupancy rate among U.S. mall operators, owns high quality assets and generates more cash than it needs to operate, Ackman said. Most of its debt has fixed interest rates, which will be a boon in a looming high inflation environment, he said.
But the company refinanced its debt through commercial mortgage-backed securities, a market that was slammed last year when credit markets dried up after investment bank Lehman Brothers filed for bankruptcy in September.
The market capitalization of General Growth, a company Ackman said had never sparked a mortgage default since its founding in 1954, plunged to about $100 million from a peak of $20 billion in April 2007.
“What we propose is GGP simply extends the maturity of its debt for seven years. We think if they extend their debt for seven years, everyone comes out whole. There’s no fire sale liquidation, the equity remains intact,” he said.
“Clearly, we think there’s plenty of asset value over liabilities,” he said. “We think (there’s) huge potential award relative to limited risk. Limited depends on your stomach.”
Ackman said he learned the importance of a company’s assets in a bankruptcy case while he was a business school student and bought shares in failed department store Alexander’s.
“You can make a lot of money investing in a company even if it files for bankruptcy, as long as the assets are worth more than the liabilities,” he said.
Ackman also said that bankruptcy law precedence favors General Growth, and that Judge Allan Gropper of Southern District court in New York will prove good for shareholders.
“I’ve met the judge, I’ve heard what he has to say. We think he’s the right judge at the right time,” he said. “I think no judge today wants to cause this company to liquidate.”
Finally, Ackman said he will be a tenacious advocate for shareholders, another key for equity investors getting back their investment.
“We think inflation is a friend of the company and the nuisance value of the equity can be meaningfully greater than zero and I can be a nuisance,” he said. (Reporting by Herbert Lash; Editing by Kenneth Barry)
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