* Lenders say co filed to gain more negotiating power
* Lender says independent directors fired before filing
By Ilaina Jonas
NEW YORK, May 29 (Reuters) - A growing number of lenders to malls owned by General Growth Properties GGWPQ.PK on Friday filed to have those properties stripped from the company’s Chapter 11 bankruptcy case.
The legal separation would give the lenders greater control over the fate of the malls and access to all the excess cash they generate.
The lenders accuse General Growth of using the bankruptcy code to give it more leverage to negotiate debt payments. They argue that the loans are not in danger of defaulting and that the properties generate plenty of cash to more than cover the debt payments.
Four motions by lenders were filed on Friday. A hearing is scheduled for June 17.
Attorneys for Metropolitan Life Insurance Co (MetLife Inc) (MET.N) and KBC Bank NV, a unit of KBC Groep NV (KBC.BR), wrote in their motion to dismiss entities related to White Marsh Mall in Maryland: “It is clear that the petitions of the White Marsh debtors were not filed with any reorganizational purpose; they were filed solely to obtain leverage and a tactical advantage in any future efforts to extend the maturity of the loan.”
General Growth legally created its malls as special purpose entities (SPEs), separate from the parent company. This prevented it from being on the hook for any of the SPEs’ obligations.
“In determining to underwrite the loan, MetLife and KBC relied on the separateness and credit worthiness of the borrower and the underlying property, especially because no parent company repayment guaranty was required,” attorneys for White Marsh wrote.
A representative from Chicago-based General Growth did not immediately return e-mails seeking comment.
The SPEs are governed by independent directors. But some of them, including SPEs related to Fox River Shopping Center in Wisconsin, say that General Growth fired the independent directors minutes before the bankruptcy filing.
In addition, lenders for Providence Mall in Rhode Island and the Las Vegas properties of Town Center and Covington Cross filed to be freed from bankruptcy.
General Growth’s bankruptcy filing on April 16 swept 158 of its more than 200 malls along with it. Another eight malls followed, bringing the total to 166.
General Growth said it was forced to file because it could not refinance its maturing debt. It faces $18.4 billion of maturing debt obligation from the time it filed through 2012.
After the bankruptcy filing ING Clarion Capital, which services the loans on eight malls, immediately filed to be extricated from the bankruptcy. Wells Fargo, the servicer for the loans on Boston’s Faneuil Hall Marketplace, followed earlier this month.
Reporting by Ilaina Jonas; Editing by Richard Chang