Wachovia Downgraded General Growth Properties (GGP) to Market Perform On Bankruptcy Risk

April 7, 2009 8:43 AM EDT

Wachovia downgraded General Growth Properties (NYSE: GGP) from Outperform to Market Perform, citing serious risk of bankruptcy.

Wachovia said their prior Outperform rating was based on the view that GGP's share price largely reflected the most negative outcome and that if GGP were provided sufficient time to sort out its balance sheet in a more liquid credit market (e.g., sell assets, refinance maturities) and/or received discounted payoffs of its debts, GGP could realize significant appreciation. Now they say, "It is unclear if this is achievable without a bankruptcy filing -- which may or may not wipe out the equity -- and even still this may not provide sufficient time for resolution."

Wachovia calls GGP a "conundrum", saying if they marked the assets and liabilities to market using long-run pricing for high quality regional malls and borrowing costs they estimate GGP could be cash flow positive and have positive equity value. They said however, GGP, "has collapsed under the weight of its debt maturities exacerbated by the paucity of credit and there is a high risk it seeks protection under Chapter 11 of the U.S. Bankruptcy Code to resolve its refinancing issues. In our view, GGP's creditors are unwilling to force bankruptcy so GGP may have some time to effect a recapitalization or liquidation plan."

The firm has a valuation range on GGP of $0.25-$1.75.

Shares of GGP rose 35% yesterday on hopes of debt holders won't force the company into bankruptcy. The company addressed yesterday's unusual market activity, saying, "it is not aware of any corporate developments that might explain the unusual market activity".

UPDATE: shares of GGP are continuing sharply higher this morning following yesterday's 35% jump. The stock most recently traded at $1.11, up 15.5% from yesterday's close. Yesterday's strength was attributed to
hopes that debt holders won't force the company into bankruptcy anytime soon.

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• Wachovia
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