Lenders lengthened General Growth Properties Inc.’s financial lifeline to March 15, giving the real estate giant six more weeks to cope with debt assumed while it built a portfolio of more than 200 malls.
Investors pushed General Growth stock up 30.8 percent to 85 cents Monday, but the issue is still a fraction of its 52-week high of $44.23. The company said lenders agreed to extend the forbearance periods on its 2006 senior credit agreement and its secured portfolio facility, which were set to expire last Friday.
The deadline for the 2006 credit agreement was established in a previous round of negotiations with banks in December and the company’s financing remains tenuous with about $3.3 billion in debt coming due this year. General Growth accepted additional restrictions and covenants to extend the deadline to March.
General Growth said, “Lenders agreed that certain possible future cross-defaults related to the company’s mortgage indebtedness will not cause an immediate termination of the forbearance agreements.”
“That’s a powerful statement,” Tim Goebel, director of investor relations at the firm, told WWD. “Otherwise you’d be worried.”
General Growth is getting used to negotiating with its banks. “We’re getting into something of a cycle of being able to work together more,” Goebel said.
A separate forbearance agreement for $900 million in mortgage debt related to the Fashion Show and Palazzo properties in Las Vegas expires on Feb. 12. The two properties were put up for sale in October.
“What we’re looking to do is continue to talk to them and work out some longer-term solution for these loans,” Goebel said, noting the company also has about $150 million in other mortgage debt coming due before the Fashion Show and Palazzo payments.
“We are not surprised,” said Lou Taylor, research analyst at Deutsche Bank. “The credit lenders are simply giving themselves time to assess the situation.”
Taylor said negotiations between the firm’s banks and bondholders would continue until March when $395 million in bonds come due.
“There are an infinite number of outcomes ranging from a repayment of bonds at a discount, to a default, to a bankruptcy filing,” he said. “Any outcome is possible at this point.”
Experts say the financial problems of mall owners and operators can lead to slower services and delays in renovations and other projects. The financial stress also could give retailers the upper hand when negotiating rents, though the balance sheets of developers can only handle so much pressure.
With major chains set to report January sales results on Thursday, retailers and their investors have bigger fish to fry at the moment.
Retail stocks were mixed on Monday, closing down 0.3 percent, or 72 points, to 259.16. They lagged the Dow Jones Industrial Average, which fell 0.8 percent, or 64.11 points, to 7,936.75.
Shares of Macy’s Inc., which consolidated its flagship chain into a single business unit, fell 4 percent to $8.59.
Among the other broadline retailers, Dillard’s Inc. stock rose 6.9 percent to $4.65 and Kohl’s Corp. increased 1.3 percent to $37.18. Decliners included Saks Inc., down 5.2 percent to $2.39, and Target Corp., off 3.2 percent to $30.20.
Shares of Christopher & Banks Corp. jumped 7.2 percent to $4.16. After the market closed, the company said it would consolidate the management of its namesake and C.J. Banks nameplates, reduce the district count to 58 from 89 and eliminate about 30 positions from its head count, as compared with July. The company expects to save about $2 million as a result of the reorganization and to take approximately $400,000 in fourth-quarter charges in the year just concluded as a result.
Specialty store decliners included Charming Shoppes Inc., down 8.3 percent to 99 cents; Destination Maternity Corp., 7.8 percent to $7.83, and Coach Inc., 4.3 percent to $13.97. Those gaining ground included The Talbots Inc., up 16.3 percent to $2.36, and Casual Male Retail Group Inc., 13.2 percent to 43 cents.
Even if January sales figures and fourth-quarter profits are poor, as expected, there is still the sense of more pain to come for retailers in the spring.
“Having been in clearance/liquidation mode now for almost two months, we think most of our companies are in good shape regarding winter inventory carryover,” said Brian Tunick, an equity analyst following specialty stores at J.P. Morgan. “The bad news is how much spring inventory is currently arriving at retailers’ distribution centers and will also need to be marked down.”