Foreclosure Plan May Impact GGP

The share price of GGP continues its steady downward slide, as expected, in the wake of continued uncertainty around lending which prolongs the current financial limbo. GGP remains locked in protracted negotiations with a range of lenders including Deutsche Bank and Goldman Sachs relating to loans all now past their due date, and all now beyond the period of foreclosure.

That in effect means that if a single lender decides 'enough is enough' and pulls the plug, there would likely be a domino effect on other lenders that would lead to them all declaring default - and forcing General Growth to file for Chapter 11 bankruptcy protection.

It is interesting to note that yet again none of the wider lender consortium have done so, despite now being as much as a week beyond the foreclosure period, and only illustrates once again that lenders are desperate to avoid pushing such an enormous firm into bankruptcy.

As I have stated previously, this is in nobody's best interests - particularly Chapter 7, which would force immediate liquidation of distressed assets at firesale prices, and lead to all lenders making a loss. This seems to be shared by others in the banks that make up the lender consortium, as this article outlines:

"There seems to be a lot of concern regarding what happens when loans come due in the next couple of years. There are large numbers of loans coming due in 2009 and increasing through 2010 and 2011. J.T Coe, Managing Director, Deutsche Bank states, “Everything’s getting extended, foreclosure is the LAST resort”. Waynebern continues “[Lenders will] Extend, Forebear, Modify loans on cash flow assets.” “The Banks can’t run the business as well as the borrower.” So, the consensus opinion is that the banks will use foreclosure only as a last resort. They simply can’t maximize their returns, or minimize their losses trying to run the businesses themselves, or, liquidating assets in weak markets."

After the widespread market backlash at the lack of substance behind the Financial Stability Plan, news emerged yesterday that Barack Obama will be releasing details of the plan relating to preventing real estate foreclosures on Wednesday. I need to find out whether this also includes commercial real estate, but assume so for now. Either way, of interest is that meantime several banks have openly pledged to stop foreclosures.

At present the future of GGP remains finely balanced. One of Chicago's largest property companies on the brink, partly owned by a wealthy, Chicago-based family and major backers of a new President from Chicago. It is difficult to see GGP being thrown to the wolves when a commercially viable business could be saved through refinancing of its loans - not additional capital.

I remain comfortable with the situation relating to GGP - unlike many small investors who appear to be suffering psychological swings of doubt and worry. Interesting to note how the major institutions invested in GGP view the firm, most notably ones such as Pershing Square.

This presentation on slide 46 gives a good summary of their view of GGP. I remain optimistic that this next month is going to bring some significant news that is going to lead to a huge increase in the stock price.

A Glimmer of Substance Behind The Rhetoric

After my tongue-in-cheek, but undeniably slightly malicious, rumour spreading regarding the date for the next round of job cuts here, various people have wandered past my desk this morning looking both relieved and pissed off that my 'source' (aka 'my imagination') was wrong. Hey, I might still be right - I did say cover myself by saying today *or* tomorrow...

Well since I've got rather more of a sense of job security than them, L and I have opted for some sunshine in Sharm El-Sheikh in Egypt for a spring break next month. Frankly the unrepentent drizzel of London rain, and bad news from the press, are enough to make even an optimist like me start to contemplate whether it is time to pack it all in and buy a beach hut.

There has been some interesting announcements from the new US Treasury Secretary, Tim Geithner, relating to the proposed $2 trillion update to the TARP (now rebranded the Financial Stability Plan, presumably to reassure us by removing horrible words like 'troubled').

"It's been a long time coming, but tonight, because of what we did on this day, in this election, at this defining moment, change has come..."

Exactly as I expected, the programme so far seems to be a direct implementation of the skilled rhetoric with which Barack Obama has stormed the global political stage in the last 15mths. Broad in scope, inspiring hope, but with few actual specifics. However people, I think we can all quite definitely say that change has come.

Quite why the markets were expecting some kind of all-encompassing answer to this wide range of problems so soon is beyond me. Desperation most likely. The Financial Stability Plan was only a framework when the bill passed through the Senate a couple of days ago. Those buying in to capitalise on some kind of bounce are a fine example of why many lose money on the markets: were I into short selling, I would have been fully loaded up before yesterday.

Of most interest to my GGP trade is that the plan now includes the proposed relief for the Commercial Real Estate sector. In theory it will provide a means for lenders to either receive capital specifically for refinancing distressed REIT's, or roll those loans into some kind of 'bad bank' fund that reduces their own risk and exposure. Either way, once the market stops sulking, it actually has some potential to help unlock a situation where otherwise viable businesses are on the verge of bankruptcy due to the frozen commercial mortgage-backed security (CMBS) market.

Anyway, I have a fabulously quiet afternoon in prospect at the office. One of the final round interviews I had lined up with another bank was supposed to be later, but that has just been cancelled due to new hires currently not being 'commercially viable at present'. That translates into the bank realising they cannot really justify hiring when they are about to fire more employees.

Either way, given I am lucky enough to seemingly be secure for the foreseeable future I couldn't care less.. now which hotel in Sharm El-Sheikh shall I go for...