Breaking Down Bankruptcy: GGP

Sorry folks, did you miss me? Think back . . . decades ago you too were approaching the end of your last semester of college. You were busy right? Well its good to be back and discuss the finer points of bankruptcy law. I'm not an economist or even an economics major but as a journalist, I have the benefit of calling on the knowledge and wisdom of economics professors.

I spent my weekend in correspondence with Joe Pomykala, a professor of economics at Towson University who specializes in bankruptcy law. Hopefully after reading this, you will have a better understanding of the intricacies of chapter 11 bankruptcy in relation with General Growth Properties.

Chapter 11 bankruptcy allowed GGP to freeze it's debt of $4 billion and avoid interest payments to its creditors. Additionally, all legally binding contracts such as leases and labor contracts which exist outside of said bankruptcy can be accepted or rejected at the company's discretion.

While in bankruptcy, GGP may take out new loans which must be paid before the existing debt which are referred to as DIP (Debtor In Possession) loans. The interest rates for said loans are substantially lower than those of the company's existing loans.

Next, GGP develops a restructuring plan to reorganize and streamline it's operation, which creditors vote over. Creditors are usually paid less than the original contract allows. However the creditors should receive payment equivalent to the sum negotiated under chapter seven liquidation.

It should be noted that creditors of the preexisting debt may not necessarily receive cash as payment. In some cases, creditors receive stock in the restructured company. The bakruptcy and restructuring process may take as much as two years to complete. When asked if the process seems unfair, Pomykala says it is legalized theft.