In re General Growth Properties, Inc.

Decision Date11 August 2009
Docket NumberNo. 09-11977 (ALG).,09-11977 (ALG).
Citation409 B.R. 43
PartiesIn re: GENERAL GROWTH PROPERTIES, INC., et al., Debtors.
CourtU.S. Bankruptcy Court — Southern District of New York

Kirkland & Ellis LLP by: Richard C. Godfrey, Esq., James H.M. Sprayregen, Esq., Anup Sathy, Esq., Sallie G. Smylie, Esq., and Gabor Balassa, Esq., Chicago, IL, Co-Counsel for the Jointly Represented Debtors.

Weil, Gotshal & Manges LLP by: Marcia L. Goldstein, Esq., Gary T. Holtzer, Esq., and Adam P. Strochak, Esq., New York, NY, Co-Counsel for the Jointly Represented Debtors.

Akin Gump Strauss Hauer & Feld LLP by: Michael S. Stamer, Esq., Abid Qureshi, Esq., and Sean E. O'Donnell, Esq., New York, NY, by: James R. Savin, Esq., Washington, D.C., Counsel for the Official Committee of Unsecured Creditors.

Kilpatrick Stockton LLP by: Todd C. Meyers, Esq., Susan A. Cahoon, Esq., Alfred S. Lurey, Esq., Rex R. Veal, Esq., and Mark A. Fink, Esq., Atlanta, GA, by: Jonathan E. Polonsky, Esq., New York, NY, Counsel for Certain Lenders by ING Clarion, Capital Loan Services LLC as Special Servicer.

Zeichner Ellman & Krause LLP by: Stephen F. Ellman, Esq., Nathan Schwed, Esq., Jantra Van Roy, Esq., and Robert Guttman, Esq., New York, NY, Counsel for Wells Fargo Bank, N.A., as Trustee for the Registered Holders of Banc of America Commercial Mortgage, Inc., Commercial Mortgage Pass-Through Certificates, Series 20062; Wells Fargo Bank, N.A., as Trustee for the Registered Holders of Credit Suisse First Boston Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 2006 C1 and certain noteholders, all acting by and through Helios AMC, LLC in its capacity as Special Servicer.

Greenberg Traurig, LLP by: Joseph Davis, Esq., Bruce R. Zirinsky, Esq., Nancy A. Mitchell, Esq., Howard J. Berman, Esq., and Gary D. Ticoll, Esq., New York, NY, Counsel for Metropolitan Life Insurance Company and KBC Bank N.V.

MEMORANDUM OF OPINION

ALLAN L. GROPPER, Bankruptcy Judge.

Before the Court are five motions (the "Motions") to dismiss certain of the Chapter 11 cases filed by one or more debtors (the "Subject Debtors") that are owned directly or indirectly by General Growth Properties, Inc. ("GGP"). One of the Motions was filed by ING Clarion Capital Loan Services LLC ("ING Clarion"),1 as special servicer to certain secured lenders;2 one of the Motions was filed by Helios AMC, LLC ("Helios"),3 as special servicer to other secured lenders;4 and three of the Motions were filed by Metropolitan Life Insurance Company and KBC Bank N.V. (together, "Metlife", and together with ING Clarion and Helios, the "Movants").5 Each of the Movants is a secured lender with a loan to one of the Subject Debtors. The primary ground on which dismissal is sought is that the Subject Debtors' cases were filed in bad faith. It is also contended that one of the Subject Debtors was ineligible to file. The above-captioned debtors (the "Debtors") and the Official Committee of Unsecured Creditors appointed in these cases (the "Committee") object to the Motions. Based on the following findings of fact and conclusions of law, the Motions are denied.

BACKGROUND

GGP, one of the Debtors, is a publicly-traded real estate investment trust ("REIT") and the ultimate parent of approximately 750 wholly-owned Debtor and non-Debtor subsidiaries, joint venture subsidiaries and affiliates (collectively, the "GGP Group" or the "Company").6 The GGP Group's primary business is shopping center ownership and management; the Company owns or manages over 200 shopping centers in 44 states across the country. These include joint venture interests in approximately 50 properties, along with non-controlling interests in several international joint ventures. The GGP Group also owns several commercial office buildings and five master-planned communities,7 although these businesses account for a smaller share of its operations. The Company reported consolidated revenue of $3.4 billion in 2008.8 The GGP Group's properties are managed from its Chicago, Illinois headquarters, and the Company directly employs approximately 3,700 people, exclusive of those employed at the various property sites.

I. Corporate Structure

The corporate structure of the GGP Group is extraordinarily complex, and it is necessary to provide only a broad outline for purposes of this opinion. GGP is the general partner of GGP Limited Partnership ("GGP LP"), the company through which the Group's business is primarily conducted.9 GGP LP in turn controls, directly or indirectly, GGPLP, L.L.C., The Rouse Company LP ("TRCLP"), and General Growth Management, Inc. ("GGMI").10 GGPLP L.L.C., TRCLP and GGMI in turn directly or indirectly control hundreds of individual project-level subsidiary entities, which directly or indirectly own the individual properties. The Company takes a nationwide, integrated approach to the development, operation and management of its properties, offering centralized leasing, marketing, management, cash management, property maintenance and construction management.11

II. Capital Structure

As of December 31, 2008, the GGP Group reported $29.6 billion in assets and $27.3 billion in liabilities.12 At that time, approximately $24.85 billion of its liabilities accounted for the aggregate consolidated outstanding indebtedness of the GGP Group. Of this, approximately $18.27 billion constituted debt of the project-level Debtors secured by the respective properties, $1.83 billion of which was secured by the properties of the Subject Debtors.13 The remaining $6.58 billion of unsecured debt is discussed below.

A. Secured Debt

The GGP Group's secured debt consists primarily of mortgage and so-called mezzanine debt. The mortgage debt is secured by mortgages on over 100 properties, each of which is typically owned by a separate corporate entity. The mortgage debt can in turn be categorized as conventional or as debt further securitized in the commercial mortgage-backed securities market.

(i) Conventional Mortgage Debt

The conventional mortgage debt is illustrated, on this record, by three of the mortgages held by Metlife. Each of the three mortgages was an obligation of a separate GGP subsidiary. There is no dispute that some of the Subject Debtors that issued the Metlife mortgages were intended to function as special purpose entities ("SPE").14 SPE's typically contain restrictions in their loan documentation and operating agreements that require them to maintain their separate existence and to limit their debt to the mortgages and any incidental debts, such as trade payables or the costs of operation. (See, e.g., Metlife MTD White Marsh Debtors ¶ 12, ECF Doc. No. 631.)15 Metlife asserts, without substantial contradiction from the Debtors, that SPE's are structured in this manner to protect the interests of their secured creditors by ensuring that "the operations of the borrower [are] isolated from business affairs of the borrower's affiliates and parent so that the financing of each loan stands alone on its own merits, creditworthiness and value ...." (Metlife MTD Providence Debtors, ¶ 14., ECF Docket No. 629.) In addition to limitations on indebtedness, the SPE's organizational documents usually contain prohibitions on consolidation and liquidation, restrictions on mergers and asset sales, prohibitions on amendments to the organizational and transaction documents, and separateness covenants. Standard and Poor's, Legal Criteria for Structured Finance Transactions (April 2002).16

The typical SPE documentation also often contains an obligation to retain one or more independent directors (for a corporation) or managers (for an LLC). The Metlife loans did not contain any such requirement, but for example, the Amended and Restated Operating Agreements of both Faneuil Hall Marketplace, LLC ("FHM") and Saint Louis Galleria L.L.C. ("SLG"), in a section entitled "Provisions Relating to Financing," mandate the appointment of "at least two (2) duly appointed Managers (each an `Independent Manager') of the Company ..." (Joint Trial Ex. 34, 35, Art. XIII(o)). The Company's view of the independent directors and managers is that they were meant to be unaffiliated with the Group and its management. (See Hr'g Tr. 227: 8-14, June 17, 2009.) It appears that some of the secured lenders believed they were meant to be devoted to the interests of the secured creditors, as asserted by a representative of Helios. (See Altman Test. 159:7-13, June 5, 2009.) In any event, this aspect of the loan documentation is discussed further below.

Although each of the mortgage loans was typically secured by a separate property owned by an individual debtor, many of the loans were guaranteed by other GGP entities. One of the Metlife loans, for example, was guaranteed. Moreover, many loans were advanced by one lender to multiple Debtors. For example, in July 2008, the GGP Group received a loan from several lenders led by Eurohypo AG, New York Branch, as administrative agent, the outstanding principal of which totaled $1.51 billion as of the Petition Date (the "2008 Facility"). GGP, GGP LP and GGPLP, L.L.C. are guarantors, and 24 Debtor subsidiaries are borrowers under the 2008 Facility, which is secured by mortgages and deeds of trust on 24 properties. The loan was set to mature on July 11, 2011, but was in default as of the Petition Date due to a cross-default provision triggered by the default of another multi-Debtor loan called the 2006 Facility. One of the last financings the Debtors were able to obtain before bankruptcy, in December 2008, was a group of eight non-recourse mortgage loans with Teachers Insurance and Annuity Association of America, in the total amount of $896 million, and collateralized by eight properties (the "Teachers Loans").17

The typical mortgage loan for the GGP Group members had a three to seven-year term, with low amortization and a large balloon payment at the end. Some of the mortgage loans had a much longer nominal...

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