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) 872-1000 (Telephone) (212) 872-1002 (Facsimile) Michael S. Stamer Abid Qureshi AKIN GUMP STRAUSS HAUER & FELD LLP 1333 New Hampshire, N.W. Washington, DC 20036 (202) 887-4000 (Telephone) (202) 887-4288 (Facsimile) James R. Savin David M. Dunn Counsel for the Official Committee of Unsecured Creditors UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
In re: General Growth Properties, Inc., et al., Debtors.
Chapter 11 Case No. 09-11977 (ALG) (Jointly Administered)
OBJECTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS TO DEBTORS’ MOTION PURSUANT TO SECTION 1121(d) OF THE BANKRUPTCY CODE REQUESTING A SECOND EXTENSION OF EXCLUSIVE PERIODS FOR FILING A CHAPTER 11 PLAN AND SOLICITATION OF ACCEPTANCES THERETO The Official Committee of Unsecured Creditors (the “Creditors’ Committee”) of General Growth Properties, Inc. (“GGP”) and its affiliated debtors and debtors in possession (collectively, with GGP, the “Debtors”), by and through its undersigned counsel, hereby files this objection (the “Objection”) to the Debtors’ Motion Pursuant to Section 1121(d) of the Bankruptcy Code Requesting a Second Extension of Exclusive Periods for Filing of a Chapter 11
Plan and Soliciting Acceptances Thereof (the “Second Exclusivity Motion”).1 In support of this Objection, the Creditors’ Committee respectfully submits as follows: PRELIMINARY STATEMENT 1. By the Second Exclusivity Motion, the Debtors request a second six-month
extension of their exclusive periods to file a plan of reorganization and solicit acceptances thereof (the “Exclusive Periods”), through and including August 26, 2010 and October 26, 2010, respectively. The request for a second extension of the Debtors’ Exclusive Periods should be denied for the following reasons: • • the Debtors have failed to make sufficient progress on the TopCo Restructuring to justify a further six-month extension of exclusivity; the Debtors are attempting to use an extension of their Exclusive Periods to force upon their creditors a lengthy and uncertain Capital Raise/M&A Process, rather than pursue a transaction that would guarantee the Debtors’ creditors with cash payment in full and provide their equity holders with a substantial distribution; the Debtors are ignoring their fiduciary duty to creditors by attempting to hire the Equity Committee’s former financial advisor to pursue a Capital Raise/M&A Process designed solely to benefit equity holders at great risk to creditors’ recoveries; and the Debtors have abandoned the cooperative and transparent process utilized in connection with the Property-Level Restructuring in favor of a process that seeks to exclude the Creditors’ Committee. First, the Debtors have failed to make sufficient progress on the TopCo
Restructuring. In an attempt to show progress, the Debtors assert in the Second Exclusivity Motion that they have been proceeding, “in coordination” with the Creditors’ Committee, along a “deliberate two-stage strategy.” Second Exclusivity Motion, p. 2, ¶ 2. This is not true. At the First Exclusivity Hearing, the Creditors’ Committee unequivocally stated that its support for the
The facts and circumstances described in this Objection reflect the Creditors’ Committee’s knowledge as of 10:00 am (ET) on February 24, 2010. To the extent the facts and circumstances change prior to the hearing on the Second Exclusivity Motion, the Creditors’ Committee hereby reserves its rights to supplement this Objection.
first six-month extension of the Exclusive Periods was predicated on the Debtors’ intent to pursue the Project-Level Restructuring and the TopCo Restructuring simultaneously, so TopCo creditors were not sitting idly by in the interim. The Debtors echoed the Creditors’ Committee’s sentiments, creating a record that the process would not be bifurcated. The Court also agreed with the Creditors’ Committee, granting the Debtors’ First Exclusivity Motion with the caveat that the case as a whole could not be ignored. 3. Subsequently, the time parameters that the Debtors’ Property-Level secured lenders
and servicers insisted upon in connection with the Property-Level Restructuring necessitated a de-coupling of the Property-Level and TopCo Restructurings, but only for purposes of proceeding on dual (rather than the same) tracks. The Creditors’ Committee never endorsed a two-stage strategy whereby the Debtors would complete the Property-Level Restructuring at the expense of any progress on the TopCo Restructuring. 4. The Debtors also contend that TopCo Restructuring progress has been made
because the TopCo plan negotiations have already begun and are continuing on what the Debtors describe as a “strategically planned path.” Second Exclusivity Motion, p. 9, ¶ 20. The Creditors’ Committee is unaware of any facts supporting this statement. The Second Exclusivity Motion lacks any facts that show progress towards proposing, or even beginning negotiations on, a plan for the TopCo Debtors. The Debtors, only in the past few days, and the Creditors’ Committee believes only because the hearing on the Second Exclusivity Motion was approaching, delivered a long-term business plan, a first step in developing a TopCo plan of reorganization. To the Creditors’ Committee’s knowledge, no term sheets have been circulated, no draft plans have been exchanged and no negotiating sessions have occurred or even been requested. Moreover, the Debtors state in the Second Exclusivity Motion that they do not anticipate beginning to negotiate
a TopCo plan for at least another three months because they first intend to complete the Capital Raise/M&A Process. The Debtors’ unsupported assertions of progress with respect to a TopCo plan of reorganization do not constitute cause supporting another lengthy extension of the Exclusive Periods. 5. Second, the Debtors are using exclusivity to force upon their creditors a plan
process to which the Creditors’ Committee objects. The Debtors have chosen a strategic path for the TopCo Restructuring that contemplates a Capital Raise/M&A Process that will unfold over several months instead of pursuing a currently available transaction, subject to higher and better offers, that would guarantee payment in full in cash to the Debtors’ TopCo unsecured creditors and a material distribution to equity holders. Moreover, during the Capital Raise/M&A Process the Debtors’ estates will likely incur professional fees of approximately $9 million monthly2 and interest will continue accrue on the Debtors’ TopCo unsecured debt at a rate of approximately $34 million monthly. 6. The Debtors received from Simon Property Group, Inc. (“Simon”) an unsolicited,
firm and fully financed $10 billion offer, including $9 billion in cash, that will provide a full recovery in cash to all TopCo unsecured creditors and a cash and other asset distribution to the Debtors’ equity holders valued at approximately $9 dollars a share (the “Simon Proposal”). The Debtors, however, have declined to engage with Simon or even allow Simon to perform the 30day confirmatory diligence it has requested. Simon has publicly stated that it has tried for many months to engage the Debtors to explore a transaction, only to be repeatedly rebuffed and indefinitely put off. Equally troublesome is that the Debtors, without consulting the Creditors’
The Debtors have incurred approximately $90 million in professional fees during the first ten months of these chapter 11 cases, without taking into account the tens of millions in success fees due upon emergence.
Committee, issued a press release rejecting the Simon Proposal as “not sufficient to preempt” the lengthy Capital Raise/M&A Process proposed by the Debtors. 7. The Debtors have represented to this Court that all creditors will be paid in full and
equity will realize a significant distribution. The Creditors’ Committee hopes that this will occur, however, the Debtors’ statements are far from a guarantee. The market volatility over the last ten months that resulted in the Debtors’ stock and debt trading up significantly can just as easily reverse itself to the detriment of TopCo creditors’ recoveries. TopCo creditors should not be forced to bear the risk that the improvement in trading prices of the Debtors’ unsecured debt and equity securities and overall improvement in the capital markets is reversed, and current options disappear or significantly worsen. As such, the Creditors’ Committee opposes an extension of the Debtors’ Exclusive Periods that would allow the Debtors to continue to ignore attractive and currently available restructuring options, such as the Simon Proposal, in order to embark upon a lengthy and uncertain Capital Raise/M&A Process. 8. Third, the Debtors, through the Capital Raise/M&A Process, are ignoring their
fiduciary duty to creditors and risking a full cash recovery solely in an attempt to inflate value for their equity holders. Given the amount of equity represented by current members of the Board of Directors (members represent approximately 50% of the Debtors’ equity interests), the fact that the Debtors are currently seeking to hire the Equity Committee’s former financial advisor and, as explained below, the Debtors’ 180-degree shift away from the cooperative and transparent strategy utilized in connection with the Project-Level Restructuring, the Creditors’ Committee believes that the Debtors intend, through the Capital Raise/M&A Process, to raise only the minimum amount of capital needed to achieve a TopCo emergence from chapter 11 and to equitize large portions of TopCo unsecured debt at an artificially high equity value. This
equitization would be pursued in lieu of M&A proposals such as the Simon Proposal that would provide a full cash recovery to TopCo unsecured creditors and a material distribution to equity holders, but would also likely require a change in control of the Debtors. An extension of the Exclusive Periods for this purpose is inappropriate and unreasonable. 9. Fourth, instead of pursuing a cooperative and transparent process, such as was the
case with the Property-Level Restructuring, the Debtors have already demonstrated that they intend to restrict the Creditors’ Committee from involvement and visibility with respect to the Capital Raise/M&A Process. For example, the Debtors, over the Creditors’ Committee’s objection, have been trying to force potential investors to sign an onerous form of non-disclosure agreement that, among other things, prohibits potential investors from (i) making alternative proposals if their proposal is not chosen by the Debtors, and (ii) communicating with the Creditors’ Committee or its professionals. The Debtors’ have also refused to commit to involving the Creditors’ Committee in substantive aspects of the Capital Raise/M&A Process and keeping the Creditors’ Committee apprised of substantive developments during such process. 10. The Debtors should not be granted the ability to leave their TopCo creditor
constituency functionally in the dark for at least the next three months and, at the end of the Capital Raise/M&A Process, present a TopCo Restructuring solution that may very well be unacceptable to the Creditors’ Committee and TopCo creditors. At best, the Debtors’ solution will not have been informed by an interactive and transparent process. At worst, the Debtors’ solution will indeed be unacceptable and will result in costly delay while the Debtors retool their solution and/or litigate to try to force their solution upon TopCo creditors. 11. As in every case, a cooperative and transparent process is necessary and has a
much greater chance of resulting in both consensus with respect to the TopCo Restructuring and
maximizing value for stakeholders. The Debtors concede as much multiple times in the Second Exclusivity Motion when citing the success of the Project-Level Restructuring. The Court should not extend the Exclusive Periods in order to permit the Debtors to run a non-transparent and non-inclusive Capital Raise/M&A Process. 12. For these reasons, and those set forth below, the Creditors’ Committee respectfully
requests that this Court deny the Debtors’ request for a second six-month extension of their Exclusive Periods. BACKGROUND I. Procedural Background 13. On April 16, 2009 (the “Petition Date”), and continuing thereafter, each Debtor
filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). The Debtors’ chapter 11 cases have been consolidated for procedural purposes only and are being jointly administered pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”). The Debtors are authorized to continue to operate their businesses and manage their properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 14. On April 25, 2009, pursuant to section 1102 of the Bankruptcy Code, the United
States Trustee for the Southern District of New York (the “U.S. Trustee”) appointed the Creditors’ Committee. The Creditors’ Committee currently consists of eleven members.3 On September 8, 2009, the U.S. Trustee appointed the Official Committee of Equity Security Holders (the “Equity Committee”).
The following entities comprise the Committee: American High-Income Trust, The Bank of New York Mellon Trust Co., Eurohypo AG, New York Branch, Fidelity Fixed Income Trust, Fidelity Strategic Real Return Fund, Fidelity Investments, Macy’s Inc., Taberna Capital Management, LLC, Wilmington Trust, General Electric Capital Corp., Millard Mall Services, Inc., Luxor Capital Group, LP and M&T Bank.
The First Exclusivity Motion 15. On July 2, 2009, the Debtors filed a motion seeking a six-month extension of their
Exclusive Periods (the “First Exclusivity Motion”), which was heard by this Court during a hearing held on July 28, 2009 (the “First Exclusivity Hearing”). At the First Exclusivity Hearing, the Creditors’ Committee stated that its support for the First Exclusivity Extension was predicated on the Debtors’ intent to pursue the Project-Level Restructuring and the TopCo Restructuring simultaneously. See Hr’g Tr. 55: 8-15, July 28, 2009 (“Your Honor, there was an argument . . . about the need to do this in a two-step process, that [the Debtors] should work on the property companies first and then work on what we’ve called ‘Top Co.’ Your Honor, and I believe the Debtors agree with the [Creditors’] Committee that the appropriate way to address these issues is to address them at the same time. That the Top Co. creditors should not and are not sitting idly by . . . .”). The Debtors agreed, noting “I don’t think we can bifurcate [the Project-Level and TopCo Restructuring]. I echo [the Committee’s] point.” Id. at 60: 3-4. At the conclusion of the First Exclusivity Hearing, the Court, with the direction that “the case as a whole cannot be ignored” (id. at 62: 18), granted the Debtors an extension of the Exclusive Periods to and including February 26, 2010, and April 23, 2010, respectively (the “First Exclusivity Extension”).
The Project-Level Restructuring 16. Beginning on December 15, 2009, and continuing on December 22, 2009, January
20, 2010 and February 16, 2010, the Court confirmed plans of reorganization for 219 Debtors (collectively, the “Project-Level Debtors”). In particular, the Project-Level Debtors’ plans include settlements with a number of their secured lenders that generally provide for extensions and laddering of the maturities (at the non-default contract rate of interest) of approximately $11.6 billion in secured Project-Level debt (the “Project-Level Restructuring”). As noted by the Debtors, the Project-Level Restructuring was the direct result of the Debtors’ transparency and their cooperative relationship with each constituency and their professionals. See Hr’g Tr. 23-24: 23-3, Dec. 15, 2009 (“[The Project-Level Restructuring] is . . . a testament to . . . the transparency of our negotiating process and . . . the tireless commitment of the businesspeople and the advisors involved.”). IV. The TopCo Restructuring 17. In contrast to the success of the Project-Level Restructuring, the Debtors have not
made any material restructuring progress with respect to a plan or plans of reorganization for GGP, GGP Limited Partnership, GGPLP LLC, The Rouse Company LP, and a number of parent holding companies (collectively, “TopCo” or the “TopCo Debtors” and the “TopCo Restructuring”). The Debtors’ lack of progress comes despite having all necessary resources and representing to this Court during the First Exclusivity Hearing that they would pursue a “dual-track” reorganization process for the Top-Co and Project-Level Debtors. See, e.g., Hr’g Tr. 21: 16-19, July 28, 2009 (“[T]he Debtors’ [goal is] to develop a comprehensive plan of reorganization that would try to resolve the multiple plan issues. And that, Your Honor, is exactly what we hoped [sic] to do in the next six months.”) (emphasis added). Evidence of the lack of progress by the Debtors is the fact that it took the Debtors nearly 10 months in order to 9
produce a long term business plan (the “Business Plan”). The Debtors have also yet to engage the Creditors’ Committee in any material TopCo Restructuring discussions, nor have they made any proposals or circulated any term sheets that would establish a baseline for TopCo Restructuring negotiations. V. The Proposed Capital Raise/M&A Process 18. The Debtors represent in the Second Exclusivity Motion that they are
contemplating potential TopCo Restructuring options, “including a standalone restructuring, which will include an evaluation of traditional and non-traditional forms of exit financing or capital, as well as [the M&A] or other change of control transactions with financial and strategic investors.” Second Exclusivity Motion, p. 4, ¶ 5. While the Creditors’ Committee supports, in principle, an efficient and appropriate exploration by the Debtors of capital raise and M&A options (collectively, the “Capital Raise/M&A Process”), all indications are that the Debtors intend to proceed in a unilateral and non-transparent manner over a three-month period, rather than attempting to capitalize immediately on existing TopCo Restructuring options, such as the Simon Proposal. A. 19. Discussions Regarding a Non-Disclosure Agreement The Debtors clearly signaled they were abandoning an open and transparent
relationship with the Creditors’ Committee when the Creditors’ Committee received drafts of a form of non-disclosure agreement (the “NDA”) the Debtors proposed to send to interested investors in connection with the Capital Raise/M&A Process. Consistent with the Creditors’ Committee’s mandate that the Capital Raise/M&A Process be transparent and inclusive of the Creditors’ Committee, as the fiduciary for TopCo unsecured creditors, the Creditors’ Committee’s professionals provided substantive feedback to the Debtors’ professionals on the NDA. 10
There were three principal provisions in the NDA that the Creditors’ Committee
found particularly objectionable and unreasonable: (i) the NDA contained a standstill provision that, among other things, prohibited each potential investor, whether or not they invested in the Debtors, from acquiring, seeking to acquire, or proposing or agreeing to acquire ownership of the Debtors’ debt or equity securities until six months after this Court confirmed a plan of reorganization;4 (ii) the NDA did not permit potential investors to propose alternative transactions; and (iii) the NDA did not allow the Creditors’ Committee or other stakeholders to participate in the Capital Raise/M&A Process. 21. Despite the Creditors’ Committee’s feedback, the Debtors sent what they described
as the “final” version of the NDA to the Creditors’ Committee that rejected substantially all of the Creditors’ Committee’s comments. Consequently, the Creditors’ Committee’s advisors requested, both orally and in writing to the Debtors’ Board of Directors, management team and advisors, that the Debtors reconsider their position on launching the Capital Raise/M&A Process with the NDA. Over the Creditors’ Committee’s objection, the Debtors distributed the NDA to certain third parties and advised the Creditors’ Committee on February 5, 2010 that they intended to execute the NDA with at least one potential investor. 22. On February 23, 2010, the day prior to the filing deadline for this Objection, the
Debtors circulated a further revised NDA in which they attempt to address several of the provisions the Creditors’ Committee found objectionable and unreasonable. There are, however, remaining issues with the NDA.
The Debtors’ financial advisor, Miller Buckfire, recently characterized a comparable standstill provision in another chapter 11 case as “unreasonable” and non-market. See Declaration of Samuel Greene in Support of Statement of Starwood Regarding Debtors’ Motion Pursuant to Section 1121(d) of the Bankruptcy Code Requesting Second Extension of Exclusive Periods for the Filing of a Chapter 11 Plan and Solicitation of Acceptances Thereof (the ”Greene Declaration”), In re Extended Stay Inc., et al., Case No. 09-13764 (JMP) (Bankr. S.D.N.Y. Jan. 13, 2010) [Docket No. 716]. A copy of the Greene Declaration is attached hereto as Exhibit A.
Discussions Regarding Capital Raise/M&A Process Parameters In connection with the discussion relating to the NDA, the Debtors and the
Creditors’ Committee also discussed a protocol through which the Creditors’ Committee, Equity Committee and certain informal groups of creditors and the Debtors would participate in the Capital Raise/M&A Process. The protocol would have acknowledged that the Debtors would run the Capital Raise/M&A Process, but sought to ensure transparency and involvement by the non-Debtor parties, including keeping the Creditors’ Committee involved in substantive aspects of the process and apprised of substantive developments in a timely manner. Despite the parties efforts to reach agreement on a protocol, no agreement was reached. OBJECTION I. The Legal Standard for Extending a Debtor’s Exclusive Periods 24. Section 1121 of the Bankruptcy Code limits the period of time during which a
debtor has the exclusive right to file a plan of reorganization and solicit acceptances thereof to 120 and 180 days, respectively. See 11 U.S.C. § 1121(b) and (c). Once these initial periods expire – as they did six months ago for the Debtors – a debtor may only extend its exclusive periods upon meeting its burden of showing “cause” for such an extension. See 11 U.S.C. § 1121(d);5 see also In re Curry Corp., 148 B.R. 754, 756 (Bankr. S.D.N.Y. 1992) (“debtor must make a clear showing of ‘cause’ to support an extension of the exclusivity period”). 25. It is well-established that “a request to either extend or reduce the period of
exclusivity is a serious matter” and “such a motion should ‘be granted neither routinely nor cavalierly.’” In re All Seasons Indus., Inc., 121 B.R. 1002, 1004 (Bankr. N.D. Ind. 1990)
Such extensions for cause are limited to 18 months from the petition date with respect to filing a plan of reorganization, and 20 months from the petition date with respect to soliciting and obtaining acceptance of any such plan.
(quoting In re McLean Indus., Inc., 87 B.R. 830, 834 (Bankr. S.D.N.Y. 1987)); see also In re Pine Run Trust, Inc., 67 B.R. 432, 434 (Bankr. E.D. Pa. 1986) (“both the language and purpose of [Section1121(d)] require that an extension not be granted routinely”); In re Parker St. Florist & Garden Ctr., Inc., 31 B.R. 206, 207 (Bankr. D. Mass. 1983) (“the [c]ourt should not routinely grant an extension”). Indeed, at the First Exclusivity Hearing, this Court noted that, in requesting their first six-month extension, the Debtors were requesting “a period that is more substantial than would ordinarily be granted in a request for extension of exclusivity.” Hr’g Tr. 62:11-12, July 28, 2009. 26. Here, the Debtors are seeking their second six-month extension of their Exclusive
Periods, an extension that would end two months prior to the statutory maximum extension of the Exclusive Periods. At the end of the proposed extension of the Exclusive Periods, these chapter 11 cases will have been pending 19 months. Consequently, the Debtors must satisfy a significantly increased burden to justify a second lengthy extension of exclusivity. See In re Mirant Corp., No. 4-04-CV-476-A, 2004 WL 2250986, at *2 (N.D. Tex. Sept. 30, 2004) (“The debtor’s burden gets heavier with each extension it seeks as well as the longer the period of exclusivity lasts.”); In re Dow Corning Corp., 208 B.R. 661, 664 (Bankr. E.D. Mich. 1997) (noting that a debtor’s “burden gets heavier with each extension … and a creditor’s burden to terminate gets lighter with the passage of time”).
The Debtors Have Failed to Demonstrate “Cause” Exists for Extending Their Exclusive Periods 27. Although section 1121(d) of the Bankruptcy Code does not define “cause,” courts
in this District have promulgated a multi-factor balancing test to guide their inquiry in determining whether cause exists sufficient to extend exclusivity. These factors (collectively, the “Adelphia Factors”) are as follows: (a) the size and complexity of the debtor’s case; (b) the existence of good faith progress towards developing a plan of reorganization; (c) a finding that the debtor is not seeking to extend exclusivity to pressure creditors to accede to the debtor’s reorganization demands; (d) the existence of an unresolved contingency; (e) the fact that the debtor is paying its bills as they come due; (f) the necessity for sufficient time to permit the debtor to negotiate a plan of reorganization and prepare adequate information; (g) whether the debtor has demonstrated reasonable prospects for filing a viable plan; (h) whether the debtor has made progress in negotiations with its creditors; and (i) the amount of time which has elapsed in the case. See In re Adelphia Commc’ns Corp., 352 B.R. 578, 587 (Bankr. S.D.N.Y. 2006); see also In re R.G. Pharmacy, Inc., 374 B.R. 484 (Bankr. D. Conn. 2007) (stating that “the case law has identified factors that normally are considered when determining whether ‘cause’ exists to reduce or increase the debtors’ exclusivity period”) (citing Adelphia, 352 B.R. at 586-587). 28. The Debtors have failed to satisfy their burden of demonstrating cause to extend
their Exclusive Periods. In support of the Second Exclusivity Motion, the Debtors cite the following Adelphia Factors: (i) their cases are large and complex; (ii) they have made good faith progress towards reorganization and development of a consensual plan; (iii) there are unresolved
contingencies; (iv) they require an extension of exclusivity to maximize value; and (v) they are paying their bills as they become due. See Second Exclusivity Motion, pp. 10-19, ¶¶ 22-39. When balancing the Adelphia Factors cited by the Debtors, however, it is clear that the facts militate against approval of a second six-month extension of the Exclusive Periods. A. 29. The Current Size and Complexity of the Debtors’ Cases Does Not Support an Extension of Their Exclusive Periods By their own admission, the Debtors have not sought to effect any material
operational restructuring through these chapter 11 cases. See December 1, 2009 Disclosure Statement for Plan Debtors’ Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code [Docket No. 3659]. Instead, the Debtors have focused almost exclusively on a balance sheet restructuring that, to date, has resulted in confirmed plans for 219 of the 388 Debtors, representing in excess of $11.6 billion of secured debt. As a result, the only balance sheet restructuring that remains are a few Project-Level secured loans and the TopCo unsecured debt. Upon information and belief, the Debtors are making progress in their discussions with the majority of their remaining Project-Level lenders. In addition, with respect to the TopCo unsecured debt, the Debtors have received a firm offer from Simon that offers a simple and efficient way to maximize value for all stakeholders and exit chapter 11. Accordingly, the current size and complexity of the Debtors’ cases, as evidenced by the scope of the remaining restructuring, does not support an extension of their Exclusive Periods. The Debtors’ attempt to complicate unnecessarily these chapter 11 cases by running a lengthy and risky Capital Raise/M&A Process does not change this fact. 30. Even if the Court finds that the current size and complexity of these cases militates
in favor of an extension of the Debtors’ Exclusive Periods, it is well established that “[s]ize and complexity alone cannot suffice as cause” to extend exclusivity because a debtor’s “size and
complexity must be accompanied by other factors . . . to justify an extension of plan exclusivity.” In re Pub. Serv. Co., 88 B.R. 521, 537 (Bankr. N.H. 1988); see also In re Henry Mayo Newhall Mem’l Hosp., 282 B.R. 444, 452-53 (B.A.P. 9th Cir. 2002) (recognizing the view that complex cases require extended exclusivity has been debunked). 31. Under the present facts and circumstances, the Debtors’ current size and
complexity does not support an extension of their Exclusive Periods. B. 32. The Debtors Have Failed to Make Good Faith Progress Towards Reorganization and Development of a Consensual Plan The Debtors assert that they have made good faith progress toward reorganization
and development of a consensual plan, as evidenced by the following activities: (i) stabilizing the business and managing use of cash; (ii) addressing postpetition operational matters and the claims process; (iii) continuing operational focus and creating long-term business value; (iv) defending against motions to dismiss in May 2009; and (v) the Project-Level Restructuring. See Second Exclusivity Motion, pp. 13-17, ¶¶ 26-33. i. 33. Engaging in Typical Debtor-in-Possession Tasks and Litigation Does Not Constitute Good Faith Progress Towards Reorganization With the exception of the Project-Level Restructuring, each of the Debtors’ cited
activities are, in fact, indicative of the typical administrative and operational tasks every debtor in possession is required to perform during a chapter 11 case. In fact, the Debtors’ First Exclusivity Motion cited (almost verbatim) the same tasks as support for the First Exclusivity Extension. See First Exclusivity Extension Motion, pp. 11-12, ¶¶ 19-21. While it is important to focus on the administration of these cases and the Debtors’ operations, the Debtors have failed to also focus on the TopCo Restructuring. 34. The motions to dismiss these chapter 11 cases, while significant and not filed in
every case, are merely indicative of the litigation that typically presents itself in some form 16
during a large chapter 11 case. See, e.g., In re R.G. Pharmacy, Inc., 374 B.R. 484 (Bankr. D. Conn. 2007) (“Litigation with creditors is not an unusual circumstance, and the fact that litigation is pending with creditors is not in itself sufficient cause to justify an extension of the exclusivity period. Only under extreme circumstances would the existence of litigation constitute cause for an extension.”) (emphasis added). Moreover, while defeating the motions to dismiss was integral to the continuation of these chapter 11 cases, the litigation was completed more than six months ago, just after this Court granted the Debtors’ First Exclusivity Motion. An additional six-month extension of the Exclusive Periods is not justified based on an event that occurred six months ago. 35. The Debtors have also enjoyed the services of a host of professionals with whom
to address these issues, and the Debtors fail to cite any support for how performing typical debtor in possession functions constitutes progress towards reorganization under the rubric of the Adelphia Factors. ii. 36. The Debtors Fail to Cite any Progress Towards the Development of a Consensual TopCo Plan Other than the Debtors’ statement in the heading of section VI.C. of the Second
Exclusivity Motion, and their (incorrect) claim in the preliminary statement that the TopCo plan negotiations have already begun, the Second Exclusivity Motion omits any discussion or evidence of the progress they have made towards the development of a consensual plan. To the contrary, it is easy to list what the Debtors did not do during the First Exclusivity Extension: (i) the Debtors did not deliver the Business Plan until a week prior to the end of the First Exclusivity Extension; (ii) the Debtors did not circulate a TopCo Restructuring term sheet; (iii) the Debtors did not circulate a draft plan or plans of reorganization for the TopCo Restructuring; and (iv) the
Debtors did not make or offer TopCo plan presentations to the Creditors’ Committee, or request or schedule meetings or negotiating sessions with respect thereto. 37. The Debtors also failed, until last week, to even begin producing data regarding
their businesses going forward, other than a ten year cash flow based on maintaining the status quo, such as proposed strategic initiatives, acquisitions, dispositions, joint ventures, cost reduction plans and capital expenditures, which data is necessary to facilitate plan discussions. Simply put, the Debtors have not articulated to parties in interest how they intend to reorganize and exit chapter 11. 38. In addition, the Debtors have obstructed progress on a consensual TopCo plan by
insisting for months on using an onerous form of NDA that (i) precludes the Creditors’ Committee’s participation in the Capital Raise/M&A Process and (ii) is unacceptable to Simon and likely other potential investors.6 The Debtors’ statements in the Second Exclusivity Motion regarding the progress towards a consensual TopCo plan are inconsistent with their actions to date and do not support an extension of their Exclusive Periods. C. 39. The Only Unresolved “Contingencies” Are of the Debtors’ Own Making and Do Not Justify an Extension of the Debtors’ Exclusive Periods The Debtors make vague allegations that several “contingencies” exist that justify
their requested extension of the Exclusive Periods. Second Exclusivity Motion, p. 17, ¶ 34. These “contingencies” are illusory, however, because the Debtors are not currently facing any meaningful litigation or other unique unresolved hurdles that preclude the filing of a TopCo plan
Simon has described the NDA as “containing unreasonable restrictions.” See Simon’s February 19, 2010 Press Release, a copy of which is attached hereto as Exhibit B. Simon has also stated that while it is willing to agree to “customary undertakings” to “preserve confidentiality,” it is “not willing to agree to any restriction on [its] right to make proposals at any time or to otherwise speak freely, including to all of General Growth’s stakeholders, or to agree to any other standstill or similar provision.” See Simon’s February 17, 2010 Press Release, a copy of which is attached hereto as Exhibit C.
of reorganization. See, e.g., In re Fountain Powerboat Industries, Inc., No. 09-07132-8-RDD, 2009 WL 4738202, at *5 (Bankr. E.D.N.C. Dec. 4, 2009) (citing pending appeals and pending litigation as issues that could be classified as unresolved contingencies); In re R.G. Pharmacy, 374 B.R. at 484 (citing an ongoing government Medicaid investigation as an unresolved contingency, but denying an exclusivity extension because “[t]he court is not persuaded that the contingencies noted are cause for granting the extension, particularly in light of the breakdown of negotiations between the parties”); In re Tripodi, No. 04-30793, 2005 WL 2589185, at *2 (Bankr. D. Conn. Feb. 18, 2005) (denying a debtor’s motion to extend exclusivity premised upon an unresolved contingency, and finding, despite a pending appeal, “a Plan could readily have been formulated and proposed during the pendency of the Appeal” rather than the debtor simply “awaiting” an appellate court ruling). 40. The Debtors’ major unresolved issue is the TopCo Restructuring, which is a
situation entirely of the Debtors’ own making. Contrary to the Debtors’ statements to the Court in support of the First Exclusivity Extension that they would pursue simultaneous Property-Level and TopCo Restructurings, the Debtors made the choice, without the support of the Creditors’ Committee, to halt their efforts towards the TopCo Restructuring during the First Exclusivity Extension. 41. The Debtors assert that certain activities relating to the TopCo Restructuring and, in
particular, the Capital Raise/M&A Process are “contingencies” that require an extension of their Exclusive Periods. Specifically, the Debtors cite selecting a transaction type, sourcing financing, and “evaluating, negotiating and preparing a plan of reorganization and disclosure statement,” as contingencies. Id. at pp. 17-18, ¶ 35. The Debtors do not, however, provide any factual or legal support for how these activities (in which almost every large chapter 11 debtor must engage)
constitute unique contingencies that justify an extension of exclusivity. The fact that the Debtors have chosen not to develop and negotiate the TopCo plan of reorganization cannot serve as a “contingency” justifying an extension of exclusivity. D. 42. The Debtors Are Seeking to Extend Their Exclusive Periods to Force Upon Creditors the Debtors’ Capital Raise/M&A Process The Debtors note that one of the Adelphia Factors guiding courts in this District in
evaluating a request for an extension of exclusivity is whether the debtor is “seeking to extend exclusivity to pressure creditors ‘to accede to [the debtors’] reorganization demands.” Second Exclusivity Motion, p. 9, ¶ 19 (citing Adelphia, 352 B.R. at 587). Indeed, one of the fundamental purposes of section 1121 of the Bankruptcy Code is “to limit the delay that makes creditors the hostages of Chapter 11 debtors.” In re Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (U.S. 1988). 43. In considering a debtor’s request to extend its exclusive periods, courts have stated
that an extension should not be used as a tactical measure to pressure creditors to accept a plan they consider unsatisfactory. See, e.g., In re Gibson & Cushman Dredging Corp., 101 B.R. 405, 409 (Bankr. E.D.N.Y. 1989). The Debtors contend that this Court should extend the Exclusive Periods because the Debtors’ requested extension is “neither an attempt to pressure creditors to accede to the Debtors’ demands nor a negotiation tactic.” Second Exclusivity Motion, p. 18, ¶ 36. The Debtors’ support for this contention, however, is (i) a promise that the extension of their Exclusive Periods will “not be an excuse for the Debtors to delay or unnecessarily extend the reorganization process,” and (ii) a statement that “regular and open communication with their creditors has been and remains a fundamental goal.” Id. at p. 18, ¶¶ 36-37.
The Debtors’ statements are unsupported by their actions and the facts of these
cases. The Debtors are, in fact, attempting to use an extension of exclusivity to force upon creditors a Capital Raise/M&A Process that the Creditors’ Committee does not support. i. The Debtors Are Seeking an Extension to Embark Upon a Lengthy and Uncertain Capital Raise/M&A Process, Which May Come at the Expense of TopCo Unsecured Creditors’ Recoveries The Debtors cite the need to give “the marketplace . . . an opportunity to fairly
value General Growth’s enterprise” before they can file a TopCo plan. Second Exclusivity Motion, p. 2, ¶ 2. Courts have rejected the notion that exclusivity should be extended solely to give debtors more time to file a plan. See, e.g., In re Grossinger’s Assoc., 116 B.R. 34, 36 (Bankr. S.D.N.Y. 1990). Moreover, the equity holders’ control over the Debtors and the Debtors’ about face with respect to transparency and cooperation, lead to the conclusion that the Debtors’ requested extension is, in fact, an excuse for the Debtors to delay and unnecessarily extend the TopCo Restructuring in order to adopt a “swing for the fences” strategy for equity value over the next six months. 46. The Debtors’ strategy carries risks and costs of delay that the Creditors’ Committee
believes should not be borne by the Debtors’ creditors. Indeed, the Debtors assert that they will need approximately six months before they can even file a TopCo plan of reorganization. The Debtors have received the Simon Proposal, and potentially others, that will provide a full recovery, in cash, to TopCo unsecured creditors and a significant cash and other asset distribution to equity holders. Instead of immediately pursuing the Simon Proposal, the Debtors have publicly stated, without consulting with the Creditors’ Committee, that Simon’s firm fully financed $10 billion offer is “not sufficient” to preempt their Capital Raise/M&A Process and stated that Simon needs additional information to help it “get to a higher valuation.” See
Debtors’ February 16, 2010 Press Release.7 Yet the Debtors are only willing to provide such information to Simon within the confines of the Debtors’ lengthy Capital Raise/M&A Process. Id. The Debtors’ stance is even more troubling given Simon’s statements that its confirmatory due diligence could be completed within 30 days and indications that it is ready, willing and able to simultaneously negotiate definitive documentation that would bring additional certainty to the closing of a transaction that could form the basis of the TopCo Restructuring. See Simon’s February 16, 2010 Press Release.8 47. The Debtors pursuit of an unpredictable Capital Raise/M&A Process over several
months, in lieu of capitalizing on an existing favorable proposal, which is subject to higher and better offers, jeopardizes creditors’ recoveries. Moreover, while the trading prices of the Debtors’ securities have improved along with the capital markets in general, these are volatile times and there is significant risk that the current situation will reverse itself. If that were to occur, the current options available to the Debtors would either disappear or be dramatically worsened for all of the Debtors’ stakeholders. Based on the current facts and circumstances, the Debtors should not be permitted to hold their creditors’ hostage through the proposed Capital Raise/M&A Process to the potential detriment of creditors’ recoveries. ii. 48. The Debtors’ Actions Have Precluded Regular and Open Communication With the Creditors’ Committee With Respect to the TopCo Restructuring
The Debtors claim that regular and open communication with the Creditors’
Committee (and their creditors) has been and remains their fundamental goal. Even if this were the Debtors’ goal, they have fallen well short of the mark. If regular and open communication were the Debtors’ goal, they would have agreed to a transparent and cooperative Capital
A copy of the Debtors’ February 16, 2010 press release is attached hereto as Exhibit D. A copy of Simon’s February 16, 2010 press release is attached hereto as Exhibit E.
Raise/M&A Process and granted the Creditors’ Committee and its advisors access to information and participation. They have not, and apparently do not have any intention of so doing. Instead, the Debtors have circulated to third parties, and likely already entered into an NDA with certain parties, that explicitly prohibits potential investors from talking to the Creditors’ Committee and refused to commit to basic parameters for information sharing with, and participation by, the Debtors’ creditor and equity constituencies. 49. The Debtors cannot espouse a goal of moving forward expeditiously with the
TopCo Restructuring and purportedly working with the Creditors’ Committee towards a consensual plan of reorganization when their actions since achieving the Project-Level Restructuring have been inconsistent with such a goal. 50. Viewed in the context of the Capital Raise/M&A Process, it is clear that the
Debtors are attempting to use an extension of the Exclusive Periods to dictate the terms of the Debtors’ TopCo plan of reorganization. An extension of the Debtors’ Exclusive Periods, combined with the NDA and the lack of any commitment to participation and visibility during the Capital Raise/M&A Process, will leave the Creditors’ Committee and all other constituents in the dark for three or more months before finding out the outcome of the Capital Raise/M&A Process. The Creditors’ Committee should not have to rely on the Debtors, deciding of their own accord, to involve the Creditors’ Committee and other constituents in the TopCo Restructuring, particularly given the fact that they have failed to do so to date. 51. The relief sought by the Second Exclusivity Motion unfairly tilts the playing field
in favor of the Debtors and permits them to manipulate the bankruptcy process to force upon creditors and other interested parties a potentially inferior and unacceptable TopCo Restructuring
solution. This Court should not countenance these efforts and should, therefore, deny the Debtors’ request for a second extension of the Exclusive Periods. E. 52. The Debtors Will Incur Significant Costs During the Proposed Extension of Their Exclusive Periods The Creditors’ Committee does not contest the Debtors’ statement that they have
paid their bills as they come due during these chapter 11 cases. This, however, is not only expected of all debtors but a requirement of the Bankruptcy Code. Paying administrative expenses should not be considered a primary basis upon which to provide a six-month extension of the Exclusive Periods. Also, the Debtors ignore the fact that over the course of the proposed extension, they will incur significant costs that are both unnecessary and jeopardize creditors’ recoveries. 53. During the proposed extension, the Debtors will accrue in excess of $204 million
in interest (approximately $34 million monthly) on their TopCo unsecured debt, which interest amounts must be recovered by creditors in order to receive payment in full. Moreover, the monthly fees for retained professionals have averaged approximately $9 million during these chapter 11 cases and the Debtors are already obligated to pay tens of millions in various completion, financing and reorganization fees (plus millions more if the retention of UBS is approved) upon emergence. 54. Although the Debtors have thus far been able to fund their reorganization on an
“as due” basis, the longer the Debtors linger in bankruptcy, the more estate assets will be depleted and the more likely it will become that the Debtors’ creditors may not in fact receive a recovery in full.
An Examination of the Adelphia Factors Omitted from the Second Exclusivity Motion Further Militates Against Extending Exclusivity Absent from the Second Exclusivity Motion is a discussion of the four additional
Adelphia Factors, each of which this Court should weigh in determining whether cause exists sufficient to extend the Debtors' Exclusivity Periods. The additional factors are as follows: (i) the necessity for sufficient time to permit the debtor to negotiate a plan of reorganization and prepare adequate information; (ii) whether the debtor has demonstrated reasonable prospects for filing a viable plan; (iii) whether the debtor has made progress in negotiations with its creditors; and (iv) the amount of time which has elapsed in the case. See In re Adelphia Commc’ns. Corp., 352 B.R. at 587. An examination of each of these factors, given the facts and circumstances that currently exist and as described in detail herein, further militates against granting the relief sought by the Second Exclusivity Motion. III. Even if the Debtors Could Satisfy Their Burden to Show Cause for any Extension of the Exclusive Periods, a Six-Month Extension Is Excessive and Unwarranted 56. In the event that the Court finds that the Debtors have satisfied their increased
burden to show that cause exists to extend the Exclusive Periods for any length of time, the Creditors’ Committee submits that a six month extension is excessive and unwarranted. The Creditors’ Committee respectfully suggests that a thirty-day extension would be more appropriate, with direction to the Debtors that during the extension period they are to: (i) determine a stalking horse capital provider and/or acquirer to facilitate the TopCo Restructuring; (ii) file a TopCo plan and disclosure statement; (iii) file a motion seeking approval of bid procedures to subject the stalking horse proposal to higher and better proposals; (iv) engage with Simon in good faith to progress the Simon Proposal, including, but not limited to, providing access to the information Simon requires to complete its confirmatory due diligence and
negotiating definitive transaction documents; (v) commit to, and implement parameters for a fair, transparent and inclusive Capital Raise/M&A Process and TopCo plan process; and (vi) revise the form NDA to remove any onerous and unreasonable provisions, including, but not limited to, the standstill, restrictions on investors proposing alternative transactions and restrictions on communications with stakeholders, including the Creditors’ Committee. RESERVATION OF RIGHTS 57. In conjunction with this Objection, on February 2, 2010 the Creditors’ Committee
served certain document requests and notices of deposition on the Debtors and UBS. Accordingly, the Creditors’ Committee reserves the right to supplement this Objection as information relevant to the Second Exclusivity Motion is produced through discovery and to introduce evidence at any hearing with respect thereto. NOTICE 58. The Creditors’ Committee has served notice of this Objection on: (i) the Office of
the U.S. Trustee, Attn: Andrea Schwartz, Esq.; (ii) Attorneys for the Debtors, Weil Gotshal & Manges, LLP, Attn: Marcia L. Goldstein, Esq. and Gary T. Holtzer, Esq., Kirkland & Ellis, LLP, Attn: James H.M. Sprayregen, P.C. and Anup Sathy, P.C.; (iii) Attorneys for the Equity Committee, Saul Ewing LLP, Attn: John Jerome, Esq. and Joyce Kuhns, Esq.; and (iv) the parties entitled to receive notice in these chapter 11 cases pursuant to Bankruptcy Rule 2002. The Committee submits that no other or further notice need be provided.
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CONCLUSION WHEREFORE, the Creditors’ Committee requests that the Court (i) deny the relief requested in the Second Exclusivity Motion and (ii) provide the Creditors’ Committee such other and further relief as the Court may deem just, proper and equitable. Dated: February 24, 2010 Respectfully submitted,
/s/ Michael S. Stamer Michael S. Stamer Abid Qureshi AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park New York, New York 10036 (212) 872-1000 (Telephone) (212) 872-1002 (Facsimile) James R. Savin David M. Dunn AKIN GUMP STRAUSS HAUER & FELD LLP 1333 New Hampshire, N.W. Washington, DC 20036 (202) 887-4000 (Telephone) (202) 887-4288 (Facsimile) Counsel for the Official Committee of Unsecured Creditors
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