Professional Documents
Culture Documents
In re: Chapter 11
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
PRELIMINARY STATEMENT
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
• 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.
2. 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
1
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.
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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
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
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
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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
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 30-
day 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’
2
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.
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Committee, issued a press release rejecting the Simon Proposal as “not sufficient to preempt” the
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
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
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
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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
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
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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
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
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
September 8, 2009, the U.S. Trustee appointed the Official Committee of Equity Security
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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.
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II. 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”).
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III. 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
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:
transparency of our negotiating process and . . . the tireless commitment of the businesspeople
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
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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.
18. The Debtors represent in the Second Exclusivity Motion that they are
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
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.
19. 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’
NDA.
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20. 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
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
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
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,
4
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.
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B. Discussions Regarding Capital Raise/M&A Process Parameters
23. 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
OBJECTION
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
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)
5
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.
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(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.
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
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
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II. 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
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
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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
A. The Current Size and Complexity of the Debtors’ Cases Does Not Support an
Extension of Their Exclusive Periods
29. 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
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
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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
31. Under the present facts and circumstances, the Debtors’ current size and
B. The Debtors Have Failed to Make Good Faith Progress Towards Reorganization
and Development of a Consensual Plan
32. 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
33. 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
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
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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
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. The Debtors Fail to Cite any Progress Towards the Development of a
Consensual TopCo Plan
36. 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
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Debtors did not make or offer TopCo plan presentations to the Creditors’ Committee, or request
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
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
C. The Only Unresolved “Contingencies” Are of the Debtors’ Own Making and Do
Not Justify an Extension of the Debtors’ Exclusive Periods
39. 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
6
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.
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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
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
(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
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)
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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
D. The Debtors Are Seeking to Extend Their Exclusive Periods to Force Upon
Creditors the Debtors’ Capital Raise/M&A Process
42. 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
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.
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44. 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.
45. 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
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
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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
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
ii. The Debtors’ Actions Have Precluded Regular and Open Communication With
the Creditors’ Committee With Respect to the TopCo Restructuring
48. 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
7
A copy of the Debtors’ February 16, 2010 press release is attached hereto as Exhibit D.
8
A copy of Simon’s February 16, 2010 press release is attached hereto as Exhibit E.
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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
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
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
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,
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
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solution. This Court should not countenance these efforts and should, therefore, deny the
E. The Debtors Will Incur Significant Costs During the Proposed Extension of
Their Exclusive Periods
52. 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
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.
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F. An Examination of the Adelphia Factors Omitted from the Second Exclusivity
Motion Further Militates Against Extending Exclusivity
55. 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
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
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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,
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
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
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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.
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)
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