Move by General Growth Rattles Malls' Investors

The Wall Street Journal reports:

When General Growth Properties Inc. sought Chapter 11 protection last month, it took a step its biggest debt holders had believed was impossible: It took 166 of its malls into bankruptcy with it.

The surprised debt holders had believed the malls would be insulated from the parent's bankruptcy because of the way General Growth had structured the assets.

General Growth's action has rattled investors throughout the $700 billion market for securities backed by commercial mortgages, or CMBS. Investors in other deals had also figured their investment was insulated from a parent company's bankruptcy. Now they're worried that General Growth's move will set a precedent that could affect them.


General Growth is the single largest CMBS borrower in the U.S. The CMBS market has grown up over the past two decades to become the major source of financing for commercial real estate.

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