Simon says: General Growth, negotiate!

You’d think a company in bankruptcy has few weapons with which to defend itself against a predatory buyer. But in the case of bankrupt mall operator General Growth, the tone that would-be salvager Simon Property has taken makes it sound as if the court-protected business has some leverage. That’s because it does.

Late on Wednesday, Simon threatened to walk away from its $10 billion bid if General Growth did not begin talks soon. Chief Executive David Simon accused General Growth of “inappropriately speculating with creditors’ money”. Simon wasted no time getting nasty. It only made its offer to General Growth public the day before.

The offer also came a week before General Growth would have had to apply for a six-month extension period giving it the exclusive right to come up with a plan to emerge from bankruptcy. So where does General Growth’s management get the chutzpah to hold off buyers when creditors have already arrived to claim the company’s assets?

General Growth is a lot more likely to be able to convince the court and its creditors that its bankruptcy was the result of tough economic conditions and liquidity concerns, rather than anything management did to ruin the business. Most companies in bankruptcy say this, but in the case of General Growth’s assets, as opposed to say Lehman Brothers’, the “not our fault” argument could find more sympathy.

More importantly, it looks as if creditors will get their money. Next down the line in bankruptcy are shareholders and others represented by the company’s existing management. That may be why Simon is coming out with its fightin’ words.

Bankruptcy decline has advisers scrambling for crumbs of business

           A sharp drop in business bankruptcy filings has restructuring advisory firms scrambling for crumbs of business.  Some 29 attorneys signed up to pitch their services to the creditors committee of U.S. regional airline Mesa Air Group, which filed for Chapter 11 protection in early January. 

Another 17 financial advisers showed up at the so-called beauty pageant, anxious for new business..

            “It’s definitely a shift,” said Ed Albert, managing director at Macquarie Capital (USA) Inc, who attended the gathering. “A sea of people is showing up.  There are fewer bankruptcy filings, and a lot more restructuring firms were created in the last three years.”

DealZone Daily

Tuesday’s highlights:

* U.S.-based Kraft Foods Inc and Britain’s Cadbury Plc are close to sealing a friendly deal to create the world’s largest confectionery group for up to 11.7 billion pounds ($19 billion), sources familiar with the matter say.

* Japan Airlines Corp’s board of directors decided on Tuesday to file for bankruptcy protection, Kyodo news agency says.  

* Industrial conglomerate Tyco International will acquire Broadview Security for $1.9 billion in a deal that brings together two large providers of residential and commercial security in North America, the two companies say.

DealZone Daily

Monday’s highlights:

London-based oil explorer Tullow Oil (TLW.L) exercises a right to buy Ugandan oil fields which its partner in the fields, Heritage Oil (HOIL.L), previously agreed to sell to Italy’s Eni (ENI.MI) for $1.5 billion.

Some of Cadbury’s (CBRY.L) biggest shareholders, led by Legal & General, continued to reject Kraft Foods’ 10.5 billion pound ($17.2 billion) bid and will look for an increased offer.

Brazil’s Camargo Correa Group reiterates its interest in cement maker Cimpor and says it is pondering its options after the Portuguese stock market regulator turned down its merger proposal.

The afternoon deal with JAL

Kazuo Inamori speaks to reporters after meeting Prime Minister Yukio Hatoyama at the latter's official residence in TokyoFor a freshly minted CEO, Japan Airline’s Kazuo Inamori isn’t saying the standard fare.

“I don’t know anything about the transportation industry, but I would like to make my best contribution,” Inamori told reporters after meeting Prime Minister Yukio Hatoyama, adding that he did not plan to take a salary.

“I am old and a full-time job is hard for me, so I would like to work three or four days a week and I will work for free.”  Read the full story here.

The selling has been steep for Japan Airlines stock and many expect bankruptcy is looming. Not to understate the matter, but Inamori is in for a wild ride.

JAL in a tailspin

When it comes to airlines, bankruptcy has a long track record as the most viable business model. Such is the drama unfolding in Japan, where the market appears to be betting that Japan Airlines will turn down an offer of capital from American Airlines and its Oneworld alliance partners in favor of a government-backed bankruptcy, which comes with the promise of an injection of cash more than twice as big as what is on offer from the alliance.

American and Co sweetened its offer to JAL to $1.4 billion to keep the struggling national carrier from joining hands with rival Delta Air Lines. But JAL shares plunged 45 percent to a record low, wiping out nearly $900 million in market value, as shareholders anticipated getting wiped out in a bankruptcy.

Japan’s state-backed turnaround fund would put JAL on much firmer ground than any airline group appears able to provide. The fund plans to put about 300 billion yen ($3.3 billion) in fresh capital into JAL if it files for bankruptcy and its banks agree to waive 350 billion yen in debt, sources told Reuters last week. The banks have all but agreed.

General Motors staff has IPO dreams

CHINA-AUTOS/Ever wonder how General Motors is holding onto its top talent? 

After a traumatic bankruptcy and series of federal bailouts, the company still owes billions of dollars to the U.S. and Canadian governments. It lost $1.2 billion in its latest quarter, and only sees a slight uptick in auto sales next year.    

The days of banner-year profits and bonuses must seem far off for GM’s executives and finance staff.  GM’s Chairman has already said pay caps imposed on companies by the U.S. government’s pay czar make it tough to hire executives.

While other job opportunities are obviously limited in Detroit, and they may have nowhere better to go in the industry,  the company’s plans for a 2010 IPO has emerged as a key staff retention tool, one of its top executives said on Tuesday.

Distressed companies still scrambling for financing

Are the shoots really so green? Not for distressed companies.

Restructuring is still tough for mid-sized companies, even as confidence about the economy has improved, according to a report by investment banking firm Morgan Joseph & Co Inc.
“Direct lending by hedge funds has virtually dried up as they are focused now on trading existing paper, with the result that new financing remains very expensive,” said James Decker, head of the restructuring group, in the report.
Debtor-in-possession financing has become prohibitively expensive. About 35 percent of the fifteen most recent DIP facilities analyzed by Morgan Joseph had actual or implied spreads to LIBOR of 1000 basis points or higher.  
In contrast, the average DIP loan in 2009 was priced at a spread to LIBOR of almost 800 basis points. In 2008, spreads averaged in the 500 basis points range, according to the report.
“Though the financing markets have certainly improved, one should remain skeptical of those that proclaim the capital markets will quickly return to levels experienced just prior to the financial crisis,” the report said.

from Entrepreneurial:

CIT bankruptcy could have domino effect

Small and medium-sized businesses are wild with concern that the bankruptcy filing of CIT Group will cut off the financing they use to pay employees and creditors, according to an attorney who has many apparel and retail businesses among his clients.

"My phone has not stopped ringing," said Jerry Reisman, a partner at law firm Reisman, Peirez and Reisman in Garden City, New York. Reisman said he represents 21 groups that depend on CIT for factoring and other financing. He also represents an additional four parties that have applied to CIT for new business financing.

"People were astonished. They don't know what to do," said Riesman, who took more than 10 calls during Sunday's baseball World Series game and at least 10 more on Monday morning before 10 am EST.

Icahn takes a shot at CIT “Tammany Hall” financing

As if CIT didn’t have enough problems digging itself out of a credit morass, now it has Carl Icahn to contend with. Troubled by what he sees as sweetheart deals between CIT and its largest creditors, at the expense of the little-guy bondholder, Icahn has offered to underwrite the $6 billion the small-business lender says it needs to survive. Icahn’s offer sent CIT shares soaring by double digits … to well above a dollar.

In a letter to CIT’s board, Icahn said certain large bondholders are being offered an opportunity to purchase secured loans at prices well below their fair market value.

In the end, Icahn underwriting offer may serve more as a publicity stunt than a White Knight vanguard attempt to save CIT, which is busy searching for a new CEO — presumably, a restructuring artist.