There have been numerous write ups by longs and shorts on valuation. However there has not been much written up on how the valuation game will pan out in the court if GGP (GGWPQ.PK) is not able to raise full capital (7B to pay off its existing unsecured holders) or if the company is not bought out. I would like to do that here.

For General Growth it appears remaining secured creditors will fall in line and hatch out consensual loan extension agreements. However, the key pending issue that needs to be resolved is how the unsecured debt holders (7B$) will be made whole for their claim. The company is contractually obligated to de-lever balance sheets based on loan extension agreements with secured lenders. Also the Bankruptcy court may not allow a plan of reorganization that entails an unviable and highly leveraged capital structure even if the company can meet its interest expenses. The court probably needs to assure that the company is insulated from another short or mid term distress. So this makes it abundantly clear that the company would need to replace 7B unsecured debt with equity capital (common or preferred).