(Adds in paragraph 6 that Delaware Street Capital provided $5 million to the group led by Farallon Capital)

By Ilaina Jonas and Emily Chasan

NEW YORK, May 12 (Reuters) - General Growth Properties Inc (GGWPQ.PK: Quote, Profile, Research) has chosen a group led by Farallon Capital Management to provide up to $400 million of bankruptcy financing to the No. 2 U.S. mall owner.

General Growth chose Farallon Capital's group over Pershing Square Capital Management, a hedge fund headed by investor William Ackman, according to court documents filed in U.S. bankruptcy court in Manhattan on Tuesday.

Under the new agreement, the investors may receive up to 8 percent of the common stock of the reorganized company upon its emergence from bankruptcy. The financing agreement also calls for the lenders to receive a 3.75 percent exit fee.

The agreement gives the company's secured mortgage lenders more protection of their rights to the cash flow the malls generate, according to the documents.

The agreement is subject to approval by U.S. Bankruptcy Judge Allan Gropper of New York's Southern District.

Open Air Investors LLC, managed by Farallon, agreed to commit $210 million to the financing. Luxor Capital LLC agreed to provide $110 million. Canpartners Investments IV LLC and Perry Principals Investments LLC, an affiliate of Perry Capital, each agreed to $25 million. Delaware Street Capital Master Funds LP put up $5 million. Affiliates of institutional investment managers Whitebox Advisors LLC agreed to put up the rest.

General Growth filed for bankruptcy protection in April, when it could not refinance its maturing loans due to tightness in the credit markets.