Ackman bets General Growth is fundamentally healthy

By Dan Wilchins

NEW YORK (Reuters) - Hedge fund manager Bill Ackman has doubled down on his investment in General Growth Properties by providing bankruptcy financing to the shopping mall operator, a bold move in a weakening commercial property market.

Ackman's Pershing Square already owns or has exposure to about 24 percent of the company's shares, and owns senior unsecured bonds with a face value of $177 million, which it bought for around 30 cents on the dollar, Ackman told Reuters.

But $4.5 billion hedge fund Pershing Square has also provided $375 million of debtor-in-possession financing to General Growth. That financing has an unusual feature: it allows General Growth to convert the loan into equity upon exit from bankruptcy.

"No other DIP lender has done that, but I'm betting on General Growth reorganizing with the company intact," Ackman told Reuters.

Lenders to bankrupt companies typically want to take as little risk as possible, and want to be first in line to be repaid when the company emerges from Chapter 11.

But Ackman's financing is designed instead to allow Pershing Square to lend to the company as it restructures, and end up with a larger stake in the company afterward.

Activist investor Ackman is joining General Growth's board, which is also unusual. DIP lenders typically do not get involved with managing a company during restructuring.

"We're going to be very actively working with the company to reorganize it," Ackman said.