Tuesday, April 28, 2009

Complexity is not a Virtue

The General Growth Properties bankruptcy filing actually involved 166 entities (here's a link to the petition). To help everyone understand the relationships between the entities, a helpful organization chart was provided:


(Click on image for a larger version in a new window)

Clear? Oh wait, there’s more:

GGP Org 1

And more:

GGP Org 3

And more:

GGP Org 4

And more:

GGP Org 5

In fact, there are 25 pages of organizational charts like these. No doubt there were clever reasons to create this web of entities, but it seems obvious now that some of the intellectual firepower that created this rat’s nest should have been directed at managing debt maturities.

There isn’t any available data to test this hypothesis, but one of my rules of thumb is the risk of default is positively correlated with the complexity of the borrower’s organization.