Lenders’ plans to isolate their loans from borrowers’ problems on other properties are devolving to a borrower put option.
The first big case testing the sanctity of single asset entities was General Growth Properties, which placed 166 of its malls in bankruptcy along with the parent company (see Todd Sullivan’s Valueplays for a nice summary of the status of this case).
Now, Crescent Resources has jumped on the bandwagon. SAEs seem to have turned into a “heads we win, tails you lose” proposition for borrowers. Heads, if the asset is performing well and the borrower wants to use it to prop up less successful projects, the borrower includes it in the bankruptcy filing; tails, if the asset securing the loan is a hopeless loser, the borrower doesn’t include it in the filing and gives it back to the lender.
From Crescent Resources’ bankruptcy web site:
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