Bankruptcy Probe: Shutting down on April 30? — Stansberry

By Travis Johnson, Stock Gumshoe, April 16, 2009

If you’ve been biding your time with us here in Gumshoe Nation for a while now, you might remember Porter Stansberry’s prediction that General Growth Properties was about to go bankrupt as they faced a debt repayment deadline that they couldn’t meet.

Well, he’s at it again. Which isn’t to say he was wrong the first time (that was back in mid-December) — technically I guess he was wrong, since GGP got a series of extensions on various loans and mortgages and remained a going concern until this morning, when they finally did file for Chapter 11 bankruptcy protection from their creditors.

But really, I wouldn’t blame him for that prediction that GGP would be bankrupt by mid-December — they probably should have been. I suppose they might have been able to stave it off by selling a lot of assets if the Chinese suddenly decided that they want to own a bunch of suburban shopping malls, but it seemed a wild bet to expect any improvement in the stock price.

Of course, the stock price was already down to a dollar yesterday — right about where it was when Porter was warning us of bankruptcy five months ago, so there’s not a long way yet to go down. (You could look at it another way, I suppose, in that the potential loss for shareholders is the same as it always was: 100%.) As of now, with the bankruptcy filing, it looks like the shares are now officially worthless — though as I type this trading hasn’t opened, and it looks like some poor soul actually bought shares in the premarket for 89 cents. Oops. There’s certainly no reason to expect equity shareholders to get anything out of this bankruptcy, even the bondholders are probably going to suffer tremendously (which is why they kept extending the loans and trying to keep GGP out of bankruptcy), so hopefully not many folks are thinking about bottom fishing in this rancid pool.

So with these new ads Porter’s telling us again that he’s certain that GGP and several of its competitors will go bankrupt, and that we can profit by betting against those companies. Since yesterday was one of those rare days of good performance for many real estate stocks (and a spectacularly good day for most of the companies below, just to tease you a bit), and GGP’s bankruptcy will probably throw everyone into a tizzy even though most have expected it for months, now seemed like a good time to take a look. General Growth’s malls will keep operating since they’re trying to do Chapter 11 and reorganize, not liquidate and put all of their malls on the market at a time when no one wants to buy them, so there may or may not be a full-on fire sale of shopping malls — but it will certainly impact the share prices of similar companies.

The ad letter is long and hype-tastic, as usual, with lots of personal anecdotes from folks who have used Porter’s advice to bet against stocks, and a lot of talk about how he put so much time into this research and met with the greatest real estate investors in the process — not much about his overall performance, but that’s not unusual. You can see it here if you’d like to read all the foofaraw.

The newsletter Porter is selling with this ad is his Porter Stansberry’s Investment Advisory, the flagship service of his publishing company, and one that (like the man himself) often inspires a reaction from readers — it’s among the top ten newsletters ranked by subscribers on the Stock Gumshoe Reviews site, and the reviews tend to be very hot and cold, as much because of his political brashness as his stock picks. Apparently you either love him or hate him — your call.

But if you don’t want to subscribe just to figure out which stocks Porter teases us about today (they’re all stocks he thinks you should short or buy puts on this time, though the newsletter makes long recommendations, too), I don’t blame you. Read on and we’ll try to illuminate all the dark corners …

Porter does say he thinks you should short General Growth Properties (or buy puts on it, I can’t often tell which specific approach he’s hinting at). But that’s now off the table with the bankrutpcy. He also thinks you should do the same with four other similar mall-owning companies, and he provides a few teaser clues as to who they are. We’ll keep this short today, but I can at least tell you the names of the companies:

“** California-based mall owner: These guys own around 100 regional and community shopping centers. But they owe more than $6 BILLION to bankers, and can barely cover even half the interest payments on this debt. Yet, insiders have been paying themselves millions of dollars every year.”

That sounds like it would have to be Macerich (MAC).

“** Indiana-based mall owner: They own 320 malls and shopping centers across 41 states, but owe more than $18 BILLION to bankers. These guys can also barely cover half the interest on their debt every year. But incredibly, one insider wire transferred $25 million into his bank account last September – during the worst week in recent stock market history.”

That’s the biggest US mall owner, Simon Property Group (SPG). That “wire transfer” of $25 million was actually David Bloom (former board member, he had been CEO of a company SPG acquired a while back) exercising all his options and selling those shares when the stock was right around a hundred bucks (it’s down to about $44 now).

“** Michiga