Opportunity in Bankruptcies

Michael Breen: You touched on sort of your flexibility and how a dollar doesn't
care where it comes from and how it is made. Your fund has a
pretty flexible mandate and you can invest in different spots on the
capital structure. You maybe touch on that and what you are seeing
right now in addition to equity convertible debt floating rate notes,
other types of vehicles you're looking at?

Bruce Berkowitz: Absolutely. As we study the equity of companies, you just have to
study the companies and we take a look at the entire capital
structure of a company from bank debt to senior secured, senior
unsecured, subordinated debt, preferred stock, common stock and
look to understand the returns on each part of the capital structure.
In the past that's led us to the bank debt of bankrupt securities and
presently it has led us to the various levels of debt of GGP, General
Growth Properties. We own bank debt, we own convertible bonds.

Michael Breen: And that firm is a big mall operator, correct, that's in bankruptcy?

Bruce Berkowitz: One of the biggest in bankruptcy and there seems to be two or
three groups interested in it. And the good news is, in our opinion,
that the bond that’s basically money good. And if you understand
the bankruptcy process, you're purified in bankruptcy and the
money good is asset-backed, bought at high yields and today's
senior debt in a bankruptcy may be tomorrow's new equity.

Michael Breen: For our viewers' sake, can you perhaps expand on the concept of
the bankruptcy purifying the company and how that differs with
whether you own the equity or the debt as you do in this case or
the senior debt?

Bruce Berkowitz: Through Chapter 11 in the United States it's all about resuscitation.
It's all about giving the company another chance. Chapter 11
allows the debtor, it allows the bankrupt company to decide which
contract it can keep, which contract it doesn't have to keep, what it
can throw out, what it wants. It’s tremendous flexibility. And then
the process involves having the company gets to a stable capital
structure in order to get out of bankruptcy and progress in a new
life. It's a reincarnation to some extent. It's a giant mulligan.

So, what happens is there are cram-downs where bankruptcies
normally the common stock goes to zero and then they prefer to
some junior subordinated debt may go to zero. And then the more
senior debt becomes the either new debt or equity or a combination
of the two.

Now, that may not be the case in GGP, given the asset values there
that is, there may be some asset value in the equity. I really don't
know. But we do believe that the bonds and bank debt are money
good and we built a significant position which I believe will
eventually allow the shareholders of the fund to be at the
negotiating table.