Washington Prime Group files for Chapter 11 bankruptcy protection

August 2021 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

August 2021 Issue

Shopping mall real estate investment trust (REIT) Washington Prime Group filed for Chapter 11 bankruptcy protection in June after the COVID-19 pandemic forced it to temporarily close many of its shopping centres across the US.

Washington Prime, based in Columbus, Ohio, owns and operates 102 shopping centres across the country. The company was spun off from the US’s largest mall operator, Simon Property Group, in 2014.

The company’s estimated assets and liabilities ranged from $1bn to $10bn, according to a filing made in the US Bankruptcy Court for the Southern District of Texas.

Washington Prime has secured $100m of debtor-in-possession financing to aid operations during bankruptcy proceedings, and has entered a restructuring support agreement with creditors led by SVPGlobal. Washington Prime’s guests, retailers and business partners can expect business as usual at all of the company’s retail centres throughout the proceedings.

The restructuring agreement provides for a deleveraging of the company’s balance sheet by around $950m. The agreement contemplates a $325m equity rights offering, according to the company. The plan has support from creditors that hold about 73 percent of the principal outstanding of secured corporate debt and 67 percent of the unsecured notes. The company’s proposed restructuring is backed by one of its largest creditors, Strategic Value Partners LLC. The restructuring is also supported by lenders Redwood Capital Management LLC, Silver Point Capital LP and Glendon Capital Management LP.

Certain subsidiaries, including the company’s joint ventures and most of its special purpose entities holding properties that secure mortgage loans will not be debtors in the Chapter 11 cases. The company also anticipates continuing to meet all debt service and other financial obligations, as required, under its property-level secured loans and joint venture partnerships.

“The COVID-19 pandemic has created significant challenges for many companies, including Washington Prime Group, making a Chapter 11 filing necessary to reduce the company’s outstanding indebtedness,” the company said in a press release.

“The Company’s financial restructuring will enable WPG to right size its balance sheet and position the Company for success going forward,” said Lou Conforti, chief executive and director of Washington Prime. “During the financial restructuring, we will continue to work toward maximizing the value of our assets and our operating infrastructure. The Company expects operations to continue in the ordinary course for the benefit of our guests, tenants, vendors, stakeholders and colleagues.”

Though efforts to reopen the US economy are gathering momentum, with vaccinations increasing and businesses slowly reopening, the pandemic has had a significant impact on the retail sector in particular. In 2020, other mall owners such as CBL & Associates Properties Inc and Pennsylvania Real Estate Investment Trust filed for bankruptcy. According to Coresight Research forecasts, 25 percent of all shopping malls in the US will disappear in the next three to five years, though that number could increase to 50 percent.

Physical retail locations were already suffering prior to the COVID-19 outbreak due to the increasingly prominent role played today by e-commerce. The crisis may hasten the closure of underperforming malls and the repurposing of many centres that remain open in the near future. Furthermore, UBS retail analysts estimate that around 80,000 retail stores will close over the next five years.

Indeed, a number of retailers, including some with locations in Washington Prime properties, have filed and exited bankruptcy since May 2020 amid the pandemic, including Christopher & Banks, Guitar Center, New York & Company, J.C. Penney, Stein Mart, Sur La Table, Ascena Retail Group and Tuesday Morning. Many of these bankruptcies have included store closings.

During 2020, Washington Prime’s rental income fell about $127m from 2019. During the first three months of 2021, its rental income was off roughly $20m compared with the same period in 2020, while its cash flows from operations were $3.3m, down from $10m in Q1 last year. The company began negotiating with its creditors in 2020 and skipped a $23m bond interest payment in February this year. Creditors had been extending a forbearance agreement amid the debt talks.

Richard Summerfield