One of the nation’s largest mall operators has inked a restructuring agreement contingent upon a bankruptcy filing.
On Tuesday, CBL & Associates forged the deal with certain lenders that calls for the virus-hobbled REIT to submit a Chapter 11 petition by Oct. 1, according to a document filed Wednesday. The move would wipe out roughly $900 million in debt and another $600 million in certain stock that would be swapped out for common shares of equity and warrants with significantly extended maturity dates, saving $20 million in annual interest payments.
So far 57 percent of CBL’s noteholders have agreed to the deal, while the October bankruptcy deadline offers the company more time to win the support of senior secured lenders.
“Reaching this agreement with our noteholders is a major milestone for CBL,” said CBL CEO Stephen D. Lebovitz. “The agreement will significantly improve our balance sheet by reducing leverage and increasing net cash flow and will simplify our capital structure, providing enhanced financial flexibility going forward.”
With about $220 million in cash on hand plus the positive cash flow stemming from reopened malls, CBL should have sufficient resources to fund its operational and restructuring needs.
“Once the process is complete, we will emerge as a stronger and more stable company, with an enhanced ability to execute on our key strategies of diversifying our sources of revenue and transforming our properties from traditional enclosed malls to suburban town centers. As a result, we will be better positioned to grow our business over the near and long term,” Lebovitz said.
Certain of CBL’s subsidiaries, such as joint ventures and special-purpose entities, will not be included in the Chapter 11 filing.
Separately, CBL is continuing down the well-trodden path of showering executives with lavish bonuses as an incentive to retain key talent. After consulting compensation experts FPL Associates and legal advisors, CBL struck new three-year employment agreements with automatic renewal for successive one-year terms and base salaries equal to originally approved 2020 compensation levels.
Lebovitz will see a $953,000 payout, while Farzana Khaleel, executive vice president, chief financial officer and treasurer, has a $313,000 windfall ahead and chairman Charles B. Lebovitz is set to cash in on $414,000. Others receiving bonuses include Michael I. Lebovitz, president, and chief legal officer Jeffery V. Curry. The retention bonuses include up to $1.2 million for seven additional senior officers and up to $4 million for non-executive staff.
Word first surfaced in June that CBL could be the first mall operator to file for bankruptcy court protection in the wake of the coronavirus outbreak. The REIT had issued a going-concern warning, flagging a $139 million loss in the first quarter. It also skipped an $11.8 million interest payment due June 1, relying on one-month grace period, though it coughed up $30.4 million to cover those obligations last week.
The REIT’s mall tenants have sought rent relief through deferrals or abatements, pressuring the firm’s more than $3 billion in debt. Key anchor tenant J. C. Penney, which filed a voluntary Chapter 11 petition in May, operates 47 locations within CBL’s portfolio.
The mall operator reported second-quarter results for the period ended June 20, showing a wider loss that doubled to $69.8 million, or 36 cents a diluted share, from a net loss of $35.4 million, or 20 cents, a year ago. Total revenues fell 35.8 percent to $124.2 million from $193.4 million. Rental revenues fell a similar 352 percent to $120.2 million from $185.4 million.