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Could PREIT Be Next Mall Operator to File Chapter 11?

The Pennsylvania Real Estate Investment Trust has entered into a support agreement with certain lenders that contemplates an out-of-court financial restructuring, one that might still require a Chapter 11 filing for bankruptcy court protection.

The agreement was inked on Oct. 7, according to a regulatory filing by PREIT last week with the Securities and Exchange Commission. Lenders who signed the agreement include those holding 74.4 percent of the $250 million aggregate outstanding principal amount of indebtedness under a seven-year term loan, 83 percent of the $544 million aggregate outstanding principal amount of indebtedness under the revolver/term loan credit agreement and 100 percent of the $30 million aggregate outstanding principal amount of the indebtedness under the bridge credit facility.

If PREIT is unable to obtain the consent of 100 percent of its lenders under it credit agreements, it would move to a prepackaged plan of reorganization under a Chapter 11 filing in a Delaware bankruptcy court that would then require a solicitation of votes for the plan.

As part of the restructuring plan, and subject to other borrowing terms, PREIT is in talks to secure a $150 million first-lien senior secured revolving credit facility, which would include a $10 million letter of credit sub-facility; a $600 million first-lien senior secured term loan facility, and a $319 second-lien secured term loan facility. Amounts borrowed under the $150 million revolving credit facility and repaid may be re-borrowed. The other two financing facilities, to the extent the amounts are repaid, may not be re-borrowed.

PREIT operates 21 malls across nine states.

PREIT isn’t the only mall operator to find itself under financial pressure following the impact from the coronavirus, or Covid-19, pandemic. Fellow mall owner CBL & Associates earlier this year sounded the alarm regarding the Covid-19 impact and itself inked a restructuring deal with the majority of its bondholders.

With mandatory nonessential retail shutdowns in March, even if on a temporary basis, mall owners could no longer rely on steady cash flow from rents as hard-hit retail tenants have been trying to negotiate concessions. Some tenants have also held back on rent payments while concessions are being negotiated, or have filed for Chapter 11 bankruptcy court protection. Lack of cash flow has resulted in mall owners being unable to meet their debt payments. And some landlords, such as Simon Property Group, have had to file lawsuits against tenants to get paid on back rent owed.

And even though malls are open again, traffic flow has been slow across all shopping venues as consumers shifted to online platforms in the new era of social distancing and the continued threat of Covid-19.

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