Yet another mall operator has filed for bankruptcy, the third to seek Chapter 11 protection since Covid-19 pummeled physical retail last year.
Washington Prime Group (WPG), owner of Columbus, Ohio’s Polaris Fashion Mall and 102 other shopping centers, filed its Chapter 11 petition late Sunday in a Texas court, following in the wake of Pennsylvania Real Estate Investment Trust and CBL Properties’ November bankruptcies.
WPG said the bankruptcy filing came after it forged a restructuring support agreement (RSA) with creditors, led by SVPGlobal, which holds 73 percent of the principal amount outstanding of the mall operator’s secured corporate debt and 67 percent of the principal amount of its unsecured notes. Bankruptcy will help WPG restructure its debt and deleverage its balance sheet, it said. WPG also has secured $100 million in new money debtor-in-possession financing from the consenting creditors.
The restructuring agreement also allows WPG to either reorganize or put itself up for sale for 60 days if that’s the best way to wipe out debt, similar to how JCPenney navigated its bankruptcy.
WPG CEO Lou Conforti said the restructuring enables the company to “right size its balance sheet” and establish a position for future success.
“During the financial restructuring, we will continue to work toward maximizing the value of our assets and our operating infrastructure,” Conforti added, noting that stakeholders including shoppers, vendors and tenants shouldn’t experience any disruptions.
WPG documented assets and liabilities each at between $1 billion to $10 billion, according to the bankruptcy filing, and 44 affiliates also filed Chapter 11 petitions. Equity security holders include The Vanguard Group, BlackRock and Charles Schwab as the top three institutional investors. Among its top 30 unsecured creditors, U.S. Bank National Association holds $720.4 million in senior notes due 2024, while Bank of America has a claim of nearly $161.8 million representing the unsecured portion of a revolving credit agreement and a claim for $87.5 million for the unsecured portion of a term loan due December 2022. Most of the trade claims were held by cleaning firms and construction contractors. The Finish Line holds a trade claim of $212,905.
In his Chapter 11 declaration, WPG chief financial officer Mark E. Yale said the company is prioritizing mixed-use strategies including last-mile fulfillment, hospitality, residential and office, given the rise of online shopping. It also plans to spruce up properties both inside and out to enhance “curb appeal” and augment the open-air areas at 75 percent of its properties.
“WPG was forced to provide certain tenants with rent relief through a combination of rent deferrals and abatements to avoid tenant bankruptcies and lease abandonments during most of 2020, when in-person commerce was largely non-existent,” Yale wrote in the court filing. “Although these measures aided in maintaining occupancy rates, they had a material adverse effect on WPG’s revenues, operations, and cash flows for the year ending December 31, 2020, and continue to impact the company in 2021.”
WPG temporarily reduced its workforce by 20 percent through furloughs and layoffs, and temporarily slashed senior management base compensation from 5 percent to 25 percent for some executives, he added. And although shopping centers were able to re-open in mid-2020, “a resurgence in Covid-19 cases continued to negatively impact consumer habits and sentiment while also depressing foot traffic at WPG’s properties throughout the end of last year and into the first quarter of 2021,” Yale said.
The mall operator failed when trying to forge a debt-for-equity preferred equity exchange. Because of continued financial and operational underperformance due to Covid’s resurgence, WPG began to consider options for a comprehensive deleveraging solution for its corporate capital structure.
WPG, based in Columbus, Ohio, was formed in a spinoff from Simon Property Group on May 28, 2014. On Jan. 15, 2015, WPG acquired Glimcher Realty Trust, a REIT that was also based in the Ohio city.