CBL & Associates Properties, Inc – Citing Bankruptcies of 30 Retail Tenants During COVID-Blighted 2020, Leading Mall Operator Files Chapter 11; RSA Has Bondholders Exchanging $1.375bn of Debt for 90% of Emerged Company; Battle with Senior Lenders Looms

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November 1, 2020 – CBL & Associates Properties, Inc and 176 affiliated Debtors (NYSE:  CBL; “CBL” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 20-35226. The Debtors, owners and operators of a mall portfolio comprised of 107 properties totaling 66.7 million square feet across 26 states, are represented by Alfredo R. Pérez of Weil, Gotshal & Manges LLP. Further board-authorized engagements include (i) Berkeley Research Group, LLC ("Berkeley") as financial advisors, (ii) Moelis & Company as investment banker and (iii) Epiq Corporate Restructuring as claims agent. 

The Debtors’ lead petition notes between 25,000 and 50,000 creditors; estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Delaware Trust Company as Indenture Trustee ($1,381,900,000 unsecured notes claim), (ii) Husch Blackwell LLP  ($127k professional services claim) and (iii) CCI Construction of SC Inc. ($94k trade claim).

In a press release announcing the filing, the Debtors advised that: “The Company intends to use the Chapter 11 process to implement terms outlined in the Restructuring Support Agreement (the 'RSA') that it entered into on August 18, 2020, with certain beneficial owners and/or investment advisors or managers of discretionary funds, accounts, or other entities (the 'noteholders') representing in excess of 62% (including joinders) of the aggregate principal amount of the Operating Partnership’s 5.25% senior unsecured notes due 2023 (the '2023 Notes'), the Operating Partnership’s 4.60% senior unsecured notes due 2024 (the '2024 Notes') and the Operating Partnership’s 5.95% senior unsecured notes due 2026 (the '2026 Notes' and together with the 2023 Notes and the 2024 Notes, the 'Unsecured Notes'). 

The RSA contemplates agreed-upon terms of a pre-arranged comprehensive restructuring of the Company’s balance sheet (the 'Plan').  The Plan will provide the Company with a significantly stronger balance sheet by reducing total debt and preferred obligations by approximately $1.5 billion, extending debt maturities and increasing liquidity while maintaining operational consistency. 

As of September 30, 2020, CBL had approximately $258.3 million in unrestricted cash on hand and available-for-sale securities. The Company’s cash position, combined with the positive cash flow generated by ongoing operations, is expected to be sufficient to meet CBL’s operational and restructuring needs."
Events Leading to the Chapter 11 Filing

Stephen D. Lebovitz, the Debtors' Chief Executive Officer, commented: “After months of discussions and consideration of a number of alternatives, CBL’s management and the Board of Directors firmly believe that implementing the comprehensive restructuring as outlined in the RSA through a Chapter 11 voluntary bankruptcy filing will provide CBL with the best plan to emerge as a stronger and more stable company…We have continued negotiations with the lenders under our secured credit facility since the signing of the RSA and expect further discussions in an effort to reach a tri-party consensual agreement between the Company, noteholders and credit facility lenders during the bankruptcy process."

RSA and Plan Overview

Among other things, the restructuring contemplates:

  • The equitization of the Senior Unsecured Notes in exchange for 90% of the New Equity Interests (as defined in the Restructuring Support Agreement) and approximately $49.6 million in cash;
  • The issuance of $500 million of New Senior Secured Notes secured by, among other things, certain of the Company’s currently unencumbered properties; 
  • A recovery to the Company’s current equityholders, who will receive 10% of the New Equity Interests and Warrants; and
  • The reinstatement or unimpairment of the Property Level Debt and related guarantee claims against the Operating Partnership. 

The restructuring will reduce the Company’s funded indebtedness by approximately $875 million, and annual interest expenses by approximately $25 million. Importantly, the Company is not currently seeking to modify or impair the Property Level Debt or to make operational changes to the business, and that debt is not currently the subject of these chapter 11 cases.

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Renzi Declaration”), Mark A. Renzi, a Managing Director at financial advisors Berkeley, summarized the debtors slide into bankruptcy provides: “Despite enjoying many years of steady growth and forging strong relationships with prominent nationally-recognized tenants across numerous retail sectors, the Company’s recent performance has been acutely impacted by the recent struggles of the Company’s tenants and the headwinds facing the retail market generally. Retailers’ struggles, and, consequently, their ability to keep their stores open and satisfy their rent obligations, have been compounded by the COVID-19 pandemic and the resulting shut down orders and other restrictions imposed by state and local authorities. Indeed, in 2020 alone, more than 30 of the Company’s retail tenants have commenced their own chapter 11 cases, some of which have closed—or are in the process of closing—stores at the Company’s properties, resulting in significant loss of rental revenue to the Company. Further, the Company has provided rent deferrals and other concessions to their tenants to mitigate the impact of the pandemic and the challenging economic conditions in the retail market on the Company’s revenue. 

To best position the Company to navigate the current economic environment and to ensure its long term growth and success, CBL must de-lever its balance sheet. In addition to approximately $2.0 billion of Property Level Debt, the Company has approximately $2.5 billion in outstanding parent-level funded indebtedness—approximately $1.1 billion outstanding under the First Lien Credit Facility and $1.375 billion of Senior Unsecured Notes. Given the current economic climate, the Company’s capital structure is simply unsustainable."

Pushing beyond the obvious impact of COVID-19, Renzi provides further background on the more interesting issues preceeding (and inevitably outlasting) COVID-19: "CBL, as a national retail landlord, is susceptible to changes in the retail real estate markets. 

Over the past several years, the brick-and-mortar retail industry has been shifting, with the closing of brick-and-mortal retail stores becoming more common as shoppers have increasingly moved towards e-commerce. The Company anticipates that the number of traditional department stores, like those acting as Anchors or Junior Anchors in the Malls, will decline over time. Beyond the decline in number, the market share of traditional department stores is declining, as is their ability to drive traffic.

As new technologies emerge, the relationships between customers, retailers, and shopping centers are evolving on a rapid basis. Commercial landlords like CBL must invest in strategic technology to enhance the mall experience, which may not necessarily be feasible despite the potential benefits. Additionally, a small but increasing number of tenants utilize the Malls as showrooms or as part of an omni-channel strategy (allowing customers to shop seamlessly through various sales channels, where customers’ sales occur outside the Malls). As a result, customers may make purchases through other sales channels during or immediately after visiting the Malls, with such sales not being captured currently in the Company’s sales figures or monetized in minimum or overage rents.

The Company also faces significant competition in the retail leasing business. The Company competes with other major real estate investors with significant capital for attractive investment opportunities. These competitors include other real estate investment trusts, investment banking firms, and private and institutional investors, some of whom have greater financial resources or have different investment criteria than the Company does. In particular, there is competition to acquire, develop, or redevelop highly productive retail properties, which become even more severe as competitors gain size and economies of scale as a result of merger and consolidation activity

There is also an emerging trend of more tenants moving to gross leases, which provide that the tenant pays a single specific amount, with no additional payments for reimbursements of the tenant’s portion of the operating expenses. CBL is then responsible for any increases in operating expenses but benefits from any decreases in operating expenses. This change leads to more predictable revenue but less predictable expenses."

Bank Lenders Adversary Proceeding

In addition to standard first day relief, the Debtors are commencing an adversary proceeding and seeking a temporary restraining order against their senior lenders whom they accuse of taking steps “under cover of darkness” that have forced the Debtors’ to seek Chapter 11 protection. The Renzi Declaration states: “Upon executing the Restructuring Support Agreement, the Company and the Ad Hoc Bondholder Group focused their efforts on negotiations with the Bank Lenders in an attempt to reach a tripartite agreement among the Company, the Ad Hoc Bondholder Group and the Bank Lenders over the terms of a fully consensual restructuring. 

Indeed, on October 13, 2020, certain of the Ad Hoc Bondholder Group executed confidentiality agreements and became ‘restricted’ to negotiate directly with the Bank Lenders. On October 27, 2020, the Ad Hoc Bondholder Group’s advisors sent a restructuring term sheet to the Administrative Agent’s advisors (the ‘October 27 Term Sheet’), which contemplated further deleveraging the Company’s funded indebtedness by another $500 million. 

Unfortunately, the negotiation process was abruptly cut short by the Bank Lenders. Instead of responding to the October 27 Term Sheet with a counterproposal, the Bank Lenders, under cover of darkness and asserting a variety of conjured up alleged Events of Default that occurred during the global pandemic, purported to exercise remedies, including exercising proxy rights, to exercise control over certain of the entities owning the Credit Facility Properties. 

Notwithstanding that the Bank Lenders’ actions were invalid, this unfortunate and unwarranted development left the Company no choice but to commence these chapter 11 cases on an accelerated timeline to protect the Company and its stakeholders within the time frame contemplated by the Restructuring Support Agreement instead of further extending the filing deadline to continue consensual negotiations as the Company had intended. 

Consequently, in addition to seeking standard “first day” relief, the Company is contemporaneously commencing an adversary proceeding (the ‘Adversary Proceeding’) seeking a declaratory judgment that, among other things, that the Bank Lenders’ actions are null and void because they were undertaken in violation of the documents governing the First Lien Credit Facility and applicable law. The Company is also seeking a temporary restraining order and injunctive relief enjoining the Bank Lenders from taking any further action pending the resolution of the Adversary Proceeding (together with the Adversary Proceeding, the “Bank Lender Litigation”). The Company seeks protection from this Court from the Bank Lenders’ unlawful and value-destructive conduct to ensure the smooth operation of the Company while the Court makes a determination on the issues outlined in the Bank Lender Litigation.

About the Debtors

According to the Debtors: “Headquartered in Chattanooga, TN, CBL Properties owns and manages a national portfolio of market-dominant properties located in dynamic and growing communities. CBL’s portfolio is comprised of 107 properties totaling 66.7 million square feet across 26 states, including 65 high‑quality enclosed, outlet and open-air retail centers and 8 properties managed for third parties. CBL seeks to continuously strengthen its company and portfolio through active management, aggressive leasing and profitable reinvestment in its properties. 

Simplified Corporate Structure (see the Renzi Declaration for the multi-paged full corporate structure)

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