Pennsylvania Real Estate Investment Trust – Leading Mall-Owning REIT Emerges from Bankruptcy as of December 10th

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December 10, 2020 – The Debtors notified the Court that their Prepackaged Plan of Reorganization had become effective as of December 10, 2020. The Court had previously confirmed the Debtors’ Plan on November 30, 2020 [Docket No. 213].

On November 1, 2020, Pennsylvania Real Estate Investment Trust and 68 affiliated Debtors (NYSE: PEI; “PREIT” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-12737. At filing, the Debtors, a leading publicly traded real estate investment trust, or “REIT,” specializing in the ownership and management of differentiated shopping malls (22.0mn sq. ft. of retail space), noted estimated assets of $2.376bn and estimated liabilities of $2.03bn (with funded debt at $935.5mn and with each of the asset and liability figures as at June 30, 2020).

The Debtors’ were represented by (i) Wachtell, Lipton, Rosen & Katz as general bankruptcy counsel, (ii) PJT Partners LP as financial advisors and (iii) Prime Clerk as claims agent.

In a press release announcing the plan's confirmation, the Debtors' noted: "Upon emergence, PREIT will have access to $130 million of new financing to support its operations and the continued execution of its strategic priorities. In addition to recapitalizing the Company, PREIT's debt maturity schedule will be extended. The Company will be well-positioned to continue offering compelling retail and experiential destinations while prioritizing the health and safety of its employees, partners, customers and communities."

The deadline for professional fee claims is January 25, 2021.

Plan Overview

The Debtors' memorandum of law in support of Plan confirmation [Docket No. 170] provided a pre-confirmation hearing state-of-play, including in respect of the November 19th settlement with SVP and notes that with settlement in hand, there remain no outstanding objections to the Plan: "The Debtors’ prepackaged Plan is the product of extensive negotiations with the Debtors’ prepetition lenders, both prior to and during these Chapter 11 Cases. In the wake of the unprecedented displacement in the U.S. retail markets, prior to the filing of these cases, the Debtors were able to obtain near-unanimous lender consent on a restructuring support agreement (as such document was amended, supplemented or modified from time to time, the ‘Restructuring Support Agreement’) that addresses the Debtors’ financial burdens and the realities of the present retail and broader economic environment. 

The Plan garnered broad consensus and support from the Debtors’ lender group and does not impair claims or interests of any other stakeholders. The Plan was solicited prior to the filing of these Chapter 11 Cases, and the votes were tabulated prepetition. Of the two voting classes, one voted unanimously to accept the Plan, and the other voted overwhelmingly (95%) in favor, with certain affiliates of Strategic Value Partners LP (‘SVP’) as the lone holdouts

As made clear at the first day hearing, SVP had certain questions regarding the viability of the Plan and commenced extensive discovery toward a potentially contested confirmation hearing. To avoid the costly and distracting litigation process, the Debtors, SVP and Wells Fargo agreed to a mediation of certain limited issues related to the Exit Facilities Documents (as defined in the Plan) before former U.S. Bankruptcy Judge Kevin Gross. 

After considerable negotiations, on November 19, 2020, the parties agreed to that certain Stipulation Among Debtors, Wells Fargo Bank, National Association, and Certain Affiliates of Strategic Value Partners Regarding Matters to be Resolved Pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure [D.I. 155] (the ‘Settlement Stipulation’). The Settlement Stipulation provides for certain modifications to the Exit Facilities Documents and payment of certain professional fees incurred by SVP. Effectuation of the Settlement Stipulation will thus result in a fully consensual Plan that restructures the Debtors’ debt structure and leaves all other creditors, including equity holders, unimpaired."

In an October 14th 8-K, the Debtors filed a copy of their initial restructuring support agreement (the "RSA") which attaches a "Plan Term Sheet" and summarizes the Plan as below (please note that in the intervening two weeks, the Debtors and RSA signatories have been off to a rocky start; with lenders accusing the Debtors of breaching RSA terms and pushing the debtors towards this filing). The 8-K (which also attaches the Prepackaged Plan and Disclosure Statement) provides: "

  • The Reorganized Debtors would assume the swap agreements (as amended) related to the allowed claims in respect of the Specified Derivatives, with any obligations of the Reorganized Debtors under the assumed swap agreements secured pari passu with the Secured Facilities; provided, however, that if a holder of an allowed claim in respect of a Specified Derivative is not a Consenting Lender, such holder may elect to exercise its contractual rights to liquidate, terminate or accelerate under the applicable swap agreement in accordance with Section 560 of the Bankruptcy Code, with such holder receiving, on account of any resulting payment amounts or termination values due and owing by the Debtors (as defined in the Plan Term Sheet) (after offset) to such holder, the principal amount of loans under the Second Lien Exit Term Loan Facility in an amount equal to the amount of such allowed claim. 
  • Each holder of an allowed claim under the Credit Agreements would receive on a dollar-for-dollar basis on account of such holder’s claim the principal amount of loans under the Second Lien Exit Term Loan Facility in a principal amount equal to such claim; provided, however, that any holder of an allowed claim under the Credit Agreements that exercises the Revolving Exit Facility Option (as defined below) would receive: (a) a payment in cash of such holder’s pro rata share (calculated based on such holder’s loan commitment under the Revolving Exit Facility) of the Exit Commitment Fee (as defined in the Plan Term Sheet); plus (b) first, on a dollar-for-dollar basis on account of such holder’s allowed claim under the Credit Agreements, its pro rata share (calculated based on such holder’s commitment of loans under the Revolving Exit Facility) of the principal amount of loans under the Senior Exit Term Loan Facility; and (c) second, on a dollar-for-dollar basis on account of such holder’s remaining allowed claim under the Credit Agreements (if any), the principal amount of loans under the Second Lien Exit Term Loan Facility in a principal amount equal to such remaining allowed claim.

On the Effective Date, each Existing Equity Interest (as defined in the Plan Term Sheet) would be unmodified and would remain as an outstanding equity security in Reorganized PREIT, and the Existing Equity Interests would continue to be subject to the Company’s existing governance documents, as the same may be amended or modified from time to time following the Effective Date in accordance with their terms. Although the Company is currently out of compliance with the continued listing requirements of the New York Stock Exchange (“NYSE”), it intends to request the NYSE make an exception, given the Company’s restructuring, to maintain the listing of the Existing Equity Interests on the NYSE. If the Company commences the Chapter 11 Cases, the NYSE may exercise its discretion to continue the listing of the Existing Equity Interests. If the Company or Reorganized PREIT is unable to remain listed on the NYSE, Reorganized PREIT intends, as soon as reasonably practicable after the Effective Date, to apply to be relisted on the NYSE (or listed on the National Association of Securities Dealers Automated Quotations (“NASDAQ”)), so long as Reorganized PREIT is able to satisfy the initial listing requirements thereof. If unable to relist on either the NYSE or list on NASDAQ within a reasonable period of time, Reorganized PREIT may seek listing on an alternative exchange as Reorganized PREIT may reasonably determine."

The following is summary of classes, claims, voting rights and expected recoveries (defined terms are as in the Plan and/or Disclosure Statement):

  • Class 1 ("Secured Claims") is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 2 ("Derivatives Claims") is impaired and entitled to vote on the Plan. The estimated amount of claims is $0-$27.0mn and projected recovery is 100%. The Reorganized Debtors shall assume the Swap Agreements, as amended by the Omnibus Swap Amendment, with any obligations of the Reorganized Debtors under the Swap Agreements so assumed secured pari passu with the Postpetition Senior Secured Facilities; provided, however, that if a Holder of an Allowed Specified Derivatives Claim is not a Consenting Lender, such Holder may elect to exercise its contractual rights to liquidate, terminate or accelerate under the applicable Swap Agreement in accordance with section 560 of the Bankruptcy Code by marking an election on its Class 2 Ballot by the Voting Deadline, with such Holder receiving, on account of any resulting payment amounts or termination values due and owing by the Debtors (after offset) to such Holder as of the Petition Date, the principal amount of loans under the New Second Lien Term Loan Facility in an amount equal to the amount of its Allowed Specified Derivatives Claim.
  • Class 3 ("Secured Property-Level Debt Claims") is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 4 ("Other Priority Claims") is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 5 ("Unsecured Credit Facility Claims") is impaired and entitled to vote on the Plan. The estimated amount of claims is $913.0mn (plus accrued, but unpaid interest) and projected recovery is 100%. Each Holder of an Allowed Unsecured Credit Facility Claim shall receive on a dollar-for-dollar basis on account of such Holder’s Allowed Unsecured Credit Facility Claim the principal amount of loans under the New Second Lien Term Loan Facility in a principal amount equal to such Holder’s Allowed Unsecured Credit Facility Claim; provided, however, that any Holder of an Allowed Unsecured Credit Facility Claim that exercises the Exit Facility Option by making such an election on its Class 5 Ballot by the Voting Deadline shall receive: (a) a payment in Cash of such Holder’s pro rata share (calculated based on such Holder’s commitment of loans under the Revolving Exit Facility) of the Exit Commitment Fee; plus (b) first, on a dollar-for-dollar basis on account of such Holder’s Allowed Unsecured Credit Facility Claim its pro rata share (calculated based on such Holder’s commitment of loans under the Revolving Exit Facility) of the principal amount of loans under the New Senior Secured Term Loan Facility; and (c) second, on a dollar-for-dollar basis on account of such Holder’s remaining Allowed Unsecured Credit Facility Claim (if any), the principal amount of loans under the New Second Lien Term Loan Facility in a principal amount equal to such Holder’s remaining Allowed Unsecured Credit Facility Claim.
  • Class 6 ("General Unsecured Claims") is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 7 ("Intercompany Claims") is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 8 ("Intercompany Interests") is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 9 ("Existing Equity Interests") is unimpaired, deemed to accept and not entitled to vote on the Plan.

Voting Results

On November 3, 2020, the Debtors’ claims agent notified the Court of the Plan voting results, which were as follows [Docket No. 63]:

  • Class 2 (“Specified Derivatives Claims”): 7 claim holders, representing $26,518,879.29 (100%) in amount and 100% in number, voted in favor of the Plan.
  • Class 5 (“Unsecured Credit Facility Claims”): 9 claim holders, representing $864,090,909.08 (95%) in amount and 75% in number, voted in favor of the Plan. 3 claims holders, representing $48,909,090.92 (5%) in amount and 25% in number, rejected the Plan.

Events Leading to the Chapter 11 Filing

The Disclosure Statement provides: "The Debtors are engaged in the ownership, management, leasing, acquisition, redevelopment, and disposition of shopping malls. The retail sector—and shopping malls by extension—has been hit especially hard by the COVID-19 pandemic due to mandatory store closures, travel restrictions, and unprecedented upheaval in the financial markets. The Debtors’ business and operations and those of many of their tenants have been materially and adversely impacted by the government-mandated travel restrictions, business closures and property shutdowns and the implementation of “social distancing” and certain other measures to prevent the further spread of the virus. 

In mid-March 2020, as a result of the COVID-19 pandemic, the Debtors began closing their enclosed shopping malls, which remained closed for the majority of the second quarter of 2020. As of the date hereof, all of the Debtors’ malls have re-opened and are adhering to social distancing and sanitation and safety protocols designed to address the risks posed by COVID-19, but many tenants are operating at reduced capacity or have not yet re-opened. Worse yet, some tenants have entirely ceased business operations. Local governments in some jurisdictions where the Debtors’ malls are located are also contemplating or implementing new or renewed travel restrictions and business closures, which could result in closures of the Debtors’ properties. 

During March and April of 2020, the Debtors received requests from tenants relating to rent relief or deferral. In the second quarter of 2020, a substantial amount of contractual rent receivables was not collected and the Debtors have continued collection efforts and negotiations with tenants as part of a rent relief initiative. The Debtors believe that future rent collections are probable, but that collections will continue to be below tenants’ rent obligations as long as lingering effects of COVID-19, including new or renewed business closures, affect the return of customers to malls and the financial strength of the tenants. 

Prepetition Indebtedness

As of the October 9, 2020 (i.e. the date of the solicitation Disclosure Statement), the Debtors’ corporate-level funded debt totals approximately $935.5mn. The Debtors’ capital structure consists of approximately: 

  • Approximately $22.5mn outstanding in principal amount under the Prepetition Bridge Facility;
  • Approximately $913.0mn outstanding in aggregate principal amount under the Prepetition Unsecured Credit Facilities, consisting of
    • $538.0mn outstanding in principal amount under the Prepetition Revolver/TL Credit Facility; and
    • $375.0mn outstanding in principal amount under the Prepetition Seven-Year Term Loan Facility. 

Plan Supplements

The Debtors filed Plan Supplements at Docket Nos. 125 and 166 which attached the following:

Docket No. 125

  • Exhibit A: Governance Documents of the Reorganized Debtors 
  • Exhibit B: List of the Members of the Board of Trustees of the Reorganized PREIT 
  • Exhibit C: Schedule of Retained Causes of Action 
  • Exhibit D: Forms of Postpetition Senior Secured Facility Documents: 
  1. Amended and Restated First Lien Credit Agreement (and related exhibits) 
  2. Amended and Restated Collateral Agreement 
  3. Amended and Restated Pledge Agreement 
  4. Amended and Restated Security Instrument v. Fee Letter 
  • Exhibit E: Forms of New Second Lien Term Loan Facility Documents: 
  1. Credit Agreement (and related exhibits) 
  2. Collateral Agreement 
  3. Pledge Agreement 
  4. Security Agreement 
  • Exhibit F: Form of Intercreditor Agreement 
  • Exhibit G: Annual Business Plan 
  • Exhibit H: Form of Omnibus Swap Amendment 
  • Exhibit I: Fashion District Term Sheet (redacted)  

Docket No. 166

  • Exhibit A: Form of Amended and Restated First Lien Credit Agreement (and related exhibits) (the “Amended Credit Agreement”) 
  • Exhibit B: Blackline comparing the Amended Credit Agreement to the Credit Agreement

About the Debtors

According to the Debtors: “PREIT (NYSE:PEI) is a publicly traded real estate investment trust that owns and manages innovative properties at the forefront of shaping consumer experiences through the built environment. PREIT's robust portfolio of carefully curated retail and lifestyle offerings mixed with destination dining and entertainment experiences are located primarily in densely-populated, high barrier-to-entry markets with tremendous opportunity to create vibrant multi-use destinations."

The Disclosure Statement adds: "PREIT is a leading publicly traded real estate investment trust, or 'REIT,' specializing in the ownership and management of differentiated shopping malls. Headquartered in Philadelphia, Pennsylvania, the Company owns and operates over 22 million square feet of retail space in the eastern half of the United States with a concentration in the Mid-Atlantic region

The Company is primarily engaged in the ownership, management, leasing, acquisition, redevelopment, and disposition of these shopping malls. In general, its malls include tenants that are national or regional department stores, large format retailers or other anchors and a diverse mix of national, regional and local in-line stores offering apparel, shoes, eyewear, cards and gifts, jewelry, sporting goods, home furnishings and personal care items, among other things. PREIT has increased the portion of its mall properties leased to non-traditional mall tenants."

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