June 13, 2021 – Washington Prime Group Inc. and 88 affiliated Debtors (NYSE: WPG; “WPG” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 21-31948  (Judge Isgur). The Debtors, a national retail REIT with a focus on the shopping center sector ("material interests in 102 shopping centers in the U.S. totaling approximately 52 million sq. ft.), are represented by Matthew D. Cavenaugh of Jackson Walker LLP. Further board-authorized engagements include (i) Kirkland & Ellis LLP as general bankruptcy counsel, (ii) Alvarez and Marsal L.L.C. as financial advisors, Guggenheim Securities, LLC as investment banker, (iv) Ernst & Young LLP to provide audit services, (v) Deloitte Tax LLP to provide tax advice and (vi) Prime Clerk as claims agent. 

The Debtors’ lead petition notes between 10,000 and 25,000 creditors; estimated assets of $4,028,916,000 (as at March 31, 2021); and estimated liabilities of $3,470,908,000 (as at March 31, 2021 with reference to $3.872bn of funded debt at Petition date). Documents filed with the Court list the Debtors’ four largest unsecured creditors as (i) U.S. Bank National Association (as trustee for $720.4mn 2024 Senior Notes), (ii) Bank of America, N.A. (as Trustee for $161.75mn unsecured portion of Amended and Restated Revolving Credit Agreement), (iii) Bank of America, N.A. (as Trustee for $87.5mn unsecured portion of Term Loan due December 2022) and (iv) GLAS USA LLC (as Trustee for $85.0mn unsecured portion of Term Loan due January 2023).

Highlights

• Leading shopping center REIT (102 shopping centers and 52.0mn sq.ft.) files for Chapter 11 with $3.872bn of funded debt.
• Cites "seismic shift in the retail landscape" with COVID then bringing "in-store customer activity to a grinding halt." 
• After "grappling" with valuation given retail sector recovery, will pursue dual path strategy with possible "toggle" to asset sale after testing market
• Distressed debt specialist SVPGlobal to serve as Plan Sponsor after playing leading role in negotiating RSA
• RSA provides for $950.0mn equitization of unsecured notes, $190.0mn paydown of bank debt, $1.2bn of takeback debt and $325.0mn rights offering backstopped by SVPGlobal
• Debtors line up $100.0mn of DIP commitments ($50.0mn interim) from SVPGlobal and certain prepetition senior lenders
• Common and preferred shareholders to share 6.125% of emerged equity

The Debtors do not provide detail as to SVPGlobals' debt holdings or when that debt was acquired, noting that negotiations with SVP Global began in February 2021 after an effort at an out-of-court restructuring failed in December 2020 and the Debtors' decision to defer the payment of interest on unsecured notes. The Yale Declaration (defined below) notes "Shortly thereafter, the Debtors began to negotiate the terms of a comprehensive restructuring transaction with a crossover holder of their corporate-level bank debt and unsecured notes, SVPGlobal ('SVP')."

In a press release announcing the filing, the Washington Prime advised that it: “enters Chapter 11 after executing a restructuring support agreement (the 'RSA') with creditors, led by SVPGlobal, that hold approximately 73% of the principal amount outstanding of the Company’s secured corporate debt and 67% of the principal amount outstanding of the Company’s unsecured notes (collectively, the 'Consenting Creditors'). The Company will utilize Chapter 11 to implement a comprehensive and consensual financial restructuring of the Company’s corporate-level debt that will allow the Company to substantially deleverage its balance sheet and strengthen its business and operations going forward, either through a full equitization of the Company’s unsecured notes or an alternative value-maximizing transaction that would repay, in full in cash, all of the Company’s corporate-level debt.

The RSA provides for a deleveraging of the Company’s balance sheet by nearly $950 million through the equitization of unsecured notes and a $190 million paydown of the Company’s revolving credit and term loan facilities. The RSA contemplates a $325 million equity rights offering, fully backstopped by SVPGlobal, as Plan Sponsor, the proceeds of which will be applied to, among other things, the pay down of secured debt. The RSA also provides for an effective four-year extension of the remaining credit facility debt, payment in full of all claims held by vendors and service providers, and a baseline recovery for the Company’s existing common and preferred equity holders of $40 million in cash or 6.125% of new equity (subject to dilution). Additionally, the RSA allows the Company to market its assets to determine whether any alternative transaction or transactions that would pay existing corporate indebtedness in full, in cash, and deliver greater aggregate recoveries to existing common and preferred equity holders are attainable. The RSA also includes certain milestones, including a 60-day milestone for the Bankruptcy Court to enter an order confirming the Chapter 11 plan, subject to certain extensions.”

Lou Conforti, CEO and Director of Washington Prime Group, noted: “The COVID-19 pandemic has created significant challenges for many companies, including Washington Prime Group, making a Chapter 11 filing necessary to reduce the Company’s outstanding indebtedness.”

Goals of the Chapter 11 Filings

Given the improving retail landscape, the Debtors have "grappled" with valuation and are looking at a dual path strategy to help stress test valuation efforts, that dual path may involve a "toggle" to an asset sale should that path provide more attractive for the Debtors' estates (and with the proviso that senior lenders get made whole). The Yale Declaration (defined below) provides: "While discussions between the Debtors, SVP, and the Ad Hoc Lender Group were progressing, the landscape began to shift as the COVID-19 pandemic abated.  With approximately 50%  of  American  adults  becoming  fully  vaccinated,  government-imposed capacity restrictions slowly lifting,  and  consumer  confidence  increasing,  the  Debtors grappled with an  appropriate valuation  for  the  Debtors’  enterprise….

As a result of this altered landscape, and after extensive negotiations, the parties reached an agreement on a dual path forward to ensure the Debtors’ restructuring transaction maximizes value for all stakeholders.

On June 11, 2021, the Debtors, SVP, and the Ad Hoc Lender Group reached an agreement on the terms of a comprehensive equitization restructuring that will de-leverage the Debtors’ capital structure, increase liquidity, and ensure future viability of the Company. At the same time, the agreement affords the Debtors with an opportunity to test the market to determine whether a higher and better restructuring proposal is available."

Restructuring Support Agreement

The Debtors have entered into a restructuring support agreement (the "RSA," with term sheet at p. 106 of Docket No. 26 and the RSA itself at Exhibit D) with (i) Strategic Value Partners, LLC ("SVPGlobal" or the “Plan Sponsor”), (ii) the holders of at least 66.7% of the aggregate principal amount of the Unsecured Notes, (iii) the holders of 100% of the aggregate principal amount of the Weberstown Term Loan Facility Claims, and (iv) the holders of at least 71.5% of the aggregate principal amount of the Revolving and Term Loan Facilities claims.

The terms of the Restructuring Support Agreement provide for:

• a secured $100 million new-money debtor-in-possession financing facility, 
• a $1.2 billion take-back exit term loan facility, a revolving credit facility (if necessary based upon the Debtors’ liquidity needs at emergence), 
• a full equitization of the Unsecured Notes, and 
• a fully backstopped equity rights offering of up to $325 million to pay off the debtor-in-possession financing facility and fund other costs attendant to the Debtors’ emergence from chapter 11. 

In addition, the Restructuring Support Agreement provides for payment in full of general unsecured claims and delivers value to the Debtors’ junior stakeholders in the form of cash or new equity in the reorganized Debtors. .A key component of the Restructuring Support Agreement and forthcoming chapter 11 plan (the “Plan”) is a “toggle” feature, contemplating either an equitization plan or an alternative recapitalization or sale transaction that provides for payment in full of the Debtors’ secured and unsecured corporate debt and unsecured notes, the payment of the Backstop Base Premium contemplated under the Restructuring Support Agreement and Backstop Commitment Agreement, and a recovery for the Debtors’ junior stakeholders in excess of what is provided for under the equitization plan. The “toggle” feature, in conjunction with formal bidding procedures, will allow the Debtors to run a comprehensive marketing process over the next approximately 60 days to assess any bids that may maximize the value of their estates for the benefit of all parties in interest, especially junior stakeholders.

An 8-K adds as to claims:

"Pursuant to the Restructuring Support Agreement and Plan, the Company Parties have a right to “toggle” between either an equitization plan or an alternative value-maximizing transaction that would repay, in full in cash, all of the Company's corporation-level debt, depending on the results of the Company's 60-day postpetition continuation of its prepetition marketing process. The baseline restructuring transaction, tied to certain milestones in the Restructuring Support Agreement, is the Equitization Restructuring that provides for the treatment for each class of Claims and Interests as follows:

• Revolving and Term Loan Facility Claims. Each holder of Revolving and Term Loan Facilities Claims shall receive its pro rata share of (i) New Term Loan Exit Facility Loans in an aggregate principal amount of $1.187 billion plus, at the election of the Plan Sponsor, certain prepetition and postpetition interest and (ii) $150 million cash plus cash in the amount of any accrued and unpaid (a) adequate protection payments and (b) prepetition and postpetition interest;
• Weberstown Term Loan Facility Claims. Each holder of Weberstown Term Loan Facility Claims shall receive its pro rata share of (i) New Term Loan Exit Facility Loans in an aggregate principal amount of $25 million plus, at the election of the Plan Sponsor, certain prepetition and postpetition interest and (ii) $40 million cash plus cash in the amount of any accrued and unpaid (a) adequate protection payments and (b) prepetition and postpetition interest;
• Secured Property-Level Debt and Guarantee Claims. To the extent that any Secured Property-Level Debt and Guarantee Claims exist, such Secured Property-Level Mortgage Claims shall be reinstated, unimpaired, or receive treatment reasonably acceptable to the Plan Spons
• Unsecured Notes Claims. Each holder of Unsecured Notes Claims shall receive its pro rata share of (i) 100% of the New Common Equity, less any New Common Equity distributed to Holders of Existing Equity Interests electing to receive New Common Equity, subject to dilution on account of the Management Incentive Plan, and the Equity Rights Offering and (ii) 100% of the Unsecured Noteholder Rights;                              
• General Unsecured Claims. Each holder of General Unsecured Claims shall, at the option of the applicable Company Party, (i) receive payment in full in cash or (ii) be reinstated;                                         
• Existing Preferred Equity Interests. Subject to certain eligibility requirements and election rights set forth in the Plan, each holder of Existing Preferred Equity Interests shall receive: (i) if the class of Existing Preferred Equity Interests votes to accept the Plan, such holder’s pro rata share of the (A) Preferred Equity Cash Pool, which shall equal $20 million if the class of Existing Common Equity Interests votes to accept the Plan and $40 million otherwise or (B) such holder’s pro rata share of the Preferred Equity Equity Pool, which shall equal 3.0625% if the class of Existing Common Equity Interests votes to accept the Plan and 6.125% otherwise; or (ii) if the class of Existing Preferred Equity Interests votes to reject the Plan, each holder of Existing Preferred Equity Interests shall not receive any distribution on account of such Existing Preferred Equity Interests, which will be canceled, released, and extinguished as of the Agreement Effective Date, and will be of no further force or effect; and
• Existing Common Equity Interests. Subject to certain eligibility requirements and election rights set forth in the Plan, each holder of Existing Common Equity Interests shall receive: (i) if the class of Existing Preferred Equity Interests and the class of Common Equity Interests vote to accept the Plan, such holder’s pro rata share of (A) $20 million or (B) 3.0625% of New Common Equity; or (ii) if the class of Existing Preferred Equity Interests or Existing Common Equity Interests vote to reject the Plan, holders of Existing Common Equity Interests shall not receive any distribution on account of such Interests, which will be canceled, released, and extinguished as of the Agreement Effective Date, and will be of no further force or effect."

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Yale Declaration”), Mark E. Yale, the Debtors’ Chief Financial Officer, detailed the events leading to WPG's Chapter 11 filing with Yale noting that the pre-COVID Debtors were already struggling with the "seismic shift in the retail landscape" away from brick-and-mortar retail stores to online alternatives; with COVID ultimately bringing "in-store customer activity to a grinding halt."

The Yale Declaration provides: “The shift of consumer behavior from shopping in brick-and-mortar retail stores to online channels has resulted in operational challenges for much of the retail industry. WPG, as a major landlord of national retailers, has not been spared from the economic pressures of this new reality. 

Even before the global COVID-19 pandemic, this seismic shift in the retail landscape had rendered certain of the Debtors’ tenants unable to pay rents and other amounts due under their leases, and because substantially all of the Debtors’ revenue is derived from rentals of commercial retail properties, the Debtors’ income, cash flow, and operations were adversely affected. For example, chapter 11 filings of certain of the Debtors’ tenants, including Bon-Ton Stores and Sears Holdings Corporation in 2018, resulted in numerous department store closures, and the resulting loss of rental income significantly impacted the Debtors’ balance sheet. Further, renovating and remodeling many of these properties for re-use (a process that is ongoing), has required significant capital investment….these headwinds only intensified with the onset of the pandemic in 2020, which brought in-store customer activity to a grinding halt. Moreover, certain of the Debtors’ tenants have sought their own chapter 11 protection, resulting in the modification and/or termination of certain leases, exacerbating the adverse impacts of these headwinds and the pandemic. The Debtors also face significant competition with other retail properties (including other open-air properties, outlet centers, lifestyle centers, and enclosed retail properties) and other forms of retail, such as catalogs and e-commerce channels. Moreover, the Debtors compete with other retail property developers and companies to acquire development sites, tenants, and qualified management.”

DIP Financing

The Debtors have commitments for $100.0mn of debtor-in-possession ("DIP") financing to be provided by prepetition lenders in the form of a delayed draw term loan facility with GLAS USA LLC, and GLAS AMERICAS LLC to serve as administrative agent and collateral agent, respectively.

Prepetition Indebtedness

As of the Petition date, the Debtors have approximately $3,872.2mn in total debt obligations.  The following table depicts the Debtors’ prepetition capital structure: 

Principal Prepetition Shareholders

• The Vanguard Group, Inc: 10.32%
• BlackRock Institutional Trust Company, N.A.: 10.32%

About the Debtors

According to the Debtors: "Washington Prime Group Inc. is a retail REIT and a recognized leader in the ownership, management, acquisition and development of retail properties. The Company combines a national real estate portfolio with its expertise across the entire shopping center sector to increase cash flow through rigorous management of assets and provide new opportunities to retailers looking for growth throughout the U.S."

The Yale Declaration adds: “WPG is a recognized market leader in the ownership, development, and management of retail real estate across the United States, including enclosed and open air retail properties.  WPG’s property portfolio consists of material interests in 102 shopping centers in the United States totaling approximately 52 million square feet of gross leasable area.  Retail space at  WPG’s shopping centers are leased to a variety of tenants across the retail spectrum, including anchor stores, big-box tenants, national inline tenants, sit-down restaurants, movie theaters, and regional and local retailers.

About SVPGlobal

According to SVP Global: "SVPGlobal is a global investment firm focused on distressed debt, special situations and private equity opportunities with more than $15 billion in assets under management. The firm, established by Victor Khosla in 2001, has 127 employees, including 49 investment professionals, across its main offices in Greenwich (CT), London and Tokyo."

Corporate Structure Chart (see the Yale Declaration for further detail and list of properties)

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