Washington Prime files bankruptcy with plans for equity swap or sale

By Sarah Lizee

Olympia, Wash., June 14 – Washington Prime Group Inc. and 88 affiliated debtors filed voluntary Chapter 11 bankruptcy petitions in the U.S. Bankruptcy Court for the Southern District of Texas on Sunday, according to a press release.

The company has entered into a restructuring support agreement with creditors, led by SVPGlobal, that hold about 73% of the company’s secured corporate debt and 67% of its unsecured notes.

Washington Prime said it will use the Chapter 11 process to implement a comprehensive and consensual financial restructuring of the company’s corporate-level debt that will allow it 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.

Support agreement terms

The agreement 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.

It also 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 paydown of secured debt.

The agreement 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 agreement allows the company to market its assets to determine whether any alternative transaction or transactions that would pay existing corporate debt in full in cash and deliver greater recoveries to existing common and preferred equity holders are attainable.

The agreement also includes some milestones, including a 60-day milestone for the bankruptcy court to enter an order confirming the Chapter 11 plan, subject to certain extensions.

Washington Prime said the Covid-19 pandemic has created significant challenges for the company, making a Chapter 11 filing necessary to reduce its existing debt.

The company has filed a number of customary first-day motions with the court that will allow it to continue operations in the ordinary course.

Some subsidiaries, including the company’s joint ventures and the majority of the company’s special purpose entities holding properties that secure mortgage loans, will not be debtors in the Chapter 11 cases.

Washington Prime said it also anticipates continuing to meet all debt service and other financial obligations, as required, under its property-level secured loans and joint venture partnerships.

DIP financing

Washington Prime Group has secured $100 million in new money debtor-in-possession financing from the consenting creditors to support day-to-day operations during the Chapter 11 process and ensure that all business operations continue in the ordinary course without interruption.

The company is seeking interim access to $50 million of the facility.

The DIP loan has just one financial maintenance covenant, requiring the maintenance of a minimum liquidity of $25 million.

The facility will mature in six months, with an option to extend the maturity to 12 months.

Interest will be Libor plus 425 basis points.

Washington Prime is also seeking court approval to access the cash collateral of its pre-petition secured lenders.

Bid procedures

The company filed a motion seeking court approval of the bid procedures for all or a portion of its assets or equity interests.

Under the proposed bid procedures, bids would be due by 5 p.m. ET on Aug. 4, an auction would be held on Aug. 6, a confirmation hearing would be held on Aug. 12, and the effective date would be Aug. 27.

The company said it believes this timeline provides it with an opportunity to conduct a fulsome marketing process for the assets while still proceeding expeditiously toward confirmation of the equitization restructuring absent an acceptable alternative restructuring proposal.

For a bid to be considered qualified, it must provide for a transaction value that includes payment in full in cash of at least $2.3 billion for all allowed DIP claims, 2018 credit facility claims, 2015 credit facility claims, Weberstown term loan facility claims, all administrative, priority and secured claims, all allowed unsecured notes claims, and the backstop base premium.

It must also provide for payment in full in cash or the assumption or reinstatement of other liabilities, including any non-debtor assets and liabilities and all general unsecured claims.

Qualified bids must also include additional value in an amount not less than the value of either cash or new common equity provided to holders of existing equity interests under the equitization restructuring, as compared to cash or non-cash consideration provided to holders of existing equity interests under the bid.

The minimum overbid increment has been set at $2.5 million.

Debt details

In its petition, the company listed $4.03 billion in total assets and $3.47 billion in total liabilities.

Its largest unsecured creditors are U.S. Bank NA, based in Cincinnati, with a $720.4 million 2024 senior notes payable claim, Bank of America, NA, based in Charlotte, N.C., with a $161.75 million unsecured portion of amended and restated revolving credit agreement claim and an $87.5 million unsecured portion of term loan due December 2022 claim, and GLAS USA LLC, based in Jersey City, N.J., with an $85 million unsecured portion of term loan due January 2023 claim.

Other details

Kirkland & Ellis LLP is serving as legal counsel to the company, and Alvarez & Marsal North America, LLC is serving as restructuring adviser. Guggenheim Securities, LLC is serving as the company’s investment banker.

Davis Polk & Wardwell LLP is serving as legal counsel and Evercore Group LLC is serving as investment banker and financial adviser to SVPGlobal. Wachtell, Lipton, Rosen & Katz is serving as legal counsel and PJT Partners LP is serving as investment banker for the informal group of consenting creditors.

Washington Prime said its guests, retailers and business partners can expect business as usual at all of the company’s retail town centers throughout the proceedings.

The real estate investment trust is based in Columbus, Ohio. The company filed bankruptcy under Chapter 11 case number 21-31948.

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