Washington Prime Lenders Spar Over Assets as Talks Drag On

Washington Prime Group Inc.’s creditors are having difficulty advancing discussions over a planned Chapter 11 filing as groups tussle over dividing the mall owner’s assets, according to people familiar with the talks.

The slow talks have sparked several deadline extensions -- the latest announced Wednesday -- with sticking points including creditors’ rights to assets that aren’t already being used as collateral for Washington Prime’s debt, the people said, asking not to be named discussing a private matter. The company on Monday reported a $55 million loss for the three months through March 31.

At issue is the division of new equity, debt and cash each lender group would receive from the bankruptcy plan, the people said. Given the diminishing appeal of owning a mall chain, the parties are all pushing to minimize their equity exposure and maximize their take of new debt, they added. After the latest extension, Washington Prime’s forbearance agreements with lenders are set to expire May 19.

A representative for Washington Prime declined to comment.

Burning cash and overleveraged, Washington Prime in many ways exemplifies the dilemma of American mall owners. Several months and millions in fees after first disclosing restructuring talks, the mall owner has, like peers before it, struggled to get creditors to agree on plans for a consensual, or pre-packaged, bankruptcy.

Asset Tussle

The mall owner’s stock has slid 70% this year to $1.98 a share Thursday. Its 5.95% bonds due 2024 change hands for around 62 cents on the dollar, according to Trace.

Washington Prime, which owns over 100 malls, said in its earnings release it spent $14.5 million in fees in the first quarter related to the negotiations. Bankruptcy advisers push companies to get at least a partial deal with creditors before filing for court protection. Without a reorganization agreement, a so-called free-fall bankruptcy can be more expensive as lenders fight each other and the company over a limited pool of cash and assets.

Debate among creditor groups during the talks has also revolved around the value of and claims to Washington Prime’s unencumbered real estate, the people said. Some of the company’s properties aren’t pledged as collateral on any outstanding debt, and the appraisal of those assets is time-consuming and can evolve in an uncertain market that’s slowly recovering from the Covid-19 pandemic. With commercial real estate on shaky ground and no way to reliably predict business recovery trends as the pandemic eases, lenders are uneasy about owning the assets that secure their loans, the people said.

J.C. Penney Co., J. Crew Group LLC and the owner of Ann Taylor are among the dozens of chains that have sought court protection since Covid-19 lockdowns, and major mall tenants like Toys ‘R’ Us, Sears, and GNC have shut stores in recent years.

Rival mall owner CBL & Associates Properties Inc. sought bankruptcy protection in November after a period of protracted negotiations with lenders over asset value and distribution. Peer Pennsylvania Real Estate Investment Trust entered Chapter 11 hours earlier, also following “extensive” negotiations with lenders, according to court documents. It’s since exited court protection, though restructuring mall owners can be particularly complicated due to the overlapping webs of debt that finance their operations.

In Washington Prime’s earnings statement, the company said it plans to continue operating normally throughout a prospective bankruptcy, but warned “there can be no assurance that the restructuring will occur or be successful.”

Washington Prime first acknowledged in March that it may have to file for court protection from creditors amid “substantial doubt” about its ability to keep operating. Bloomberg News previously reported that the mall owner was contemplating bankruptcy.

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