COVID-19-related reduced rent collections puts mall owner in a financially unstable position.
CBL Properties, one of the nation’s largest mall owners with around 90 second tier malls, announced this week that it plans to file for bankruptcy by October 1, according to multiple reports. The news comes after the mall owner had to shut down its properties during the COVID-19 pandemic, which disrupted rent collection. Some of CBL’s biggest tenants like J.C. Penney have already filed for bankruptcy, which made it easier for them to permanently close stores and break leases.
J.C. Penney said it would close eight of its 47 stores at CBL properties, The Wall Street Journal reports. Those eight stores only generate $2.1 million in annual rents, but the departure could be sign of things to come for CBL. Other tenants with leases tied to a large tenant like J.C. Penney being present could decide to walk away from their agreements, too. CBL tenants like GNC Holdings, Aldo, New York & Co have also filed for bankruptcy since the health crisis began. CBL only received 27 percent of rent owned in April, according to public filings.
CBL’S Restructuring Support Agreement details
The company said it entered a Restructuring Support Agreement (RSA) with beneficial owners and/or investment advisors or managers of discretionary funds, accounts or other entities.
The RSA terms will provide a comprehensive restructuring of CBL’s balance sheet through in-court proceedings that will begin no later than the previously mentioned October 1 date. The plan will reportedly eliminate approximately $1.4 billion principal amount of unsecured notes in exchanges for issuance of $500 million of new senior secured notes, about $50 million in cash and about 90 percent of new common equity of CBL to the unsecured notes holders.
If the plan is implemented, it will eliminate approximately $900 million of debt and provide CBL with a stronger balance sheet by reducing its total debt, extend debt maturities and increase its liquid assets while minimizing operational disruptions. CBL’s wholly owned, joint venture and third-party managed shopping centers will continue as usual. The company also said its customers, tenants and partners can expect business to go on as normal at all of its owned and managed properties.
“Reaching this agreement with our note holders is a major milestone for CBL,” company CEO Stephen Lebovitz said in a statement. “The agreement will significantly improve our balance sheet by reducing leverage and increasing net cash flow and will simplify our capital structure, providing enhanced financial flexibility going forward. We also appreciate the confidence in the CBL organization and leadership team shown by the note holders as we’ve worked collaboratively to find a solution that benefits all company stakeholders.”
CBL remains optimistic it can get back on track despite the anticipated bankruptcy filing. The company also plans to continue to meet all of its debt service and obligations as required under its property level loans and joint venture partnerships.
“Once the process is complete, we will emerge as a stronger and more stable company, with an enhanced ability to execute on our key strategies of diversifying our sources of revenue and transforming our properties from traditional enclosed malls to suburban town centers,” Lebovitz said. “As a result, we will be better positioned to grow our businesses over the near and long term.”
Joe Dyton can be reached at email@example.com.