(Bloomberg) – The owner of a shopping mall, Washington Prime Group, is preparing a potential bankruptcy filing as time runs out to avoid default, after skipping interest payments on its debt, according to people with knowledge of the plans.
The real estate investment fund, which has about 100 malls in the United States, said last month that it would use a 30-day grace period to continue negotiations with its creditors. Still, these talks are faltering, people said, who asked not to be identified when discussing confidential preparations.
The plan to apply for Chapter 11 protection is not final and could change if negotiations evolve or if the company’s grace period is extended, people added. A Washington Prime representative declined to comment.
Washington Prime’s shares sank up to 63%, to $ 2.34, after Bloomberg reported the potential filing, triggering several trading interruptions.
The share sold in the shares grew at the end of 2020, exceeding 30% of the outstanding shares until October, according to data from Bloomberg. The shares continued to trade at $ 7.49, even after the debt was not paid. Reddit traders of the day and investors began to switch to certain heavily sold names in the hope of making a profit when short sellers hedged their bets.
Pandemic impact
Washington Prime, based in Columbus, Ohio, said the impact of the Covid-19 pandemic could affect its ability to comply with debt clauses and continue operations, or remain in operation “under certain circumstances”. He said in November that he was “actively negotiating” with debt holders to cut loans.
At that time, CEO Lou Conforti emphasized that bankruptcy was not on the table.
“It is important to note that this action, and I would like everyone to listen, in no way or form has to do with bankruptcy or corporate restructuring and if any, it will serve as a testament to our operational skills,” Conforti said in a conference call with investors.
Washington Prime has worked with consultants from the law firm Kirkland & Ellis and investment bank Guggenheim to help him deal with his maturities, which include a first-rate secured loan due in June. In December, it tried to convert about $ 260 million of its unsecured bonds into $ 175 million of preferred shares issued by a new special-purpose entity, but failed to reach an agreement with the debt holders.
Kirkland & Ellis and Guggenheim representatives did not comment.
Read more: DISTRESSED DAILY: Mall REIT’s retail bet hits a debt problem
The company said its rental collection rate dropped to 52% during the second quarter of 2020, pulling the price of its junior debt down to about two-thirds of the face value and its shares to penny stock status. In the third quarter, collections improved to around 87%.
The pandemic left mall owners struggling to keep up with debt payments, as mandatory store closings kept customers away and tenants sought to postpone rent. Two of Washington Prime’s competitors, CBL & Associates Properties and Pennsylvania Real Estate Investment Trust, filed for bankruptcy a few hours apart last year.
Washington Prime tenants also include retailers such as JC Penney Co. and former Ann Taylor, the ascendant Retail Group Inc., who sought judicial protection and closed stores last year, citing pain from the pandemic.
(Updates with stock movement in the fourth paragraph, previous comments from the CEO in the seventh paragraph.)
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