CBL Properties, the Chattanooga-based shopping center owner stricken by the coronavirus outbreak, on Wednesday unveiled a plan to keep operating even as it expects to file bankruptcy.
The owner of Hamilton Place and Northgate malls and about 100 other properties nationally said it reached an agreement with some lenders to reorganize its finances, which were hit by lockdowns, store failures, and more online shopping over the past six months.
Should CBL gain approvals and move forward, it would be the first shopping center real estate investment trust in the U.S. to file for Chapter 11 bankruptcy amid the pandemic.
Stephen D. Lebovitz, CBL's chief executive officer, said the agreement with some lenders will improve the company's balance sheet and chances to succeed in the future.
He said the deal reduces debt, increases net cash flow, simplifies CBL's capital structure and provides more financial flexibility going forward.
"Once the process is complete, we will emerge as a stronger and more stable company ," Lebovitz said. "As a result, we will be better positioned to grow our business over the near and long term."
Chris Kuiper, vice president of equity research at the firm CFRA Research, said CBL had too much debt and not enough rent coming in to service it. He thinks the company won't be the last in the shopping center and retail sector to file bankruptcy.
"I could see a lot more," he said.
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CBL PORTFOLIO* 59 malls* 23 associated centers* 9 properties managed for others* 6 community centers* 6 office buildings* 5 outlet centers* Total: 108 propertiesSource: CBL Properties
Jim Campbell, chief investment officer and managing partner of Campbell Rooks Wealth Management in Chattanooga, said CBL's plan is "a significant start."
"The story will unfold over the next few months," he said. "It's in the early innings of a long baseball game."
According to CBL, it expects to file bankruptcy Oct. 1 at the latest under the plan.
Called a Restructuring Support Agreement (RSA), the plan sets out terms cutting nearly $900 million of debt and more than $600 million in other obligations including preferred stock.
The plan would cut $1.4 billion in principal of unsecured notes in exchange for the issuance of $500 million of new senior secured notes due June 2028. It also provides for about $50 million of cash and some 90% of the new common equity of the company going to holders of the unsecured notes, the company said.
Campbell said the plan is "a significant haircut for unsecured bondholders."
The company also said it intends to continue talks with its senior, secured lenders such as banks to reach an arrangement. CBL would amend the agreement to include those lenders, it said.
Without the secured lenders, Kuiper said, CBL may be forced to "go back to the drawing board."
But, he said, he imagines if there's any pushback among those lenders, it will be a negotiating ploy.
"It's in their best interest to negotiate," Kuiper said.
CBL shares continue to trade on the New York Stock Exchange. On Wednesday, the stock closed at 24.3 cents, up 0.0507 cents, or 26.3%.
Kuiper said the plan that calls for new common shares would extremely dilute the holdings of those with existing common equity and hit those with preferred stock as well.
According to the plan, CBL's top management structure including CEO Lebovitz, his father, Chairman and founder Charles Lebovitz, and his brother and President Michael Lebovitz, would enter into new executive employment agreements.
But a Securities and Exchange Commission filing said the company would not enter into an executive employment agreement with Charles Lebovitz under the plan. Still, Charles Lebovitz and others are included in a retention bonus award aimed at keeping key personnel during the restructuring process.
That award would be payable to each on the first payroll payment date after the later of Jan. 1, 2021, or the date on which the company emerges from the Chapter 11 reorganization, the filing said.
Company spokeswoman Stacey Keating said CBL doesn't anticipate changes in staffing at its properties or at the home office at CBL Center adjacent to Hamilton Place mall.
"This process will not have any impact on the day-to-day operations of the company or our properties," she said.
CBL employs about 250 people in Chattanooga and some 450 across the company, Keating said.
Earlier this summer, CBL said in an SEC filing there was "substantial doubt" it would continue to operate as a going concern.
Later, CBL elected not to make interest payments on some of its debt and started talks with the lenders after government-mandated lockdowns which hit the company's shopping centers and an array of retail closings.
In May, the company posted a first quarter net loss of $133.9 million, compared to a net loss of $50.2 million a year ago. Also in May, CBL reported it received just 27% of billed cash rents for April and its May collection rate likely would be in the 25% to 30% range.
But as rent collections improved, CBL earlier this month made two interest payments worth $30.4 million on some of its debt. CBL said then that the nonpayment of the interest no longer constituted an event of default under its bank credit agreement and its forbearance agreement with lenders was terminated.
Contact Mike Pare at mpare@timesfreepress.com. Follow him on Twitter @MikePareTFP.