Chattanooga mall company CBL eyes November bankrupty exit after plan wins court's OK

Staff File Photo by Matt Hamilton / Visitors enter Hamilton Place mall last month as shoppers took advantage of the first day of tax-free shopping.
Staff File Photo by Matt Hamilton / Visitors enter Hamilton Place mall last month as shoppers took advantage of the first day of tax-free shopping.

CBL Properties, one of the nation's biggest mall owners, cleared a major hurdle toward exiting bankruptcy protection when its reorganization plan won a judge's approval on Wednesday.

The Chattanooga-based builder and operator of shopping centers could emerge from bankruptcy the first part of November, according to the company.

That's exactly one year to the month after CBL filed for protection of the federal bankruptcy court when its revenues were hammered by coronavirus lock downs earlier in 2020.

The confirmation of the plan by U.S. Bankruptcy Court Judge David R. Jones in Houston erases more than $1.6 billion in debt. Bondholders are to receive 89% of the newly reorganized CBL and shareholders 11%.

Of that 11%, existing common and preferred stakeholders are to split the equity equally, according to the plan.

According to CBL, in exchange for $1.375 billion in principal amount of unsecured notes and $133 million in principal amount of the secured credit facility, consenting noteholders and others will receive $95 million in cash and $555 million of new senior secured notes.

Consenting noteholders also will provide up to $50 million of new money in exchange for additional convertible secured notes. The remaining bank lenders, holding $983.7 million in principal amount under a secured credit facility, will receive $100 million in cash and a new $883.7 million secured term loan, the company said.

Company Chief Executive Officer Stephen Lebovitz termed the approval "a huge milestone."

CBL shares traded over the counter rose Wednesday, up 10.62%, to close at 12.5 cents per share.

Farzana Khaleel, CBL's chief financial officer, said the business will emerge a stronger company.

She said CBL will "work hard to grow the company and create value."

Ray Schrock, an attorney representing CBL, said at the hearing that the plan saves thousands of jobs.

In addition to CBL, which employs about 500 people overall and 220 in Chattanooga, jobs will be preserved in the cities where its malls and shopping centers are located, he said.

The company operates Hamilton Place and Northgate malls in Chattanooga, among more than 100 centers across the country.

Schrock said the plan "will position them for the future."

Still, CBL faces headwinds as it tries to return to growth.

Alexander Goldfarb, a senior analyst for Piper Sandler, said he expects retail malls and shopping centers will continue to close.

"The successful centers will remain open," he said. "What you'll see is consolidation."

Malls take a lot of capital to fix up, Goldfarb said.

"If a mall loses its position in the marketplace, it starts to slip," he said. "Once it goes past a certain point, it's basically unsalvageable."

CBL officials have said they plan to bring new uses into its properties and broaden the mix of what its customers want.

At the hearing, Schrock told the judge that every voting class in the bankruptcy case had accepted the company's reorganization plan.

"Creditors support the company's path forward," the attorney said. "We've worked very hard behind the scenes to get to what is overwhelming support for these classes and a fully consensual restructuring transaction."

While CBL entered bankruptcy with the support of bondholders, the company's relationship with a group of bank lenders led by Wells Fargo "was not ideal," Schrock said.

"We worked hard to improve that," he said.

CBL had alleged Wells Fargo, acting as the agent for some of its lenders, forced the company to file for bankruptcy on an accelerated timeline last November and that the bank improperly contended that CBL defaulted on its debt.

A trial over the issue had begun in U.S. Bankruptcy Court earlier this year, but an agreement between the parties ended that litigation.

On Wednesday, the judge overruled objections by a group of preferred shareholders who complained they should be given priority over common shareholders.

Jones said that more than 95% of preferred shareholders had voted to accept the plan and that it doesn't discriminate unfairly.

"We went down a couple of rough patches early in the case," he said, adding there's the question what happens to businesses and communities where CBL has real estate.

The judge said the plan is "something everybody could live with. It moves the process forward so we do save jobs."

Contact Mike Pare at mpare@timesfreepress.com or 423-757-6318.

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