CBL & Associates Properties, Inc – Leading Mall Operator Files Plan and Disclosure Statement

December 29, 2020 – The Debtors filed their Chapter 11 Plan of Reorganization and a related Disclosure Statement [Docket Nos. 370 and 371, respectively], and further filed a motion requesting Court approval of (i) the Disclosure Statement, (ii) proposed Plan solicitation and voting procedures and (iii) a proposed timetable culminating in a Plan confirmation hearing no later than April 30, 2021 [Docket No. 372].

On November 1, 2020, CBL & Associates Properties, Inc and 176 affiliated Debtors (NYSE: CBL; “CBL” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $1.0bn and $10.0bn and estimated liabilities between $1.0bn and $10.0bn and citing "recent struggles of the Company’s tenants and the headwinds facing the retail market generally." 

Plan Overview

In a press release announcing the filing, the Debtors advised that: “The Company intends to use the Chapter 11 process to implement terms outlined in the Restructuring Support Agreement (the 'RSA') that it entered into on August 18, 2020, with certain beneficial owners and/or investment advisors or managers of discretionary funds, accounts, or other entities (the 'noteholders') representing in excess of 62% (including joinders) of the aggregate principal amount of the Operating Partnership’s 5.25% senior unsecured notes due 2023 (the '2023 Notes'), the Operating Partnership’s 4.60% senior unsecured notes due 2024 (the '2024 Notes') and the Operating Partnership’s 5.95% senior unsecured notes due 2026 (the '2026 Notes' and together with the 2023 Notes and the 2024 Notes, the 'Unsecured Notes').

The RSA contemplates agreed-upon terms of a pre-arranged comprehensive restructuring of the Company’s balance sheet (the 'Plan').  The Plan will provide the Company with a significantly stronger balance sheet by reducing total debt and preferred obligations by approximately $1.5 billion, extending debt maturities and increasing liquidity while maintaining operational consistency. 

As of September 30, 2020, CBL had approximately $258.3 million in unrestricted cash on hand and available-for-sale securities. The Company’s cash position, combined with the positive cash flow generated by ongoing operations, is expected to be sufficient to meet CBL’s operational and restructuring needs."

The Disclosure Statement notes: “The Plan provides for a comprehensive restructuring of the Company’s balance sheet. Specifically, the proposed restructuring embodied in the Plan contemplates, among other things:

• The following treatment of holders of Claims and Interests:
  • Each holder of an Allowed Bank Lender Secured Claim will receive such holder’s Pro Rata share of the Bank Lender Secured Claim Exit Credit Facility Distribution
  • Each holder of an Allowed Consenting Crossholder Secured claim will receive such holder’s Pro Rata Share of the Consenting Crossholder Secured Claims Recovery Pool.
  • Each holder of an Allowed Bank Lender Deficiency Claim will receive (i) its Pro Rata share of the Bank Lender Deficiency Claim Exit Credit Facility Distribution and (ii) solely in the event that the Bankruptcy Court determines that the holders of Bank Lender Deficiency Claims are entitled to an additional recovery to confirm the Plan, its Pro Rata share of the Bank Lender Deficiency Claims Equity Distribution, subject to dilution by the Warrants, the Management Incentive Plan and subsequent issuances of common equity (including securities or instruments convertible into common equity) by the REIT from time to time after the Effective Date.
  • Each holder of an Allowed Consenting Crossholder Deficiency Claim will receive its Pro Rata share of the Consenting Crossholder Deficiency Claims Recovery Pool, which shall be subject to dilution by the Warrants, the Management Incentive Plan and subsequent issuances of common equity (including securities or instruments convertible into common equity) by the REIT from time to time after the Effective Date
  • [Except to the extent that a holder of a Senior Unsecured Notes Claim exercises the Senior Unsecured Notes Claim Election,] each holder of an Allowed Senior Unsecured Notes Claim will receive its Pro Rata share of: (i) the Senior Unsecured Notes New Preferred Stock Distribution; and (ii) the Senior Unsecured Notes Claim New Common Stock Distribution, subject to dilution by the Warrants, the Management Incentive Plan and subsequent issuances of common equity (including securities or instruments convertible into common equity) by the REIT from time to time after the Effective Date.
  • Each holder of an Allowed Ongoing Trade Claim will receive, at the Debtors’ election (with the consent of the Required Consenting Noteholders, such consent not to be unreasonably withheld), either: (i) payment in full in Cash; (ii) payment in the ordinary course of business as if the Chapter 11 Cases had never been commenced; or (iii) such other treatment rendering such holder’s Allowed Ongoing Trade Claim Unimpaired.
  • Each holder of an Allowed General Unsecured Claim will receive [TBD].
  • If Classes 12, 13, and 14 are each Accepting Classes, each holder of an Existing LP Common Unit will be, at the election of the Debtors with the reasonable consent of the Required Consenting Noteholders, shall either (i) receive its Pro Rata share of (x) the New LP Units and (y) [●]% of the Warrants or (ii) deemed to have converted or redeemed, as applicable, such holder’s Existing LP Common Units, effective the day prior to the Distribution Record Date, in exchange for Existing REIT Common Stock on terms consistent with the applicable prepetition agreements for the Existing LP Common Units, thereby receiving such treatment as if such holder owned Existing REIT Common Stock on the Distribution Record Date.
  • If Classes 12, 13, and 14 are each Accepting Classes, each holder of Allowed Existing REIT Preferred Stock will receive its Pro Rata share of (i) [●]% of the New Common Stock and (ii) [●]% of the Warrants, each subject to dilution by the Warrants, the Management Incentive Plan and subsequent issuances of common equity (including securities or instruments convertible into common equity) by the REIT from time to time after the Effective Date.
  • If Classes 12, 13, and 14 are each Accepting Classes, each holder of Allowed Existing REIT Common Stock will receive its Pro Rata share of (i) [●]% of the New Common Stock and (ii) [●]% of the Warrants, each subject to dilution by the Warrants, the Management Incentive Plan and subsequent issuances of common equity (including securities or instruments convertible into common equity) by the REIT from time to time after the Effective Date.
• On the Effective Date, the First Lien Credit Agreement will be replaced by a new credit facility in an aggregate principal amount of up to $[950] million (the “Exit Credit Facility”) pursuant to the terms set forth in that certain exit credit facility term sheet (the “Exit Credit Facility Term Sheet”), dated as of the Effective Date, a copy of which is attached to the Plan as Exhibit D.
• The Restructuring will leave the Debtors’ operations and business intact and Property Level Debt (as defined herein) will not be impaired by the Restructuring.

The Debtors believe that the Restructuring contemplated by the Plan provides the Company with a viable path forward and a framework to successfully exit chapter 11 in a timely fashion with the support of the Consenting Noteholders. As described more fully herein, the restructuring will reduce the Company’s funded indebtedness by approximately $1.54 billion, and annual interest expenses by approximately $108 million. This deleveraging will enhance the Debtors’ long-term growth prospects and competitive position and will provide the Debtors with excess capital to invest in and grow their businesses. The Restructuring will, therefore, allow the Debtors to emerge from the Chapter 11 Cases as a stronger company, better positioned to withstand the challenges and volatility of the real estate industry and retail market. Importantly, the Company is not currently seeking to modify or impair the Property Level Debt (as defined herein) or to make operational changes to the business, and that debt is not currently the subject of these Chapter 11 Cases. The Consenting Noteholders have played a critically important role in formulating the Restructuring and actively participated in the development and negotiation of the Plan.

The effect of the Restructuring on the Operating Partnership’s (as defined below) funded indebtedness is summarized as follows:

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):

• Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
• Class 3 (“Bank Lender Secured Claims”) is impaired and entitled to vote on the Plan. The estimated recovery is 100%. Each Holder shall receive its pro rata share of the Bank Lender Secured Claim Exit Credit Facility Distribution, ie "loans under the Exit Credit Facility in an aggregate amount equal to the Bank Lender Secured Claim Amount."
• Class 4 (“Consenting”) is impaired and entitled to vote on the Plan. The estimated recovery is [●]%. Each Holder shall receive pro rata share of the Consenting Crossholder Secured Claims Recovery Pool (ie "a combination of consideration (as agreed upon by the Debtors, the Required Consenting Noteholders, and the Consenting Crossholders) consisting of (i) New Preferred Stock and (ii) Cash, which, in the aggregate, shall equal 95% of the Consenting Crossholder Secured Claim Amount.").
• Class 5 (“Bank Lender Deficiency Claims”) is impaired and entitled to vote on the Plan. The estimated recovery is [●]%. Each Holder shall receive: (i) its Pro Rata share of the Bank Lender Deficiency Claim Exit Credit Facility Distribution; and (ii) solely in the event that the Bankruptcy Court determines that the holders of Bank Lender Deficiency Claims are entitled to an additional recovery to confirm the Plan, its Pro Rata share of the Bank Lender Deficiency Claims Equity Distribution ("means any recovery that is required by the Bankruptcy Court to be received by the holders of the Bank Lender Deficiency Claims in addition to the Bank Lender Deficiency Claim Exit Facility Distribution, which recovery shall be in the form of New Preferred Stock and/or New Common Stock"), subject to dilution by the Management Incentive Plan and subsequent issuances of common equity (including securities or instruments convertible into common equity) by the REIT from time to time after the Effective Date.
• Class 6 (“Consenting Crossholder Deficiency Claims”) is impaired and entitled to vote on the Plan. The estimated recovery is [●]%. Each Holder shall receive as less favorable treatment in respect of its Consenting Crossholder Deficiency Claims than the Bank Lender Deficiency Claims, its Pro Rata share of the Consenting Crossholder Deficiency Claims Recovery Pool (ie, "New Common Stock in an amount sufficient to provide a percentage recovery to holders of Consenting Crossholder Deficiency Claims equal to the percentage recovery received by holders of the Bank Lender Deficiency Claims"), which shall be subject to dilution by the Warrants, the Management Incentive Plan, and subsequent issuances of common equity (including securities or instruments convertible into common equity) by the REIT from time to time after the Effective Date, as set forth herein.
• Class 7 (“Senior Unsecured Notes Claims”) is impaired and entitled to vote on the Plan. The estimated recovery is [●]%. Each Holder shall receive its pro rata share of: (i) the Senior Unsecured Notes New Preferred Stock Distribution (ie, "the New Preferred Stock less any New Preferred Stock included in (i) the Consenting Crossholders Secured Claims Recovery Pool and (ii) the Bank Lender Deficiency Claims Equity Distribution, if applicable"); and (ii) the Senior Unsecured Notes New Common Stock Distribution (ie, "shares of New Common Stock equal to (i) 90% of the sum of (a) shares of New Common Stock distributed on the Effective Date plus (b) New LP Units issued on the Effective Date (other than any New LP Units issued directly or indirectly to the Reorganized REIT) less (ii) any New Common Stock included in (x) the Consenting Crossholder Deficiency Claims Recovery Pool and (y) the Bank Lender Deficiency Claims Equity Distribution, if applicable"), subject to dilution by the Warrants, the Management Incentive Plan, and subsequent issuances of common equity (including securities or instruments convertible into common equity) by the REIT from time to time after the Effective Date.
• Class 8 (“Ongoing Trade Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
• Class 9 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The estimated recovery is [●]%. Each Holder shall receive: [TBD]
• Class 10 (“Intercompany Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is [●]%.
• Class 11 (“Existing LP Preferred Units”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%.
• Class 12 (“Existing LP Common Units”) is impaired and entitled to vote on the Plan. The estimated recovery is [●]%. Treatment: If each of Class 12, 13, and 14 is an Accepting Class, on the Effective Date, at the election of the Debtors with the reasonable consent of the Required Consenting Noteholders, each holder of an Existing LP Common Unit shall either (i) receive its Pro Rata share of (y) the New LP Units and (z) [●]% of the Warrants or (ii) be deemed to have converted or redeemed, as applicable, such holder’s Existing LP Common Unit(s), effective the day prior to the Distribution Record Date, in exchange for Existing REIT Common Stock on terms consistent with the applicable prepetition agreements for the Existing LP Common Units, thereby receiving such treatment as if such holder owned Existing REIT Common Stock on the Distribution Record Date. If either Class 12, 13, or 14 is not an Accepting Class, each holder of an Allowed Existing LP Common Unit shall not receive or retain any distribution on account of such Interest.
• Class 13 (“Existing REIT Preferred Stock”) is impaired and entitled to vote on the Plan. The estimated recovery is [●]%. Treatment: If each of Class 12, 13, and 14 is an Accepting Class, on the Effective Date, or as soon as reasonably practicable thereafter, each holder of Allowed Existing REIT Preferred Stock shall receive, in full and final satisfaction of such Interest, such holder’s Pro Rata share of (i) [●]% of the New Common Stock and (ii) [●]% of the Warrants, each subject to dilution by the Warrants, the Management Incentive Plan, and subsequent issuances of common equity (including securities or instruments convertible into common equity) by the REIT from time to time after the Effective Date, as set forth herein. If either Class 12, 13, or 14 is not an Accepting Class, each holder of Allowed Existing REIT Preferred Stock shall not receive or retain any distribution on account of such Interest.
• Class 14 (“Existing REIT Common Stock”) is impaired and entitled to vote on the Plan. The estimated recovery is [●]%. Treatment: If each of Class 12, 13, and 14 is an Accepting Class, each holder of Allowed Existing REIT Common Stock shall receive, on the Effective Date, or as soon as reasonably practicable thereafter, in full and final satisfaction of such Interest, such holder’s Pro Rata share of (i) [●]% of the New Common Stock and (ii) [●]% of the Warrants, each subject to dilution by the Warrants, the Management Incentive Plan, and subsequent issuances of common equity (including securities or instruments convertible into common equity) by the REIT from time to time after the Effective Date, as set forth herein. If either Class 12, 13, or 14 is not an Accepting Class, each holder of Allowed Existing REIT Common Stock shall not receive or retain any distribution on account of such Interest.
• Class 15 (“Intercompany Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
• Class 16 (“Section 510(b) Claims”) is impaired and entitled to vote on the Plan. The estimated recovery is [●]%. Treatment: Holders Claims shall be cancelled, released, discharged, and extinguished as of the Effective Date and shall be of no further force or effect, and holders of Section 510(b) Claims shall receive New Common Stock in an amount sufficient to provide such holder a percentage recovery equal to the percentage recovery provided to holders of Existing REIT Common Stock pursuant to the Plan.

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Renzi Declaration”), Mark A. Renzi, a Managing Director at financial advisors Berkeley, summarized the debtors slide into bankruptcy provides: “Despite enjoying many years of steady growth and forging strong relationships with prominent nationally-recognized tenants across numerous retail sectors, the Company’s recent performance has been acutely impacted by the recent struggles of the Company’s tenants and the headwinds facing the retail market generally. Retailers’ struggles, and, consequently, their ability to keep their stores open and satisfy their rent obligations, have been compounded by the COVID-19 pandemic and the resulting shut down orders and other restrictions imposed by state and local authorities. Indeed, in 2020 alone, more than 30 of the Company’s retail tenants have commenced their own chapter 11 cases, some of which have closed—or are in the process of closing—stores at the Company’s properties, resulting in significant loss of rental revenue to the Company. Further, the Company has provided rent deferrals and other concessions to their tenants to mitigate the impact of the pandemic and the challenging economic conditions in the retail market on the Company’s revenue. 

To best position the Company to navigate the current economic environment and to ensure its long term growth and success, CBL must de-lever its balance sheet. In addition to approximately $2.0 billion of Property Level Debt, the Company has approximately $2.5 billion in outstanding parent-level funded indebtedness—approximately $1.1 billion outstanding under the First Lien Credit Facility and $1.375 billion of Senior Unsecured Notes. Given the current economic climate, the Company’s capital structure is simply unsustainable."

Pushing beyond the obvious impact of COVID-19, Renzi provides further background on the more interesting issues preceeding (and inevitably outlasting) COVID-19: "CBL, as a national retail landlord, is susceptible to changes in the retail real estate markets. 

Over the past several years, the brick-and-mortar retail industry has been shifting, with the closing of brick-and-mortal retail stores becoming more common as shoppers have increasingly moved towards e-commerce. The Company anticipates that the number of traditional department stores, like those acting as Anchors or Junior Anchors in the Malls, will decline over time. Beyond the decline in number, the market share of traditional department stores is declining, as is their ability to drive traffic.

As new technologies emerge, the relationships between customers, retailers, and shopping centers are evolving on a rapid basis. Commercial landlords like CBL must invest in strategic technology to enhance the mall experience, which may not necessarily be feasible despite the potential benefits. Additionally, a small but increasing number of tenants utilize the Malls as showrooms or as part of an omni-channel strategy (allowing customers to shop seamlessly through various sales channels, where customers’ sales occur outside the Malls). As a result, customers may make purchases through other sales channels during or immediately after visiting the Malls, with such sales not being captured currently in the Company’s sales figures or monetized in minimum or overage rents.

The Company also faces significant competition in the retail leasing business. The Company competes with other major real estate investors with significant capital for attractive investment opportunities. These competitors include other real estate investment trusts, investment banking firms, and private and institutional investors, some of whom have greater financial resources or have different investment criteria than the Company does. In particular, there is competition to acquire, develop, or redevelop highly productive retail properties, which become even more severe as competitors gain size and economies of scale as a result of merger and consolidation activity. 

There is also an emerging trend of more tenants moving to gross leases, which provide that the tenant pays a single specific amount, with no additional payments for reimbursements of the tenant’s portion of the operating expenses. CBL is then responsible for any increases in operating expenses but benefits from any decreases in operating expenses. This change leads to more predictable revenue but less predictable expenses."

Exhibits attached to the Disclosure Statement [Docket No. 371]:

• Exhibit A: Plan
• Exhibit B: Organizational Chart
• Exhibit C: Restructuring Support Agreement
• Exhibit D: Liquidation Analysis (to be filed)
• Exhibit E: Financial Projections (to be filed)
• Exhibit F: Valuation Analysis (to be filed)

Key Dates

• Debtors to file revised Plan and Disclosure Statement: January 21, 2021
• Disclosure Statement Hearing: February 5, 2021
• Voting Deadline: TBD
• Plan Objection Deadline: TBD, but not later than seven (7) days before the Confirmation Hearing
• Confirmation Hearing: TBD, but not later than April 30, 2021

About the Debtors

According to the Debtors: “Headquartered in Chattanooga, TN, CBL Properties owns and manages a national portfolio of market-dominant properties located in dynamic and growing communities. CBL’s portfolio is comprised of 107 properties totaling 66.7 million square feet across 26 states, including 65 high‑quality enclosed, outlet and open-air retail centers and 8 properties managed for third parties. CBL seeks to continuously strengthen its company and portfolio through active management, aggressive leasing and profitable reinvestment in its properties. 

Simplified Corporate Structure (see the Renzi Declaration for the multi-paged full corporate structure)

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