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Washington Prime Group Inc. – Absent Any Qualified Bids in Excess of Daunting $2.3bn (Cash) Minimum Bid Threshold, Cancels Auction and Will Now Seek Confirmation of Equitization Restructuring

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August 5, 2021 – Further to a July 8th bidding procedures order [Docket No. 289] and absent the receipt of any qualified bids by an August 4th bid deadline, the Debtors notified the Court that had cancelled a scheduled August 6th auction. With asset sale aspirations effectively concluded, the Debtors will now "proceed to seek confirmation of the Equitization Restructuring" [Docket No. 773].

As pointed out in a July 7th objection filed by an ad hoc committee of preferred shareholders (the “Ad Hoc Committee”) [Docket No. 237], the prospect for a genuine sale process was always questionable, given the requirement that any qualified bid "provide for the payment in full in Cash of the Debtors’ secured and unsecured bank debt, unsecured notes, administrative claims" (ie, at least $2.3bn in cash).

The Ad Hoc Committee argued unsuccessfully that proposed bidding procedures should be adopted without a "$2.3 billion cash hurdle" and that the Debtors' rushed sales process was "merely a device to attain the fait accompli contemplated by Restructuring Support Agreement’s (‘RSA’) of enabling a small group of four debt holders to wipe out existing equity while, at the same time, siphoning off the residual value of a company that appears likely to have been solvent as of the petition date and is positioned to benefit from a continuing broad economic recovery." 

That cash hurdle, ie a minimum of $2.3bn of cash in any competing bid, was particularly irksome given that Plan Sponsor SVPGlobal wass "deemed a ‘Qualified Bidder’ even though its ‘Qualified Bid’ pays no more than $325 million in cash and instead is primarily comprised of reinstating and assuming debts." 

General Background

On June 13th Washington Prime Group Inc. and 88 affiliated Debtors (NYSE: WPG; “WPG” or the “Debtors”) filed for Chapter 11 protection noting estimated assets of $4,028,916,000 (as at March 31, 2021); and estimated liabilities of $3,470,908,000 (as at March 31, 2021 with reference to $3.872bn of funded debt at Petition date). At filing, the Debtors, already struggling with the "seismic shift in the retail landscape" away from brick-and-mortar retail stores to online alternatives, noted that COVID had brought "in-store customer activity to a grinding halt."

Also on June 13th, the Debtors announced that they had entered into a restructuring support agreement (the "RSA") with (i) Strategic Value Partners, LLC ("SVPGlobal" or the “Plan Sponsor”), (ii) the holders of at least 66.7% of the aggregate principal amount of the Unsecured Notes, (iii) the holders of 100% of the aggregate principal amount of the Weberstown Term Loan Facility Claims, and (iv) the holders of at least 71.5% of the aggregate principal amount of the Revolving and Term Loan Facilities claims.

The Debtors do not provide detail as to SVPGlobals' debt holdings or when that debt was acquired, noting that negotiations with SVP Global began in February 2021 after an effort at an out-of-court restructuring failed in December 2020 and the Debtors' decision to defer the payment of interest on unsecured notes. A Court filing notes: "Shortly thereafter, the Debtors began to negotiate the terms of a comprehensive restructuring transaction with a crossover holder of their corporate-level bank debt and unsecured notes, SVPGlobal ('SVP')."

Plan Overview

The Disclosure Statement [Docket No. 339] reads: “After extensive hard-fought, arm’s-length negotiations, the Debtors and Consenting Stakeholders entered into a restructuring support agreement on June 11, 2021, (as may be further amended, supplemented, or modified from time to time, the ‘Restructuring Support Agreement’), attached hereto as Exhibit C, prior to filing voluntary petitions under chapter 11 of title 11 of the United States Code (the ‘Bankruptcy Code’) in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the ‘Bankruptcy Court’). The Consenting Stakeholders are Holders of at least 74.5% of the aggregate principal amount of the 2018 Credit Facility Claims, Holders of at least 62% of the aggregate principal amount of the 2015 Credit Facility Claims, Holders of 100% of the aggregate principal amount of the Weberstown Term Loan Facility Claims, and Holders of at least 66.67% [footnote notes this now at 70% level] of the aggregate principal amount of the Unsecured Notes Claims.

The Restructuring Support Agreement provides for two paths toward a consensual resolution of these chapter 11 cases, each of which is encompassed in the Plan. The first path is the Equitization Restructuring, which is a comprehensive restructuring pursuant to which the equity of Reorganized WPG will be issued to existing shareholders, Unsecured Noteholders (on account of their Claims), and Unsecured Noteholders, and Backstop Parties that participate in an Equity Rights Offering. The Equitization Restructuring is anchored by the Plan Sponsor’s [the “Plan Sponsor” is Strategic Value Partners, LLC and its affiliated funds (or “SVP”), in their capacity as holders of  2015 Credit Facility  Claims, 2018 Credit Facility Claims, Weberstown Facility Claims, and Unsecured Notes Claims] commitment to equitize its Unsecured Notes Claims and backstop a $325 million rights offering, and the agreement of both the Plan Sponsor and Ad Hoc Lender Group to accept takeback paper in satisfaction of the bulk of the credit facilities claims.

In addition, a key component of the Restructuring Support Agreement and Plan is [or rather, was] a ‘toggle’ feature, allowing the Debtors to seek an alternative value-maximizing transaction that would repay, in full in Cash, all of the Company’s corporate-level debt. Specifically, the Debtors will use the 60 days following the Petition Date to solicit proposals for such an alternative transaction, continuing the comprehensive marketing process that began prepetition. If such a proposal is received, and it provides a distribution to the Debtors’ Existing Equity Interests in excess of what is provided for under the Equitization Restructuring, the Debtors are able to toggle to, and then effectuate, the Toggle Restructuring. Notably, to ensure a robust marketing process on the timeline proposed in the Bidding Procedures Motion, the Debtors, with the assistance of their proposed investment backer, Guggenheim Securities, LLC (‘Guggenheim Securities’), and their other advisors, have conducted outreach to a broad group of relevant strategic and financial parties and have been in discussions with several potentially interested parties for nearly one month.

Notably, to ensure a robust marketing process on the timeline approved in the Bidding Procedures Order, the Debtors, with the assistance of their proposed investment backer, Guggenheim Securities, LLC (“Guggenheim Securities”), and their other advisors, have conducted outreach to a broad group of relevant strategic and financial parties and have been in discussions with several potentially interested parties for nearly one month prior to the Petition Date and during these Chapter 11 Cases.”

The Disclosure Statement adds: “

The Equitization Restructuring

The Equitization Restructuring contemplates (1) a full equitization of the Unsecured Notes in exchange for the majority of the equity in Reorganized WPG, (2) an Equity Rights Offering available to Holders of the Unsecured Notes to pay down the DIP Facility and fund emergence costs, (3) a partial paydown of the 2018 Credit Facility Claims, 2015 Credit Facility Claims, and Weberstown Term Loan Facility Claims, with the remainder of these Claims satisfied through takeback secured debt on terms acceptable to the Consenting Stakeholders, (4) unimpaired treatment for Holders of General Unsecured Claims, and (5) a recovery in the form of Cash or New Common Equity for Holders of Existing Preferred Equity Interests and Existing Common Equity Interests.

As part of the Equitization Restructuring, the Debtors will conduct an Equity Rights Offering to raise up to $325 million in cash. Eligible Holders of Unsecured Notes Claims are entitled to purchase their Pro Rata share of 50% of the Equity Rights at 32.5% discount to Set-Up Equity Value of $800 million. Proceeds from the Equity Rights Offering will be utilized to satisfy the DIP Facility Claims in Cash in full, fund emergence costs, and fund the cash payments to Holders of Allowed Existing Equity Interests. If the maximum amount of $325 million is raised, the New Common Equity issued pursuant to the Equity Rights Offering will represent 60.2% of the New Common Equity on the Effective Date, subject to dilution by the Management Incentive Plan. The Plan Sponsor and its related funds have agreed to backstop 100% of the Equity Rights Offering.

The Equitization Restructuring is intended to shed approximately $950 million in secured and unsecured funded debt and provides a meaningful recovery for equity holders. The Plan treatment for each Class of Claims and Interests in an Equitization Restructuring is as follows:

  • Revolving and Term Loan Facility Claims. Each Holder of Revolving and Term Loan Facilities Claims shall receive in an Equitization Restructuring its Pro Rata share of (i) $1,187 million, plus the Elective Exit Loan Amount attributable to the Revolving and Term Loan Facilities Claims, if any, in principal amount of loans under the New Term Loan Exit Facility, and (ii) the Revolving and Term Loan Facilities Cash Pool (i.e., $150 million plus Cash in the amount of certain additional accrued and unpaid amounts specified in the Plan);
  • Weberstown Term Loan Facility Claims. Each Holder of Weberstown Term Loan Facility Claims shall receive in the Equitization Restructuring its Pro Rata share of (i) $25 million, plus the Elective Exit Loan Amount attributable to the Weberstown Term Loan Facility Claims, if any, in principal amount of loans under the New Term Loan Exit Facility and (ii) the Weberstown Cash Pool (i.e., $40 million plus Cash in the amount of certain additional accrued and unpaid amounts specified in the Plan);
  • Unsecured Notes Claims. Each Holder of Unsecured Notes Claims shall receive if the Equitization Restructuring occurs its Pro Rata share of (i) 100% of the New Common Equity, less any New Common Equity distributed to Holders of Existing Equity Interests pursuant to the Equity Options and subject to dilution on account of the Management Incentive Plan, Backstop Equity Premium, and the Equity Rights Offering and (ii) the Unsecured Noteholder Rights (i.e., the right to purchase their Pro Rata share of 50% of the New Common Equity offered in the Equity Rights Offering, as specified in the Plan);
  • Property-Level Mortgage Guarantee Claims: Each Holder of Property-Level Mortgage Guarantee Claims shall receive, at the option of the applicable Debtor(s) (i) Reinstatement, or (ii) such other treatment reasonably acceptable to the Plan Sponsor rendering such PropertyLevel Mortgage Guarantee Claim Unimpaired in accordance with section 1124 of the Bankruptcy Code;
  • General Unsecured Claims. Each Holder of General Unsecured Claims shall receive, at the option of the applicable Debtor, (i) payment in full in Cash, (ii) Reinstatement, or (iii) such other treatment reasonably acceptable to the Plan Sponsor rendering such General Unsecured Claim Unimpaired in accordance with section 1124 of the Bankruptcy Code;
  • Existing Preferred Equity Interests. Each Holder of Existing Preferred Equity Interests shall receive (i) if Class 10 votes in favor of the Plan, such Holder’s Pro Rata share of the (A) Preferred Equity Cash Pool (i.e., $40 million or $20 million if Class 11 votes to accept the Plan) or (B) if such Holder is an Eligible Election Participant, and such Holder elects the Preferred Equity Option, such Holder’s Pro Rata share of the Preferred Equity Equity Pool in lieu of the distribution pursuant to the Preferred Equity Cash Pool11; or (ii) if Class 10 votes to reject the Plan, each Holder of Existing Preferred Equity Interests shall not receive any distribution on account of such Interests, which will be canceled, released, and extinguished as of the Effective Date, and will be of no further force or effect; and
  • Existing Common Equity Interests. Each Holder of Existing Common Equity Interests shall receive in an Equitization Restructuring (i) if Holders of Existing Preferred Equity Interests and Existing Common Equity Interests in their respective Classes both vote in favor of the Plan, such Holder’s Pro Rata share of the (A) Common Equity Cash Pool (i.e., $20 million) or (B) if such Holder is an Eligible Election Participant, and such Holder elects the Common Equity Option, such Holder’s Pro Rata share of the Common Equity Equity Pool in lieu of the distribution pursuant to the Common Equity Cash Pool12; or (ii) if Holders of Existing Preferred Equity Interests and Existing Common Equity Interests in their respective Classes, vote to reject the Plan, Holders of Existing Common Equity Interests shall not receive any distribution on account of such Interests, which will be canceled, released, and extinguished as of the Effective Date, and will be of no further force or effect.

The Toggle Restructuring

Pursuant to the Restructuring Support Agreement, Plan, and Bidding Procedures (as defined in the Bidding Procedures Motion), the Debtors are continuing their prepetition marketing process to determine whether a higher offer or combination of offers for either the Debtors’ assets or a valuemaximizing plan sponsor recapitalization proposal is available. Because the Debtors’ process is ongoing, the form and structure of the transaction underlying the Toggle Restructuring is currently unknown. The only condition to electing the Toggle Restructuring, however, is known—an Acceptable Alternative Restructuring Proposal must be received. An Acceptable Alternative Restructuring Proposal must provide for payment in full in Cash of the DIP Facility and all senior debt (including pre- and postpetition default base rate interest) claims, Administrative Claims (including professional fees of Debtor advisors and advisors to the Plan Sponsor and the Ad Hoc Lender Group), the DIP Facility, General Unsecured Claims, and the Backstop Base Premium, plus a recovery for the Debtors’ Existing Equity Interests in excess of what is provided for under the Equitization Restructuring. This is the case regardless of whether Holders of Claims or Interests vote to reject the Plan, as such Holders will be entitled to the Toggle Restructuring Distributable Proceeds in the order of priority under the Bankruptcy Code. Therefore, stakeholders only stand to see their recoveries improve or maintain if a Toggle Restructuring is implemented.

On the Petition Date, the Debtors filed the Bidding Procedures Motion to approve the Bidding Procedures to use as part of the postpetition marketing process to obtain an Acceptable Alternative Restructuring Proposal. The Debtors were actively engaged in discussions and diligence efforts with certain strategic and financial third parties prior to the Petition Date. That process will continue postpetition pursuant to the bidding process, as the Debtors, with the assistance of their advisors, are engaging with parties to determine whether a value-maximizing Toggle Restructuring option exists. The Bidding Procedures formalize the marketing timeline, requiring formal bids on or before August 4, 2021, at 4:00 p.m., prevailing Central Time. If necessary, the Debtors will hold an auction on August 6, 2021, at 9:00 a.m., prevailing Central Time.

If the Debtors secure a committed and binding offer before August 12, 2021, i.e., the Confirmation Order Milestone (as defined in the Restructuring Support Agreement), and deliver a Toggle Election Notice to the Plan Sponsor, the Debtors will have until August 26, 2021, to confirm the Plan implementing such Acceptable Alternative Restructuring Proposal through the Toggle Restructuring and then, no later than fifteen (15) days after entry of a Confirmation Order, the Effective Date of the Plan must occur. The Plan Sponsor will be entitled to a $27.5 million Backstop Base Premium (subject to the Bankruptcy Court’s approval) if the Toggle Restructuring is effectuated unless the Plan Sponsor is in breach of the Restructuring Support Agreement. The Debtors believe that this dual-track path towards a holistic restructuring allows the Debtors to maximize value for the estates.”

Below is a chart that summarizes the treatment of Holders of Existing Preferred Equity Interests and Existing Common Equity Interests depending on whether Class 10 and Class 11 vote to accept or reject the Plan under the Toggle Restructuring.

Table

Description automatically generated with medium confidence

Bidding Procedures Background 

The bidding procedures motion noted that the Debtors’ to-be-filed Plan will be based on two potential paths to restructuring, comprised of an equitization restructuring or an “alternative value-maximizing restructuring,” via a sale if bids are received “that may exceed the value provided by the Equitization Restructuring.”

However, in addition to providing a recovery for equity holders exceeding the equitization transaction value, a decision to toggle to the sale option would also require bids or proposals “that provide for the payment in full in Cash of the Debtors’ secured and unsecured bank debt, unsecured notes, administrative claims (including professional fees of Debtor advisors and advisors to the Plan Sponsor and the Ad Hoc Lender Group), the DIP Facility, general unsecured claims and the Backstop Base Premium.”

However, in addition to providing a recovery for equity holders exceeding the equitization transaction value, a decision to toggle to the sale option would also require bids or proposals "that provide for the payment in full in Cash of the Debtors’ secured and unsecured bank debt, unsecured notes, administrative claims (including professional fees of Debtor advisors and advisors to the Plan Sponsor and the Ad Hoc Lender Group), the DIP Facility, general unsecured claims and the Backstop Base Premium."

To accomplish that value goal, the motion notes that qualified bids must provide for payment in full in cash of at least approximately $2.3bn to meet certain of those payment obligations, as well as payment in full in Cash or the assumption or reinstatement of other liabilities, including for any or all non-Debtor Assets and liabilities, plus all General Unsecured Claims; additional value in an amount not less than the value of either Cash or New Common Equity provided to Holders of Existing Equity Interests under the Equitization Restructuring, as compared to Cash or non-Cash consideration provided to Holders of Existing Equity Interests under the Bid; and an initial Overbid providing incremental value in Cash or non-Cash consideration of at least $2,500,000.

The following is an updated summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement; see also the Liquidation Analysis below):

  • Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0mn and expected recovery is 100%.
  • Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0mn and expected recovery is 100%.
  • Class 3 [Reserved]
  • Class 4A (“Revolving and Term Loan Facilities Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $1,337mn and expected recovery is 100%. Each Holder of an Allowed Revolving and Term Loan Facilities Claim shall receive, on the Effective Date (i) if the Equitization Restructuring occurs, its Pro Rata share of (A) $1,187,000,000 plus the Elective Exit Loan Amount attributable to the Revolving and Term Loan Facilities Claims, if any, in principal amount of loans under the New Term Loan Exit Facility, and (B) the Revolving and Term Loan Facilities Cash Pool; or (ii) if the Toggle Restructuring occurs, the Allowed Amount of such Holder’s Claim in Cash (including postpetition interest at the applicable default base rates set forth in the applicable Revolving and Term Loan Credit Agreement for the entire postpetition period, which interest shall be Allowed).
  • Class 4B (“Weberstown Term Loan Facility Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $65mn and expected recovery is 100%. Each Holder of an Allowed Weberstown Term Loan Facility Claim shall receive, on the Effective Date or as soon as reasonably practicable thereafter (i) if the Equitization Restructuring occurs, its Pro Rata share of (A) of $25,000,000 plus the Elective Exit Loan Amount attributable to the Weberstown Term Loan Facility Claims, if any, in principal amount of loans under the New Term Loan Exit Facility, and (B) the Weberstown Cash Pool; or (ii) if the Toggle Restructuring occurs, the Allowed Amount of such Holder’s Claim in Cash (including postpetition interest at the default base rate as set forth in the Weberstown Term Loan Agreement for the entire postpetition period, which interest shall be Allowed).
  • Class 5 (“Unsecured Notes Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $720.9mn and $39.0mn of accrued and unpaid interest and expected recovery is 41.8% – 46.5%. Each Allowed Unsecured Notes Claim, each Holder of an Allowed Unsecured Notes Claim shall receive: (i) if the Equitization Restructuring occurs, its Pro Rata share of (A) 100% of the New Common Equity, less any New Common Equity distributed to Holders of Existing Equity Interests pursuant to the Equity Option, and subject to dilution on account of the Management Incentive Plan, the Backstop Base Premium, and the Equity Rights Offering, and (B) the Unsecured Noteholder Rights; or (i) if the Toggle Restructuring occurs, the Allowed Amount of such Holder’s Claim in Cash.
  • Class 6 (“Property-Level Mortgage Guarantee Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $1,751,066,651.62 and expected recovery is 100%.
  • Class 7 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $13.0mn and expected recovery is 100%.
  • Class 8 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept or reject and not entitled to vote on the Plan. The aggregate amount of claims is $1,857.0mn and expected recovery is 100%.
  • Class 9 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept or reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and expected recovery is 100%.
  • Class 10 (“Existing Preferred Equity Interests”) is unimpaired/impaired, deemed to accept or reject and not entitled to vote on the Plan. The aggregate amount of claim is N/A and expected recovery is See Article III.F for Additional Information.
  • Class 11 (“Existing Common Equity Interests”) is unimpaired/impaired, deemed to accept or reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and expected recovery is See Article III.G for Additional Information.
  • Class 12 (“Section 510(b) Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is N/A and expected recovery is N/A.

About the Debtors

According to the Debtors: “Washington Prime Group Inc. is a retail REIT and a recognized leader in the ownership, management, acquisition and development of retail properties. The Company combines a national real estate portfolio with its expertise across the entire shopping center sector to increase cash flow through rigorous management of assets and provide new opportunities to retailers looking for growth throughout the U.S. Washington Prime Group® is a registered trademark of the Company.”

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The post Washington Prime Group Inc. – Absent Any Qualified Bids in Excess of Daunting $2.3bn (Cash) Minimum Bid Threshold, Cancels Auction and Will Now Seek Confirmation of Equitization Restructuring appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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