CBL & Associates Properties, Inc – Court Confirms Leading Mall Operator’s Third Amended Plan of Reorganization, Expects to Emerge from Bankruptcy on November 1st Minus $1bn of Funded Debt

August 11, 2021 – The Court hearing the CBL & Associates Properties cases has confirmed the Debtors’ Third Amended Plan of Reorganization [Docket No. 1397].

In a press release heralding confirmation of the Plan, the Debtors provide: "CBL received overwhelming support for the Plan, with over 95% of votes cast for all classes voted in favor of the Plan’s confirmation. The effective date of the plan is expected to be November 1, 2021. 

As confirmed, the Plan calls for restructuring the Company’s balance sheet to provide for the elimination of more than $1.6 billion of debt and preferred obligations as well as a significant reduction in interest expense. In exchange for their approximately $1.375 billion in principal amount of Unsecured Notes and $133 million in principal amount of the secured credit facility, Consenting Noteholders and other noteholders will receive, in the aggregate, $95 million in cash, $555 million of new senior secured notes, of which up to $100 million, upon election by the Consenting Noteholders, may be received in the form of new convertible secured notes and 89% in common equity of the newly reorganized Company. Certain Consenting Noteholders will also 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 the secured credit facility, will receive $100 million in cash and a new $883.7 million secured term loan. Existing common and preferred stakeholders are expected to receive up to 11% of common equity in the newly reorganized company."

Plan Overview

On November 1, 2020, CBL & Associates Properties, Inc and 176 affiliated Debtors (NYSE:  CBL; “CBL” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 20-35226 (Judge Jones). At filing, the Debtors, owners and operators of a mall portfolio comprised of 107 properties totaling 66.7 million square feet across 26 states, noted estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn. 

The Debtors' memorandum of law in support of plan confirmation [Docket No. 1373] provided the following pre-Plan confirmation hearing summation: 

“The Plan represents a comprehensive and value-maximizing restructuring that benefits all of the Debtors’ stakeholders and has been accepted overwhelmingly by each of the Voting Classes. As detailed below, the Plan is the successful result of extensive, arm’s length negotiations—and a Court-sanctioned mediation—between the Debtors and their key constituents. Notably, the Restructuring Transactions contemplated by the Plan are supported by the Debtors’ entire capital structure, including over 95% of the holders of Existing REIT Preferred Stock, which speaks to the Plan’s fairness, the good-faith efforts that culminated in its filing, and its compliance with chapter 11 of title 11 of the United States Code (the ‘Bankruptcy Code’). 

Prior to the filing of these chapter 11 cases, recognizing that a comprehensive balance sheet deleveraging and restructuring was necessary, the Debtors, Weil, Gotshal & Manges LLP (‘Weil’) and Moelis & Company LLC (‘Moelis’ and, together with Weil, the ‘Advisors’) engaged in extensive arm’s-length, good-faith negotiations with an ad hoc group of the beneficial owners and/or investment advisors or managers of discretionary funds, accounts or other entities for the holders or beneficial owners of approximately 66% of the Senior Unsecured Notes (collectively, with other holders of the Senior Unsecured Notes that subsequently executed the Original Restructuring Support Agreement (as defined below), the ‘Consenting Noteholders’ or the ‘Ad Hoc Bondholder Group’), which culminated in the execution of that certain Restructuring Support Agreement dated August 18, 2020 (the ‘Original Restructuring Support Agreement’), pursuant to which the Consenting Noteholders agreed to, among other things, support a comprehensive restructuring of the Debtors. The Original Restructuring Support Agreement did not have the support of the Consenting Bank Lenders.

On the Petition Date, the Debtors commenced an adversary proceeding (the ‘Wells Fargo Adversary Proceeding’) against Wells Fargo Bank, N.A. (‘Wells Fargo’) relating to prepetition actions taken by Wells Fargo with respect to a number of the Debtors. Following the Petition Date, in an effort to reach a fully consensual resolution with their key creditor constituents, the Debtors spearheaded and participated in a Court-sanctioned mediation (the ‘Mediation’) before the Honorable Marvin Isgur. Certain members of the Ad Hoc Bondholder Group, certain members of the Consenting Bank Lenders (including Wells Fargo), and the Creditors’ Committee all participated in the Mediation. The Mediation was successful, culminating in an agreement between the Debtors, Consenting Bank Lenders and Consenting Noteholders on the terms of a consensual restructuring memorialized in an amended restructuring support agreement (the ‘Restructuring Support Agreement’ or ‘RSA’) dated March 21, 2021. On April 29, 2021, the Court authorized the Debtors to perform their obligations under the RSA (Docket No. 1090).

The terms of the comprehensive, tripartite settlement embodied in the RSA resolved the contentious and complicated issues at the heart of these chapter 11 cases, including (i) treatment of the Bank Lenders’, Consenting Crossholders’, and Consenting Noteholders’ respective Claims and (ii) claims asserted by the Debtors and the Bank Lenders in the Wells Fargo Adversary Proceeding. The transactions contemplated by the RSA and the Plan will strengthen the Debtors’ balance sheet by reducing the Debtors’ funded indebtedness by approximately $1 billion. As of the date hereof, the RSA has the support of approximately 82% of the Senior Unsecured Notes and approximately 97% of holders of First Lien Credit Facility Claims. In addition, the Creditors’ Committee supports confirmation of the Plan."

The solicitation Disclosure Statement [Docket No. 1164] notes: “In accordance with the RSA, including the Plan Term Sheet (as defined below) attached thereto, the Plan provides for a comprehensive restructuring of the Company’s balance sheet. Specifically, the proposed restructuring embodied in the Plan (the ‘Restructuring’) contemplates, among other things:

• The following treatment of holders of Claims and Interests:

1. Each holder of an Allowed First Lien Credit Facility Claim will receive its pro rata share of (i) the Exit Credit Facility Distribution and (ii) $100,000,000 in Cash, payable, first, from Cash deposited in the segregated account maintained by the Debtors pursuant to paragraph 11(a)(ii) of the Final Cash Collateral Order and, second, from other Cash on hand.
2. Each holder of an Allowed Consenting Crossholder Claim will receive its pro rata share of (based on the ratio of such holder’s Consenting Crossholder Claims to the aggregate amount of Consenting Crossholder Claims held by all Consenting Crossholders) the Consenting Crossholder Claims Recovery Pool; provided, that each Consenting Crossholder entitled to receive New Senior Secured Notes on account of its Crossholder Claim shall be entitled to make the Convertible Notes Election.
3. Each holder of an Allowed Ongoing Trade Claim will receive the following treatment: (i) if a holder of an Ongoing Trade Claim executes a trade agreement (a “Trade Agreement”) with the Debtors (the form and terms of such Trade Agreement to be determined by the Debtors in consultation with the (A) Required Consenting Noteholders and the Creditors’ Committee and, (B) solely with respect to the Exit Credit Facility Subsidiaries, the Required Consenting Bank Lenders), four (4) equal cash installments, payable on a quarterly basis, which payments shall result in full payment in the Allowed amount of such Ongoing Trade Claim; or (ii) if a holder of an Ongoing Trade Claim does not execute a Trade Agreement, such holder’s Pro Rata share of the Unsecured Claims Recovery Pool in accordance with section 4.7 of the Plan.
4. Each Allowed Property-Level Guarantee Settlement Claim will either (i) be Reinstated; (ii) remain Unimpaired; or (iii) receive such treatment as agreed upon between the Debtors and the holder of such Property-Level Guarantee Claim (with the consent of the Required Consenting Noteholders, such consent not to be unreasonably withheld). For the avoidance of doubt, any Property-Level Guarantee Claim that is not a Property-Level Guarantee Settlement Claim will be treated like a General Unsecured Claim.
5. Each holder of an Allowed Unsecured Claim will receive its pro rata share of the Unsecured Claims Recovery Pool; provided, that each Consenting Noteholder (and, for the avoidance of doubt, only a Consenting Noteholder) entitled to receive New Senior Secured Notes on account of its Senior Unsecured Notes Claim shall be able to make the Convertible Notes Election; provided, however, that, if the Debtors determine that, pursuant to section 1129(a)(7)(ii), such holder would be entitled to a greater recovery than the foregoing if the Debtor against whom such holder’s Allowed Unsecured Claim is asserted were to liquidate under chapter 7 of the Bankruptcy Code, then such holder shall receive Cash in an amount necessary to satisfy section 1129(a)(7)(ii).
6. If Class 10 is an Accepting Class, each holder of an Existing LP Common Unit will either (A) receive a percentage of New LP Units, issued in accordance with the Restructuring Transactions, equal to the product of (1) 5.5% and (2) the percentage equal to the number of Existing LP Common Units that such holder elects to exchange for New LP Units divided by the number of Existing LP Common Units issued and outstanding immediately prior to the Plan Distributions or (B)(1) 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, and (2) receive a Pro Rata 3 share of the Existing Common Equity Recovery Pool, subject to reduction in accordance with section 4.14(a) of the Plan, if applicable.
7. If Class 11 is an Accepting Class, each holder of Allowed Existing REIT Preferred Stock will receive its Pro Rata share of a percentage of the New Common Stock issued in accordance with the Restructuring Transactions, equal to 5.5% divided by the REIT LP Ownership Percentage, 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, as set forth in herein, and subject to reduction in accordance with section 4.14(a) of the Plan, if applicable.
8. If Class 12 is an Accepting Class, each holder of Allowed Existing REIT Common Stock will receive its Pro Rata share of the Existing Common Equity Recovery Pool, subject to reduction in accordance with section 4.14(a) of the Plan, if applicable.

• On the Effective Date, (i) the First Lien Credit Agreement will be replaced by a new credit facility in an aggregate principal amount of $883.7 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”), a copy of which is attached to the Plan as Exhibit B; and (ii) the Senior Unsecured Notes will be replaced by new senior secured notes in an aggregate principal amount of up to $555 million (the “New Senior Secured Notes”) pursuant to the terms set forth in that certain new notes term sheet (the “New Notes Term Sheet”), a copy of which is attached to the Plan as Exhibit C; provided, the Debtors may distribute up to $100 million of New Convertible Notes (exchangeable with the New Notes Issuer for New Common Stock) in lieu of the New Senior Secured Notes on a dollar-for-dollar basis pursuant to the terms set forth in that certain term sheet (the “New Convertible Notes Term Sheet”), a copy of which is attached to the Plan as Exhibit D.
• The Debtors’ receipt of Commitment Letters from the Commitment Parties where such parties agree to purchase, in the aggregate, $50 million of New Convertible Notes on the Effective Date.
• The Restructuring will leave the Debtors’ operations and business intact without impairing the Property Level Debt (as defined herein).

The Debtors believe that the Restructuring contemplated by the Plan and RSA 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 Creditors. As described more fully herein, the restructuring will reduce the Company’s funded indebtedness by approximately $1 billion and annual interest expenses by approximately $20 million while eliminating the Debtors’ outstanding preferred stock. 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 business.

Thus, the Restructuring will 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 Creditors 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 (in millions):

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; see also the Liquidation Analysis below):

• Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 3 (“First Lien Credit Facility Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $983,700,000 and estimated recovery is 100%. Each Holder will receive its pro rata share of (i) the Exit Credit Facility Distribution and (ii) $100,000,000 in Cash, payable, first, from Cash deposited in the segregated account maintained by the Debtors pursuant to paragraph 11(a).ii of the Final Cash Collateral Order and, second, from other Cash on hand.
• Class 4 (“Consenting Crossholder Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $133,000,000 and estimated recovery is 96.0%. Each Holder will receive its pro rata share (based on the ratio of such holder’s Consenting Crossholder Claims to the aggregate amount of Consenting Crossholder Claims held by all Consenting Crossholders) of the Consenting Crossholder Claims Recovery Pool; provided that each Consenting Crossholder entitled to receive New Senior Secured Notes on account of its Crossholder Claim will be entitled to make the Convertible Notes Election.
• Class 5 (“Ongoing Trade Claims”) is impaired and entitled to vote on the Plan. The estimated recovery is 100%. Each Holder will receive: (i) if a holder of an Ongoing Trade Claim executes a trade agreement (a “Trade Agreement”) with the Debtors (the form and terms of such Trade Agreement to be determined by the Debtors in consultation with the (A) Required Consenting Noteholders and the Creditors’ Committee and, (B) solely with respect to the Exit Credit Facility Subsidiaries, the Required Consenting Bank Lenders), four (4) equal Cash installments, payable on a quarterly basis, which payments will result in full payment in the Allowed amount of such Ongoing Trade Claim; or (ii) if a holder of an Ongoing Trade Claim does not execute a Trade Agreement, such holder’s Pro Rata share of the Unsecured Claims Recovery Pool in accordance with section 4.7 of the Plan.
• Class 6 (“Property-Level Guarantee Settlement Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 7 (“Unsecured Claims”) is impaired and entitled to vote on the Plan. The estimated recovery is 54% – 56%^FN. Each Holder will receive pro rata share of the Unsecured Claims Recovery Pool; provided that each Consenting Noteholder (and, for the avoidance of doubt, only a Consenting Noteholder) entitled to receive New Senior Secured Notes on account of its Notes Claim will be able to make the Convertible Notes Election; provided, however, that, if the Debtors determine that, pursuant to section 1129(a)(7)(ii), such holder would be entitled to a greater recovery than the foregoing if the Debtor against whom such holder’s Allowed Unsecured Claim is asserted were to liquidate under chapter 7 of the Bankruptcy Code, then such holder will receive Cash in an amount necessary to satisfy section 1129(a)(7)(ii).

_{FN: The projected recovery is based upon the midpoint value set forth in the Valuation Analysis attached hereto as Exhibit F. The projected recovery assumes total Unsecured Claims ranging from approximately $1.41 billion to approximately $1.46 billion and is based upon the Company’s books and records as of February 28, 2021 and Proofs of Claim compiled as of the General Bar Date (which are subject to final claims reconciliation).}

• Class 8 (“Intercompany Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 9 (“Existing LP Preferred Units”) is impaired, deemed to reject and not entitled to vote on the Plan.
• Class 10 (“Existing LP Common Units”) is impaired and entitled to vote on the Plan. The estimated recovery is up to 5.5% of New Common Stock (or equivalent New LP Units) shared with holders of Existing REIT Common Stock. Treatment: Each holder will, at such holder’s election, either (A) receive a percentage of New LP Units, issued in accordance with the Restructuring Transactions, equal to the product of (1) 5.5% and (2) the percentage equal to the number of Existing LP Common Units that such holder elects to exchange for New LP Units divided by the number of Existing LP Common Units issued and outstanding immediately prior to the Plan Distributions or (B)(1) 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 and (2) receive a Pro Rata share of the Existing Common Equity Recovery Pool, subject to reduction in accordance with section 4.14(a) of the Plan, if applicable; provided that, if the Bankruptcy Court does not approve the recovery to holders of Existing LP Common Units, Existing REIT Preferred Stock and Existing REIT Common Stock, the New Common Stock set forth in section 4.10(a)(ii) of the Plan shall be added to the Unsecured Claims Recovery Pool and the New LP Units set forth in section 4.10(a)(i) of the Plan shall not be issued; provided, however, that the value otherwise allocable to holders of Existing LP Common Units under section 4.10(a) of the Plan shall be reduced, on a dollar-for-dollar basis utilizing the equity value implied by the mid-point of the Debtors’ valuation set forth in connection with confirmation, by any costs incurred by or attributed to the Debtors’ Estates in connection with any litigation or objection prosecuted after the Court’s approval of the Disclosure Statement by one or more holders of Existing LP Common Units prior to or in connection with the Confirmation Hearing as such costs are determined by the Court in connection with confirmation of the Plan; provided, further, that, to the extent that no holder of Existing LP Common Units objects to confirmation of the Plan, the recovery to holders of Interests in Class 10 on account of such Interests shall not be reduced notwithstanding any objection(s) by holders of Claims or Interests in another Class. Further, notwithstanding anything to the contrary herein, even if Class 10 votes, as a class, to accept the Plan, the rights of holders of Existing LP Common Units to object to confirmation of the Plan on the grounds that the Plan does not comply with section 1129(b)(2) of the Bankruptcy Code are preserved, and the Debtors reserve all rights to dispute any such objection(s) on any grounds other than on the basis that such party does not have a legal right to prosecute such an objection as a matter of law. 
• Class 11 (“Existing REIT Preferred Stock”) is impaired and entitled to vote on the Plan. The estimated recovery is up to 5.5% of New Common Stock. Treatment: Each holder will receive such holder’s Pro Rata share of a percentage of the New Common Stock, issued in accordance with the Restructuring Transactions, equal to 5.5% divided by the REIT LP Ownership Percentage, 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, as set forth in the Plan, and subject to reduction in accordance with section 4.14(a) of the Plan, if applicable; provided that, if the Bankruptcy Court does not approve the recovery to holders of Existing LP Common Units, Existing REIT Preferred Stock, and Existing REIT Common Stock, the New Common Stock set forth in section 4.10(a)(ii) of the Plan shall be added to the Unsecured Claims Recovery Pool and the New LP Units set forth in section 4.10(a)(i) of the Plan shall not be issued; provided, however, that the value otherwise allocable to holders of Existing LP Common Units under section 4.10(a) of the Plan shall be reduced, on a dollar-for-dollar basis utilizing the equity value implied by the mid-point of the Debtors’ valuation set forth in connection with confirmation, by any costs incurred by or attributed to the Debtors’ Estates in connection with any litigation or objection prosecuted after the Court’s approval of the Disclosure Statement by one or more holders of Existing LP Common Units prior to or in connection with the Confirmation Hearing as such costs are determined by the Court in connection with confirmation of the Plan; provided, further, that, to the extent that no holder of Existing LP Common Units objects to confirmation of the Plan, the recovery to holders of Interests in Class 10 on account of such Interests shall not be reduced notwithstanding any objection(s) by holders of Claims or Interests in another Class. Further, notwithstanding anything to the contrary herein, even if Class 10 votes, as a class, to accept the Plan, the rights of holders of Existing LP Common Units to object to confirmation of the Plan on the grounds that the Plan does not comply with section 1129(b)(2) of the Bankruptcy Code are preserved, and the Debtors reserve all rights to dispute any such objection(s) on any grounds other than on the basis that such party does not have a legal right to prosecute such an objection as a matter of law.
• Class 12 (“Existing REIT Common Stock”) is impaired and entitled to vote on the Plan. The estimated recovery is up to 5.5% of New Common Stock shared with holders of Existing LP Common Units. Treatment: On the Effective Date, or as soon as reasonably practicable thereafter, each holder of Allowed Existing REIT Common Stock will receive, in full and final satisfaction of such Interest, such holder’s Pro Rata share of the Existing Common Equity Recovery Pool, subject to reduction in accordance with section 4.14(a) of the Plan, if applicable; provided that, if the Bankruptcy Court does not approve the recovery to holders of Existing LP Common Units, Existing REIT Preferred Stock, and Existing REIT Common Stock, the New Common Stock set forth in section 4.10(a)(ii) of the Plan shall be added to the Unsecured Claims Recovery Pool and the New LP Units set forth in section 4.10(a)(i) of the Plan shall not be issued; provided, however, that the value otherwise allocable to holders of Existing LP Common Units under section 4.10(a) of the Plan shall be reduced, on a dollar-for-dollar basis utilizing the equity value implied by the mid-point of the Debtors’ valuation set forth in connection with confirmation, by any costs incurred by or attributed to the Debtors’ Estates in connection with any litigation or objection prosecuted after the Court’s approval of the Disclosure Statement by one or more holders of Existing LP Common Units prior to or in connection with the Confirmation Hearing as such costs are determined by the Court in connection with confirmation of the Plan; provided, further, that, to the extent that no holder of Existing LP Common Units objects to confirmation of the Plan, the recovery to holders of Interests in Class 10 on account of such Interests shall not be reduced notwithstanding any objection(s) by holders of Claims or Interests in another Class. Further, notwithstanding anything to the contrary herein, even if Class 10 votes, as a class, to accept the Plan, the rights of holders of Existing LP Common Units to object to confirmation of the Plan on the grounds that the Plan does not comply with section 1129(b)(2) of the Bankruptcy Code are preserved, and the Debtors reserve all rights to dispute any such objection(s) on any grounds other than on the basis that such party does not have a legal right to prosecute such an objection as a matter of law. 
• Class 14 (“Section 510(b) Claims”) is impaired and entitled to vote on the Plan. The estimated recovery is New Common Stock on a Pro Rata basis shared with holders of Existing LP Common Units, Existing REIT Preferred Stock and Existing REIT Common Stock. Treatment: Claims will be cancelled, released, discharged and extinguished as of the Effective Date and will be of no further force or effect, and to the extent such holder of a Section 510(b) Claim is not receiving a recovery on account of the security giving rise to such Claim under the Plan, each holder of an Allowed Section 510(b) Claim will receive on account of such holder’s Allowed Section 510(b) Claim its Pro Rata share of New Common Stock, if any,  issued in accordance with the Restructuring Transactions to holders of Existing LP Common Units, Existing REIT Preferred Stock and Existing REIT Common Stock pursuant to sections 4.10(a)(i), 4.11(a)(i), and 4.12(a)(i) of the Plan. For the avoidance of doubt, to the extent that a holder of a Section 510(b) Claim receives a recovery under the Plan on account of the security underlying such Claim, such holder will not receive a recovery on account of such holder’s Section 510(b) Claim, if any, arising from such security.

Key Definitions: 

"Existing Common Equity Recovery Pool" means a percentage of the New Common Stock, issued in accordance with the Restructuring Transactions, equal to (i) the excess of (A) 5.5% over (B) the percentage of issued and outstanding New LP Units held by the former holders of Existing LP Common Units immediately after the Plan Distributions (ii) divided by the REIT LP Ownership Percentage, subject to dilution by the Management Incentive Plan and subsequent issuances of common equity (including securities or instruments convertible into common equity) by the Debtors or Reorganized Debtors, as applicable, from time to time after the Effective Date.

“Unsecured Claims Recovery Pool” means a percentage of the New Common Stock, issued in accordance with the Restructuring Transactions, equal to (i) the excess of (A) 5.5% over (B) the percentage of issued and outstanding New LP Units held by the former holders of Existing LP Common Units immediately after the Plan Distributions (ii) divided by the REIT LP Ownership Percentage, subject to dilution by the Management Incentive Plan and subsequent issuances of common equity (including securities or instruments convertible into common equity) by the Debtors or Reorganized Debtors, as applicable, from time to time after the Effective Date.

Voting Results

On August 7, 2021, the Debtors' claims agent notified the Court of the revised Plan voting results [Docket No. 1362] which were as follows:

• Class 3 (“First Lien Credit Facility Claims”) 14 claim holders, representing $1,004,717,385.73 in amount and 100% in number, accepted the Plan.
• Class 4 (“Consenting Crossholder Claims”) 20 claim holders, representing $132,056,752.63 in amount and 100% in number, accepted the Plan.
• Class 5 (“Ongoing Trade Claims”) 13 claim holders, representing $226,877.13 in amount and 100% in number, accepted the Plan.
• Class 7 (“Unsecured Claims”) 1084 claim holders, representing $985,078,781.04 (or 99.82%) in amount and 94.84% in number, accepted the Plan. 59 claim holders, representing $1,772,114.95 (or 0.18%) in amount and 5.16% in number, rejected the Plan.
• Class 11 (“Existing REIT Preferred Stock”) Claim holders representing 7,022,640 (or 95.97%) in amount, accepted the Plan. Claim holders representing 294,928 (or 4.03%) in amount, rejected the Plan.
• Class 12 (“Existing REIT Common Stock”) Claim holders representing 56,969,606 (or 97.40%) in amount, accepted the Plan. Claim holders representing 1,522,938 (or 2.60%) in amount, rejected the Plan.
• Class 14 (“Section 510(b) Claims”) 5 claim holders, representing $5 in amount and 100% in number, accepted the Plan.

Key Documents

The following documents were attached to the Disclosure Statement [Docket No. 1127]:

• Exhibit A: Plan (filed separately at Docket No. 1126)
• Exhibit B: Organizational Chart
• Exhibit C: RSA
• Exhibit D: Liquidation Analysis
• Exhibit E: Financial Projections
• Exhibit F: Valuation Analysis

The Debtors filed Plan Supplements at Docket Nos. 1315, 1322, 1324 and 1380 which collectively attached the following documents:

• Exhibit A: Certificate of Incorporation for Reorganized Company
• Exhibit B: Bylaws of Reorganized Company
• Exhibit C: Amended and Restated Partnership Agreement of the Operating Partnership
• Exhibit D: Certificate of Formation of New Notes Issuer
• Exhibit E: LLC Agreement of News Notes Issuer
• Exhibit F: Certificate of Formation for New Bank Claim Borrower
• Exhibit G: LLC Agreement and New Bank Claim Borrower
• Exhibit H: Registration Rights Agreement
• Exhibit I: Slate of New Directors [Docket No. 1380]
• Exhibit J: Restructuring Rights Agreement [Docket No. 1322]
• Exhibit K: Schedule of Rejected Contracts
• Exhibit L: Scheduled of Retained Causes of Action
• Exhibit M: New Notes Indenture [Docket No. 1380]
• Exhibit N: New Convertible Notes Indenture [Docket No. 1380]
• Exhibit O: Collateral Agency and Intercreditor Agreement Regarding Lien-Sharing Provisions [Docket No. 1324]
• Exhibit P: Exit Credit Facility [Docket No. 1324]
• Exhibit Q: Term Sheet for New Stock Incentive Plan

Petition Date Perspective

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."

Stephen D. Lebovitz, the Debtors' Chief Executive Officer, commented: “After months of discussions and consideration of a number of alternatives, CBL’s management and the Board of Directors firmly believe that implementing the comprehensive restructuring as outlined in the RSA through a Chapter 11 voluntary bankruptcy filing will provide CBL with the best plan to emerge as a stronger and more stable company…We have continued negotiations with the lenders under our secured credit facility since the signing of the RSA and expect further discussions in an effort to reach a tri-party consensual agreement between the Company, noteholders and credit facility lenders during the bankruptcy process."

RSA and Plan Overview

Among other things, the restructuring contemplates:

• The equitization of the Senior Unsecured Notes in exchange for 90% of the New Equity Interests (as defined in the Restructuring Support Agreement) and approximately $49.6 million in cash;
• The issuance of $500 million of New Senior Secured Notes secured by, among other things, certain of the Company’s currently unencumbered properties; 
• A recovery to the Company’s current equityholders, who will receive 10% of the New Equity Interests and Warrants; and
• The reinstatement or unimpairment of the Property Level Debt and related guarantee claims against the Operating Partnership. 

The restructuring will reduce the Company’s funded indebtedness by approximately $875 million, and annual interest expenses by approximately $25 million. Importantly, the Company is not currently seeking to modify or impair the Property Level Debt or to make operational changes to the business, and that debt is not currently the subject of these chapter 11 cases.

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."

Bank Lenders Adversary Proceeding

In addition to standard first day relief, the Debtors are commencing an adversary proceeding and seeking a temporary restraining order against their senior lenders whom they accuse of taking steps “under cover of darkness” that have forced the Debtors’ to seek Chapter 11 protection. The Renzi Declaration states: “Upon executing the Restructuring Support Agreement, the Company and the Ad Hoc Bondholder Group focused their efforts on negotiations with the Bank Lenders in an attempt to reach a tripartite agreement among the Company, the Ad Hoc Bondholder Group and the Bank Lenders over the terms of a fully consensual restructuring. 

Indeed, on October 13, 2020, certain of the Ad Hoc Bondholder Group executed confidentiality agreements and became ‘restricted’ to negotiate directly with the Bank Lenders. On October 27, 2020, the Ad Hoc Bondholder Group’s advisors sent a restructuring term sheet to the Administrative Agent’s advisors (the ‘October 27 Term Sheet’), which contemplated further deleveraging the Company’s funded indebtedness by another $500 million. 

Unfortunately, the negotiation process was abruptly cut short by the Bank Lenders. Instead of responding to the October 27 Term Sheet with a counterproposal, the Bank Lenders, under cover of darkness and asserting a variety of conjured up alleged Events of Default that occurred during the global pandemic, purported to exercise remedies, including exercising proxy rights, to exercise control over certain of the entities owning the Credit Facility Properties. 

Notwithstanding that the Bank Lenders’ actions were invalid, this unfortunate and unwarranted development left the Company no choice but to commence these chapter 11 cases on an accelerated timeline to protect the Company and its stakeholders within the time frame contemplated by the Restructuring Support Agreement instead of further extending the filing deadline to continue consensual negotiations as the Company had intended. 

Consequently, in addition to seeking standard “first day” relief, the Company is contemporaneously commencing an adversary proceeding (the ‘Adversary Proceeding’) seeking a declaratory judgment that, among other things, that the Bank Lenders’ actions are null and void because they were undertaken in violation of the documents governing the First Lien Credit Facility and applicable law. The Company is also seeking a temporary restraining order and injunctive relief enjoining the Bank Lenders from taking any further action pending the resolution of the Adversary Proceeding (together with the Adversary Proceeding, the “Bank Lender Litigation”). The Company seeks protection from this Court from the Bank Lenders’ unlawful and value-destructive conduct to ensure the smooth operation of the Company while the Court makes a determination on the issues outlined in the Bank Lender Litigation.

Prepetition Capital Structure

• First Lien Credit Facility. The Debtors were party to a January 30, 2019 credit agreement (the “First Lien Credit Agreement”), by and among the Operating Partnership, as borrower, and Wells Fargo Bank, National Association, as administrative  agent. The First Lien Credit Agreement provides for a term loan facility (the “Term Loan”) in the original aggregate principal amount of $500.0mn and a revolving loan facility (the “Revolver” and, together with the Term Loan, the “First Lien Credit Facility”) in the aggregate maximum committed principal amount of $685.0mn million (including any letters-of-credit issued thereunder). The First Lien Credit Agreement matures in July 2023 and bears interest at a variable rate of LIBOR plus 2.25%.

As of the Petition Date, the aggregate principal amount outstanding under the Term Loan was believed by the Debtors to be approximately $439 million(although, the Administrative Agent asserts that the aggregate principal amount outstanding under the Term Loan was approximately $447.0mn as of the Petition date). As of the Petition Date, the Revolver had approximately $676 million in aggregate principal amount outstanding thereunder, and no further draws are permitted. Additionally, as of the Petition Date, there were no letters of credit outstanding.

• Senior Unsecured Notes. The Operating Partnership, as issuer, the REIT, as limited Guarantor, and Delaware Trust                Company (as successor to U.S. Bank National Association), as trustee, are parties to a November 23, 2013 indenture governing the following three tranches of senior unsecured notes (collectively, the “Senior Unsecured Notes”):

The REIT is a limited guarantor of the Senior Unsecured Notes, solely with respect to losses suffered solely by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates.

• Property-Level Debt. At filing, thee Debtorshave approximately $1.9bn of property-level debt, which amount includes the Company’s share of Property Level Debt incurred together with its joint venture partners, secured by the Property Level Debt Properties, including non-recourse mortgage loans (the “Non-Recourse Loans”) and certain other loans with recourse to the general credit of the Operating Partnership, and/or the REIT, or subsidiaries thereof, including construction loans (the “Recourse Loans” and, together with the Non-Recourse Loans, the “Property Level Debt”). The borrowers on the Property Level Debt instruments are generally non-Debtor affiliates. There are thirteen (13) loans that are recourse to a subsidiary of the Operating Partnership.

Much of the Property Level Debt has been securitized and sold into the commercial mortgage- backed securities (“CMBS”) markets and is currently being administered by primary servicers. With the exception of two (2) Non-Recourse Loans, the Operating Partnership and/or the REIT, or a subsidiary thereof, is a non-recourse carveout guarantor and environmental guarantor on each of the Non-Recourse Loans and a guarantor under each of the Recourse Loans.

As of December 31, 2020, the Company was current with respect to its obligations under the Property Level Debt, with the exception of the Property Level Debt on the following Properties, which were in default and not subject to a forbearance or waiver agreement with the applicable lender: (i) Greenbrier Mall; (ii) EastGate Mall; (iii) Park Plaza (currently in receivership); and (iv) Asheville Mall (currently in receivership). The commencement of the Chapter 11 Cases constituted an event of default or termination event, and caused the automatic and immediate acceleration of all debt outstanding under or in respect of, thirty-eight (38) of the Property Level Debt instruments. Such Property Level Debt instruments provide that, as a result of the Chapter 11 Cases, the principal and interest due thereunder shall be immediately due and payable without notice from the lenders thereunder. As discussed above, a number of Property Level Loans have matured or are about to mature and remain outstanding, including Fayette Mall, Alamance Crossing – East, Hamilton Crossing and Expansion, Parkdale Mall and Crossing, and Greenbrier Mall. 

• REIT Preferred Stock and Operating Partnership Preferred Units.The REIT issued depositary shares representing a 1/10th fractional share of the 7.375% Series D Cumulative Redeemable Preferred Stock outstanding (such depositary shares, the “Series D Preferred Stock”) and depositary shares representing a 1/10th fractional share of the 6.625% Series E Cumulative Redeemable Preferred Stock outstanding (such depositary shares, the “Series E Preferred Stock” and, together with the Series D Preferred Stock, the “REIT Preferred Stock”). As of December 31, 2020, the REIT had approximately 18,150,000 shares of Series D Preferred Stock outstanding and approximately 6,900,000 shares of Series E Preferred Stock outstanding. The Operating Partnership issues an equivalent number of preferred units (the “LP Preferred Units”) to Holdings II on behalf of the REIT in exchange for the contribution of proceeds from the REIT to the Operating Partnership when the REIT issues REIT Preferred Stock. The LP Preferred Units generally have the same terms and economic characteristics as the corresponding REIT Preferred Stock.

Liquidation Analysis for Consolidated Debtor Entities (see Exhibit D of Disclosure Statement [Docket No. 1164] for notes and Debtor-by-Debtor breakdown)

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 Exhibit B of the Disclosure Statement for the multi-paged, full corporate structure)

Read more Bankruptcy News

The post CBL & Associates Properties, Inc – Court Confirms Leading Mall Operator’s Third Amended Plan of Reorganization, Expects to Emerge from Bankruptcy on November 1st Minus $1bn of Funded Debt appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.