Washington Prime Group Inc. – Files First Amended Plan and Disclosure Statement Supplement to Reflect Equity Committee Settlement, Aims for September 3rd Confirmation Hearing

August 24, 2021 – The Debtors filed a First Amended Plan of Reorganization and a related Disclosure Statement Supplement [Docket Nos. 893 and 894, respectively] with the Plan also attaching a redline showing changes to the versions filed on July 12, 2021 [Docket Nos. 338 and 339, respectively]. The Debtors further filed a motion requesting approval (i) of the Debtors’ Disclosure Statement Supplement, (conditionally) (ii) already ongoing Plan solicitation and voting efforts and (iii) a proposed timetable culminating in a September 3rd Plan confirmation hearing [Docket No. 895].

The amended Plan documents largely reflect the recently reached settlement amongst the Debtors, “Plan Sponsor” Strategic Value Partners, LLC or “SVP,” and their Official Committee of Equity Security Holders (the “OEC”) which has resulted, inter alia, in increased recoveries for preferred and common shareholders. Further to the settlement, (i) the "Equity Cash Pools" will be increased from $40.0mn to $55.0mn ($35.0 million for preferreds and $20.0mn for common) and (ii) the aggregate amount of the "Equity Pools" will be increased from 6.125% to 9.125% (6.0625% of New Common Equity for preferreds and 3.0625% for common).

The amended Plan, the Debtors having now settled on an equitization transaction, also removes all references to a possible "toggle" to an asset sale.

OEC Settlement Overview

The Disclosure Statement Supplement provides the following on the breakthrough OED settlement: "The Following entry of the Conditional Disclosure Statement Order on July 12, 2021, the Debtors commenced solicitation of votes to accept or reject the Initial Plan. During the solicitation period, the Debtors, the Plan Sponsor, and the Official Committee of Equity Security Holders (the 'OEC') engaged in extensive good faith, arm’s-length negotiations regarding the treatment of the Existing Equity Interests as set forth in the Initial Plan. Those negotiations were successful and resulted in a settlement (the 'OEC Settlement') that resolves all objections to Confirmation that the OEC intended to assert with respect to the Initial Plan.

The OEC Settlement is important to ensure a successful reorganization of the Debtors, and provides Holders of Existing Equity Interests with (1) materially increased recoveries and (2) certainty regarding their treatment and recovery that they will receive under the First Amended Plan. Additionally, the Debtors have agreed to remove the 'deathtrap' voting structure for Class 10 and Class 11 in the First Amended Plan, thus providing Holders of Existing Equity Interests with certainty as to their treatment and recovery under the First Amended Plan.

As a result of the OEC Settlement, the OEC fully supports Confirmation of the First Amended Plan and the release provisions provided therein, and the OEC recommends that Holders of Allowed Existing Preferred Equity Interests and Allowed Existing Common Equity Interests vote to accept the First Amended Plan and not opt out of the releases contained therein and support Confirmation of the First Amended Plan. All Holders of Existing Equity Interests are encouraged to review a letter provided by the OEC in support of Confirmation of the First Amended Plan (the “OEC Letter in Support of the First Amended Plan”), which attached as Exhibit 3 to the Disclosure Statement Supplement.

The settlements and compromises pursuant to and in connection with the First Amended Plan, including the OEC Settlement, are substantively fair and supported by the following factors: (1) the balance between the litigation’s possibility of success and the settlement’s future benefits; (2) the likelihood of complex and protracted litigation; (3) the proportion of creditors and parties in interest that support the settlement; (4) the competency of counsel reviewing the settlement; and (5) the extent to which the settlement is the product of arm’s-length bargaining. The Debtors seek approval of the OEC Settlement pursuant to Bankruptcy Rule 9019 under the First Amended Plan.

Accordingly, the Debtors assert that the OEC Settlement and resulting First Amended Plan is a fair compromise that provides certainty to Holders of Claims and Interests regarding their treatment and recoveries, and represents the best available option to maximize the value of the Debtors’ Estates for the benefit of all stakeholders.

The Disclosure Statement Supplement [Docket No. 894] continues: “A summary of the terms of the OEC Settlement, which terms have been incorporated into the First Amended Plan, is set forth below:

• The aggregate amount of Cash to be allocated to Holders of Existing Equity Interests for purposes of the Equity Cash Pools shall be increased from $40.0 million to $55.0 million, of which (1) $35.0 million shall be allocated to the Preferred Equity Cash Pool and (2) $20.0 million shall be allocated to the Common Equity Cash Pool
• The aggregate amount of New Common Equity to be allocated to Holders of Existing Equity Interests for purposes of the Equity Pools shall be increased from 6.125% to 9.125%, of which (1) 6.0625% of New Common Equity shall be allocated to the Preferred Equity Equity Pool and (2) 3.0625% of New Common Equity shall be allocated to the Common Equity Equity Pool.
• Holders of Existing Common Equity Interests that are Eligible Election Participants may elect to receive New Common Equity in lieu of Cash under the First Amended Plan. Any Holder of Existing Common Equity, other than members of the Ad Hoc Committee of Preferred Shareholders4 (which hold a portion of the Minimum Allocation under the Backstop Commitment Agreement), that elects to receive New Common Equity shall also have the right to purchase their Pro Rata share (with oversubscription rights) of 6.125% of the Minimum Allocation that is offered pursuant to the Equity Rights Offering Documents at the Equity Rights Offering Value. In other words, these holders will have the right to participate in their Pro Rata share of $7.9625 million of the $130 million allocated to the Backstop Parties in a $260 million Equity Rights Offering if electing to receive a distribution from the Common Equity Equity Pool.
• Due to the increased percentage of New Common Equity allocated for purposes of the Equity Option, the recovery to Holders of Unsecured Notes Claims may decrease depending on the number of Holders of Existing Equity Interests that elect the Equity Option.
• The right of Holders of Existing Common Equity Interests that are Eligible Election Participants to participate in the Equity Rights Offering pertains only to the Minimum Allocation under the Backstop Commitment Agreement and, therefore, does not alter the rights of Holders of Unsecured Notes Claims to participate in the Equity Rights Offering under the First Amended Plan.
• The ‘deathtrap’ voting structure for Class 10 and Class 11 has been removed from the First Amended Plan and thus recoveries under the First Amended Plan for Class 10 and Class 11 are not dependent on the voting results of any Class.
• Class 10 and Class 11 will exclude any and all outstanding and unexercised options, warrants, or rights to acquire, or redeemable securities into WPG Inc.’s currently outstanding common Interests, other than the Existing Common Equity Units that are redeemable for the common shares of WPG Inc. and the Series I-1 Preferred Stock that is redeemable for the Series I Preferred Shares of WPG Inc.
• The First Amended Plan no longer includes the requirement that if less than 25% of Existing Equity Interests collectively elect the Equity Option, then, at the Debtors’ election (subject to the consent of the Plan Sponsor), all Holders of Allowed Existing Equity Interests shall receive their Pro Rata share of Cash from their respective Equity Cash Pool and shall not receive New Common Equity.
• The First Amended Plan extends certain deadlines related to participation in the Equity Rights Offering and the Equity Option Election Deadline as further set forth below.
• The OEC Settlement provides additional minority shareholder protections for Holders of the New Common Stock of Reorganized WPG including: (1) assurances that the New Common Stock will be tradeable (albeit in a limited manner); (2) the appointment of an independent board member that is reasonably acceptable to the OEC; (3) protections against potentially unfair transactions with Reorganized WPG’s affiliates; and (4) certain tag-along rights.”

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 $1,337.0mn and expected recovery is 100%. Each Holder of an Allowed Revolving and Term Loan Facilities Claim shall receive, on or about (but in no event after) the Effective Date, as provided in the Restructuring Steps Memorandum its Pro Rata share of (i) $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 (ii) the Revolving and Term Loan Facilities Cash Pool.
• Class 4B (“Weberstown Term Loan Facility Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $65.0mn and expected recovery is 100%. Each Holder of an Allowed Weberstown Term Loan Facility Claim shall receive, on or about (but in no event after) the Effective Date, as provided in the Restructuring Steps Memorandum, its Pro Rata share of (i) of $25.0mn 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.
• 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 39.6% – 46.5%. Each Holder of an Allowed Unsecured Notes Claim shall receive on or about (but in no event after) the Effective Date, as provided in the Restructuring Steps Memorandum, 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 Option, and subject to dilution on account of the Management Incentive Plan, the Backstop Equity Premium, and the Equity Rights Offering, and (ii) the Unsecured Noteholder Rights.
• 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 impaired, and entitled to vote on the Plan. Article II.A.1 provides: "On the Plan Effective Date or as soon as reasonably practicable thereafter, the Series I-1 Preferred Stock shall be considered redeemed for the Series I Preferred Stock of WPG Inc. (or its successor) and receive the treatment of the Existing Preferred Equity Interests, and except to the extent that a Holder of an Allowed Existing Preferred Equity Interest agrees to less favorable treatment of its Allowed Interest, in full and final satisfaction, settlement, release, and discharge of, and in exchange for each Allowed Existing Preferred Equity Interest each Holder of an Allowed Existing Preferred Equity Interest shall receive such Holder’s Pro Rata share of the (i) Preferred Equity Cash Pool, or (ii) 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 in the preceding clause (i)."
• Class 11 (“Existing Common Equity Interests”) is impaired, and entitled to vote on the Plan. Article II.A.2 provides: "On the Plan Effective Date, the Existing Common Equity Units (which for the avoidance of doubt, other than any such Existing Common Equity Units owned at such time, directly or indirectly, by WPG Inc.) shall be considered redeemed for the common equity of WPG Inc. (or its successor) and receive the treatment of Existing Common Equity Interest, and except to the extent that a Holder of an Allowed Existing Equity Interest agrees to less favorable treatment of its Allowed Interest, in full and final satisfaction, settlement, release, and discharge of, and in exchange for each Allowed Existing Common Equity Interest each Holder of an Allowed Existing Common Equity Interest shall receive such Holder’s Pro Rata share of (i) the Common Equity Cash Pool, or (ii) if such Holder is an Eligible Election Participant, and such Holder elects the Common Equity Option, such Holder’s Pro Rata share of (A) the Common Equity Equity."
  Pool in lieu of the distribution from the Common Equity Cash Pool in the preceding clause (i), and (B) the Existing Common Equity Interest Rights.
• 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.

^FN5 The recoveries provided for Class 5 are illustrative only.  The percentages were calculated using the Set-Up Equity Value of $800 million, which is not purported to be a valuation of Reorganized WPG, and the maximum Equity Rights Offering amount of $325 million. The range of recoveries assumes that Class 10 votes to accept the Initial Plan and First Amended Plan and represents (1) at the low end, the assumption that all Existing Equity Interests (Classes 10 and 11) are able to and do elect the Common Equity Option and/or Preferred Equity Option, each as applicable, and (2) at the high end, the assumption that all Existing Equity Interests (Classes 10 and 11) either elect or are required to receive cash.

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