New Chapter 11 Bankruptcy Filing - Washington Prime Group Inc. ($WPG)

New Chapter 11 Bankruptcy Filing - Washington Prime Group Inc. ($WGP)

In what should come as a surprise to absolutely nobody, Washington Prime Group Inc. ($WPG) (along with 88 affiliates, collectively, the “debtors”), finally filed for bankruptcy in the Southern District of Texas. We’ve been covering this inevitability for quite some time now and the mall REIT has finally run out of time. You can find previous coverage here:

For those of you who are new to us and haven’t had the benefit of that prior coverage, here’s what you need to know: WPG is an owner, developer and manager of retail real estate, including enclosed and open air malls. Set up as a real estate investment trust (“REIT”), the company’s portfolio includes 102 shopping centers across the US, totaling 52mm square feet. Of those 102 properties, five are currently in receivership.

We don’t need to go into why the debtors have been struggling. That should be patently obvious — even if you haven’t been up-to-speed on our prior coverage. So, we’re only going to focus on the “what now?” part of this story. To do so requires us to revisit the capital structure:

The key to understanding this case lies in this statement from the debtors:

With approximately 50% of American adults becoming fully vaccinated, government-imposed capacity restrictions slowly lifting, and consumer confidence increasing, the Debtors grappled with an appropriate valuation for the Debtors’ enterprise.

The other key to understanding this case lies in the fact that SVP Global is a crossover holder, which means that it has a meaningful position in the bank debt portion of the ⬆️capital structure but also a meaningful position in the unsecured notes. This is important because the transaction agreed to by the debtors, SVP and an ad hoc lender group (comprised of Redwood Capital Management LLC, Silver Point Capital LP and Glendon Capital Management LP) preserves a lot of optionality for the business and, by extension, upside to SVP.

Let’s dive in.

The core agreement here is a “comprehensive equitization restructuring” that will:

📍Provide the debtors with a $100mm new money DIP facility (as opposed to the $150mm that had previously been reported in the MSM);
📍Slap $1.187b of take-back exit term loan paper on the balance sheet (plus a $50mm revolving credit facility, if necessary based upon liquidity needs at emergence);
📍Fully equitize the unsecured notes;
📍Effectuate a fully backstopped rights offering of up to $325mm to pay off the DIP and fund other emergence costs (at a 32.5% discount to “Set-Up Equity Value” of $800mm which, the debtors take pains to note, is not meant to be construed as a valuation + a 9% premium — this is where SVP gets some real juice);
📍Pay general unsecured creditors in full; and
📍”Delivers value to the Debtors’ junior stakeholders in the form of $20mm cash or new equity in the reorganized Debtors.

In other words, given the difficulty valuing this business during these strange times, SVP will get some decent yielding paper and equity in the business to share in the upside. Query at what price point it bought into the unsecured notes? 🤔

Notably, because bankruptcy is a strange beast and in a world where cases like Hertz can happen, there’s absolutely no reason whatsoever not to bake in a “toggle” feature because, like, who the f*ck knows what can happen in bankruptcy these days, right? RIGHT?!?!?

Per the debtors, the “toggle” feature contemplates:

…either the aforementioned equitization plan or an alternative recapitalization or sale transaction that provides for payment in full of the Debtors’ secured and unsecured corporate debt and unsecured notes, the payment of the Backstop Base Premium contemplated under the Restructuring Support Agreement and Backstop Commitment Agreement, and a recovery for the Debtors’ junior stakeholders in excess of what is provided for under the equitization plan. The “toggle” feature, in conjunction with formal bidding procedures, will allow the Debtors to run a comprehensive marketing process over the next approximately 60 days to assess any bids that may maximize the value of their estates for the benefit of all parties in interest, especially junior stakeholders.

Maybe a buyer will swoop in? 🤔More on this below.

How does equity fare under the equitization plan? Or said another way:

Well, for starters, there’s actually a recovery under the term sheet!! So, that’s a plus. Of course, that recovery is contingent upon a number of things (like a “yes” vote on the plan) and in no scenario does it make up for the ridiculous run-up the stock had on the heals of the $AMC pop that recently carried other beaten-down-on-the-doorsteps-of-bankruptcy stocks like $WPG and $GTT to the moooooooooon. 🚀As recently as June 1, the stock went up 113.5% to $4.74/share. We noted that here.

So what’s that recovery look like? Well ⬇️.

And the cash pool available to common stockholders is $20mm (PETITION Note: preferred shareholders have a separate $20mm pool). It looks like there are 24.4mm common shares outstanding which means that each eligible shareholder would get a minimum of $0.819 per share if every holder elected the cash option. That number could, of course, go up because there may be holders of “size” (what that threshold is is not at all clear from the term sheet but presumably that’s a reference to accredited investors) who elect to receive equity in lieu of cash. Of course this is a delicate dance because if too many shareholders opt out of the equity option, the whole class will get cash. It’s unclear at what level that trigger sits.

Suffice it to say that any way you slice it the recovery to common equity remains far below where the stock was trading on Monday June 14 after the bankruptcy news broke. The stock seesawed all day Monday from a low of approximately $1.80/share to a high of $4.38/share on high volume — roughly 8.5mm shares or approximately 1/3 the float. On Tuesday, the downward trajectory continued:

Meanwhile, the unsecured notes popped reflecting optimism over WPG’s future ⬇️!

So now we wait and see whether another party emerges over the next 60 days and gives SVP a run for its money. To be clear, this looks like a pretty heavy lift: the debtors’ docs appear to indicate that an alternative proposal would need to include enough cash to clear the cap stack and garner the support of unsecured noteholders. Absent that, there doesn’t appear to be a reason for the stock to be trading within the range highlighted above. Well, other than nobody bothering to read bankruptcy documents. TO THE MOOOOOOON!

Of course, we’ve poo poo’d stock prices in recent chapter 11 bankruptcy filings before so we’ll just bite our tongues for now. After all, markets 🤷‍♀️. Reticence aside, we feel reasonably confident that this won’t amount to Hertz 2.0.

*****

WPG is represented by Kirkland & Ellis LLP (Joshua Sussberg, Chad Husnick, Alexander Nicas, Dan Latona, A. Katrine Jakola, Erica Clark, Maddison Levine, Kristin Rose, Jhanile Trudy Smith) & Jackson Walker LLP (Matthew Cavenaugh, Kristhy Peguero, Genevieve Graham) as legal counsel, Alvarez & Marsal LLC (Marc Liebman) as restructuring advisor, and Guggenheim Securities LLC (Elizabeth Abrams) as investment banker. The ad hoc group of lenders is represented by Wachtell Lipton Rosen & Katz LLP (Joshua Feltman, Rod Ghods, Elyssa Eisenberg, Angela Herring) as legal counsel and PJT Partners LP as investment banker. And, finally, SVP is represented by Davis Polk & Wardwell LLP (Damian Schaible, Angela Libby, Aryeh Falk) and Haynes and Boone LLP (Charles Beckham Jr., Arsalan Muhammad, Martha Wyrick) as legal, Evercore Group LLC as financial advisor, Agora Advisors Inc., and Raider Hill Advisors LLC.


Date: June 13, 2021

Jurisdiction: S.D. of TX (Judge Isgur)

Capital Structure: see above.

Company Professionals:

  • Legal: Kirkland & Ellis LLP (Joshua Sussberg, Chad Husnick, Alexander Nicas, Dan Latona, A. Katrine Jakola, Erica Clark, Maddison Levine, Kristin Rose, Jhanile Trudy Smith) & Jackson Walker LLP (Matthew Cavenaugh, Kristhy Peguero, Genevieve Graham)

  • Board of Directors: Robert Laikin, J. Taggart Birge, Sheryl G. von Blucher, John Levy, John Dillon, Louis Conforti

  • Financial Advisor: Alvarez & Marsal LLC (Marc Liebman)

  • Investment Banker: Guggenheim Securities LLC (Ronen Bojmel, Elizabeth Abrams)

  • Auditor: Ernst & Young LLP

  • Tax Advisor: Deloitte Tax LLP

  • Claims Agent: Prime Clerk LLC (Click here for free docket access)

Other Parties in Interest:

  • 2018 Credit Facility Agent: Bank of America N.A.

  • 2015 Credit Facility Agent, Weberstown TL Agent & DIP Agent: GLAS USA LLC

    • Legal: Mayer Brown LLP (Brian Trust, James Danford Jr., Lucy Kweskin)

  • Ad Hoc Lender Group of Consenting 2018 Credit Facility Lenders, Consenting 2015 Credit Facility Lenders, and Consenting Weberstown Lenders: Redwood Capital Management, LLC, Silver Point Capital L.P., and Glendon Capital Management L.P.

    • Legal: Wachtell Lipton Rosen & Katz LLP (Joshua Feltman, Rod Ghods, Elyssa Eisenberg, Angela Herring) & Vinson & Elkins LLP (Paul Heath, Michael Garza)

    • Financial Advisor: PJT Partners LP

  • Crossover Holder of Corporate Level Bank Debt and Unsecured Notes & Plan Sponsor: SVPGlobal

    • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Angela Libby, Aryeh Falk) & Haynes and Boone LLP (Charles Beckham Jr., Arsalan Muhammad, Martha Wyrick)

    • Financial Advisor: Evercore Group LLC

    • Brand Advisor: Agora Advisors Inc.

    • Real Estate Advisor: Raider Hill Advisors LLC

  • Ad Hoc Committee of Preferred Shareholders: Cygnus Capital Inc., Union Square Park Capital Management LLC, Daniel Lewis

    • Legal: Olshan Frame Wolosky LLP (Adam Friedman, Jonathan Koevary, Adrienne Ward, Lori Marks-Esterman) & Gray Reed (Jason Brookner, Lydia Webb)

    • Financial Advisor: Miller Buckfire & Co. LLC (John D’Amico)

  • Official Committee of Unsecured Creditors: U.S. Bank NA, Nationwide Janitorial Services Inc., Parking Lot Services LLC

    • Legal: Greenberg Traurig LLP (David Kurzweil, Nathan Haynes, Shari Heyen)

  • Unsecured Notes Trustee: US Bank NA

    • Legal: Dorsey & Whitney LLP (Tom Kelly, Joseph Acosta)

  • Largest equityholders: