Chapter 11 ) WASHINGTON PRIME GROUP INC., Et Al.,1 ) Case No
Total Page：16
File Type：pdf, Size：1020Kb
Case 21-31948 Document 26 Filed in TXSB on 06/14/21 Page 1 of 401 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION ) In re: ) Chapter 11 ) WASHINGTON PRIME GROUP INC., et al.,1 ) Case No. 21-31948 (MI) ) Debtors. ) (Joint Administration Requested) ) DECLARATION OF MARK E. YALE, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER OF WASHINGTON PRIME GROUP INC., IN SUPPORT OF THE DEBTORS’ CHAPTER 11 PETITIONS AND FIRST DAY MOTIONS I, Mark E. Yale, hereby declare under penalty of perjury: 1. Washington Prime Group Inc. (“WPG Inc.” and, together with its debtor subsidiaries, the “Debtors” and, together with its debtor and non-debtor subsidiaries, collectively, the “Company” or “WPG”) is a recognized market leader in the ownership, development, and management of retail real estate across the United States, including enclosed and open air retail properties. WPG’s property portfolio consists of material interests in 102 shopping centers in the United States totaling approximately 52 million square feet of gross leasable area.2 Retail space at WPG’s shopping centers are leased to a variety of tenants across the retail spectrum, including anchor stores, big-box tenants, national inline tenants, sit-down restaurants, movie theaters, and regional and local retailers. 1 A complete list of each of the Debtors in these chapter 11 cases and the last four digits of their federal tax identification numbers may be obtained on the website of the Debtors’ proposed claims and noticing agent at https://cases.primeclerk.com/washingtonprime. The Debtors’ service address is 180 East Broad Street, Columbus, Ohio 43215. 2 The Company operates 97 of the 102 properties. The Company does not operate the following, which are in receivership: (1) Charlottesville Fashion Square in Charlottesville, Virginia, (2) Muncie Mall in Muncie, Indiana, (3) Anderson Mall in Anderson, South Carolina, (4) Lincolnwood Town Center in Lincolnwood, Illinois, and (5) Oak Court Mall in Memphis, Tennessee. Case 21-31948 Document 26 Filed in TXSB on 06/14/21 Page 2 of 401 2. Like many retail businesses, WPG’s revenue and operations have been significantly impacted by the shift from brick-and-mortar to online retail channels and changing consumer preferences and demographics. In response to these challenges, WPG has focused on adaptively reusing its property for mixed use (last mile fulfilment, lodging, residential, and office and medical), aesthetically improving upon interior and exterior “curb appeal” and the open air components at 75% of WPG’s properties, and divesting 21 noncore properties over the last five years. Despite significant progress implementing its business plan, the COVID-19 pandemic proved insurmountable. In response to the public health emergency across the United States, the federal government, and state and local governments imposed shelter-in-place orders and social-distancing protocols, among other measures, intended to stem the spread of COVID-19. These measures ceased or significantly decreased foot traffic in WPG’s shopping centers, retail stores, and restaurants. WPG was forced to provide certain tenants with rent relief through a combination of rent deferrals and abatements to avoid tenant bankruptcies and lease abandonments during most of 2020, when in-person commerce was largely non-existent. Although these measures aided in maintaining occupancy rates, they had a material adverse effect on WPG’s revenues, operations, and cash flows for the year ending December 31, 2020, and continue to impact the Company in 2021. 3. WPG has taken other proactive steps to counteract the financial impact of the COVID-19 pandemic. More specifically, WPG temporarily reduced its workforce by approximately 20% through furloughs and layoffs, temporarily reduced senior management base compensation from 5% to 25% for certain executives, temporarily suspended the quarterly common share and operating partnership unit cash dividend for 2020, and drew $120 million under its revolving credit facility to support operations. In addition, the Company executed forbearance 2 Case 21-31948 Document 26 Filed in TXSB on 06/14/21 Page 3 of 401 agreements on certain consolidated and unconsolidated property-level mortgage loans, resulting in enhanced cash flow during a period of decreased rent collections. 4. Beginning in late spring 2020, the Debtors proactively engaged with certain of its lenders to negotiate for flexibility under the Debtors’ credit agreements to help weather the economic downturn and prolonged financial and operational impact caused by the pandemic. The 2020 Amendments (as defined herein), entered into in August 2020, provided covenant relief under certain of the Debtors’ corporate debt credit agreements through the third quarter of 2021, in exchange for WPG pledging certain unencumbered properties as security (this security was temporary and could have been released starting in the third quarter of 2021 if certain financial conditions were met). In negotiating the 2020 Amendments, WPG expected to utilize the covenant relief provided to bridge past the COVID-19 pandemic, when shopping centers would reopen, foot traffic would gradually increase, and retail and consumer activity would return to pre-pandemic levels. Although shopping centers and other retail establishments reopened mid-2020 (albeit with capacity restrictions), a resurgence in COVID-19 cases continued to negatively impact consumer habits and sentiment while also depressing foot traffic at WPG’s properties throughout the end of last year and into the first quarter of 2021. 5. In late 2020, WPG sought to address its balance sheet through discussions with a material holder of its unsecured notes regarding a potential debt-for-preferred equity exchange. This transaction would have allowed WPG to convert a substantial portion of its unsecured notes into new preferred equity. WPG sought to effectuate the transaction by reorganizing its 51% interest in certain joint ventures with O’Connor Mall Partners, L.P. (“O’Connor”) into a special purpose vehicle and exchanging certain of the Debtors’ 6.45% senior unsecured notes due 2024 (the “Unsecured Notes”) into a perpetual preferred equity instrument. Despite the advanced state 3 Case 21-31948 Document 26 Filed in TXSB on 06/14/21 Page 4 of 401 of these negotiations in late December 2020, the parties were unable to finalize the terms of the transaction. 6. As a result of continued financial and operational underperformance due to the resurgence in COVID-19 during the fall and winter months and the unsuccessful exchange transaction, WPG began to explore a comprehensive deleveraging solution for its corporate capital structure. Changes externally in the broader economy and internally within the corporate capital structure led to increased interest by various key stakeholders to engage with the Debtors on the terms of a comprehensive restructuring transaction in the months leading to the commencement of these chapter 11 cases. 7. On February 15, 2021, WPG’s board of directors elected to defer the approximately $23.2 million semi-annual interest payment due on their Unsecured Notes, thereby commencing a 30-day grace period under the Unsecured Notes Indenture.3 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”), represented by Davis Polk & Wardwell LLP, Evercore Group L.L.C., Agora Advisors, Inc., and Raider Hill Advisors, LLC, and an ad hoc group of certain holders of their corporate-level bank debt (collectively, the “Ad Hoc Lender Group”), represented by Wachtell, Lipton, Rosen & Katz and PJT Partners LP. 8. Beginning in late February 2021 and continuing through the weeks leading up to the Petition Date, the Debtors and their advisors provided SVP and its advisors with a substantial amount of diligence and held dozens of diligence calls focused on various aspects of the Debtors’ business, operations, and assets. On March 16, 2021, the Debtors, SVP, and the Ad Hoc Lender 3 “Unsecured Notes Indenture” shall mean that certain Indenture dated as of March 24, 2015, as supplemented on August 4, 2017, by and among WPG LP (as defined herein), as issuer, and U.S. Bank National Association, as trustee. 4 Case 21-31948 Document 26 Filed in TXSB on 06/14/21 Page 5 of 401 Group executed forbearance agreements with respect to the Unsecured Notes, 2018 Credit Facility Agreement, 2015 Credit Facility Agreement, and Weberstown Term Loan Facility Agreement (each as defined herein), forbearing the exercise of remedies under these credit agreements through March 31, 2021, and eventually extending those forbearance agreements through June 14, 2021. During this time, WPG negotiated forbearance agreements with nine of their property-level mortgage lenders and implemented a corporate transaction to replace the guarantor for one of the property-level mortgage loans, which collectively avoided any material business or operational impact due to a cross-default on certain property-level mortgages that would otherwise be triggered by the Debtors’ bankruptcy filing.4 These agreements and transactions provided the Debtors, SVP, and the Ad Hoc Lender Group with runway to negotiate a comprehensive corporate debt deleveraging transaction without disruption to a material portion of WPG’s properties. 9. While discussions between the Debtors, SVP, and the Ad Hoc Lender Group were progressing, the landscape began to shift