CBL Says It Will Continue Normal Operations While Filing For Bankruptcy, Entering Agreement With Majority Of Note Holders

  • Wednesday, August 19, 2020

Chattanooga-based CBL Properties on Wednesday announced that the company has entered into a Restructuring Support Agreement with noteholders representing over 57 percent of its aggregate debt, while also moving forward with filing for Chapter 11 bankruptcy protection.

The terms of the RSA "provide for a comprehensive restructuring of the company’s balance sheet through an in-court process (bankruptcy) contemplated to commence no later than Oct.

1. The company intends to continue collaborative negotiations with its senior, secured lenders in the meantime to attempt to reach a consensual arrangement with those lenders. In the event that such an arrangement were reached, the company would amend the RSA to include its senior secured lenders. The agreement may be amended by the company and with the consent of noteholders representing at least 75 percent of the unsecured notes that are held by noteholders that are party to the RSA.

The plan would eliminate the approximately $1.4 billion principal amount of unsecured notes in exchange for the issuance of $500 million of new senior secured notes due June 2028, approximately $50 million of cash and approximately 90 percent of the new common equity of the company to holders of the unsecured notes.

As a result, the Plan, if implemented, will result in the elimination of approximately $900 million of debt, extension of the company’s debt maturity schedule and a reduction in annual interest expense of more than $20 million, it was stated.

The Plan also contemplates eliminating the company’s more than $600 million obligation on its preferred stock in exchange for new common equity and warrants.

Officials said, "In sum, the plan will provide the company with a significantly stronger balance sheet by reducing total debt, extending debt maturities and increasing liquidity while minimizing operational disruptions.

"Through this process, all day-to-day operations and business of the Company’s wholly owned, joint venture and third-party managed shopping centers will continue as normal. CBL’s customers, tenants and partners can expect business as usual at all of CBL’s owned and managed properties."

“Reaching this agreement with our noteholders is a major milestone for CBL,” said Stephen D. Lebovitz, chief executive officer of CBL. “The agreement will significantly improve our balance sheet by reducing leverage and increasing net cash flow and will simplify our capital structure, providing enhanced financial flexibility going forward.

“We also appreciate the confidence in the CBL organization and leadership team shown by the noteholders as we’ve worked collaboratively to find a solution that benefits all company stakeholders. Our goal is for this process to proceed as smoothly and as quickly as possible with no disruption to CBL’s operations. Once the process is complete, we will emerge as a stronger and more stable company, with an enhanced ability to execute on our key strategies of diversifying our sources of revenue and transforming our properties from traditional enclosed malls to suburban town centers. As a result, we will be better positioned to grow our business over the near and long term.”

CBL currently has approximately $220 million in cash on hand and available for sale securities. The company’s cash position, combined with positive cash flow generated by ongoing operations, is expected to be sufficient to meet CBL’s operational and restructuring needs.

Certain subsidiaries, including CBL’s joint ventures and CBL’s special purpose entities holding properties that secure mortgage loans, are not contemplated to be included as part of the in-court process. CBL anticipates continuing to meet all debt service and other obligations, as required, under its property level secured loans and joint venture partnerships.

A filing with the Securities and Exchange Commission says:

Under the RSA, the Company agreed to support and take all steps reasonably necessary and desirable to consummate the Restructuring Transactions in accordance with the RSA, including using commercially reasonable efforts to obtain all required regulatory and third-party approvals, negotiating in good faith and using commercially reasonable efforts to execute and implement the documentation required to consummate the Restructuring Transactions as contemplated by the RSA, and completing the following milestones (the “Milestones”), provided that nothing in the RSA constitutes an approval by the Company to commence Chapter 11 Cases (as defined below), for which separate board approval shall be required:

Commence cases (the “Chapter 11 Cases”) pursuant to title 11 of the United States Code in the Bankruptcy Court to implement the Restructuring Transactions no later than October 1, 2020 (such date of commencement, the “Petition Date”);

No later than 3 business days after the Petition Date, the Company shall have filed the joint chapter 11 plan (the “Plan”) of reorganization filed by the Company in the Chapter 11 Cases to implement the Restructuring Transactions and a motion seeking approval of the disclosure statement (the “Disclosure Statement”) with respect to the Plan;

No later than 3 business days after the Petition Date, the Bankruptcy Court shall have entered an interim order approving use of cash collateral;•No later than 60 days after the Petition Date, the Bankruptcy Court shall have entered a final order approving use of cash collateral;

No later than 85 days after the Petition Date, the Bankruptcy Court shall have entered an order approving the Disclosure Statement;•No later than 165 days after the Petition Date, the Bankruptcy Court shall have entered an order confirming the Plan pursuant to Section 1129 of the Bankruptcy Code; and•No later than 195 days after the Petition Date, the Plan shall have become effective (the “Plan Effective Date”).Economic RecoveryPursuant to the RSA, including the Restructuring Term Sheet on the Plan Effective Date:

Each Holder of a Notes Claim shall receive itspro ratashare of (i) $49.6 million of cash consideration (to be reduced by the amount of any interest payments made by the Company, if any, between the date the RSA becomes effective and its termination), (ii) $500 million of first-priority secured notes due June 2028 having, among other terms set forth in the Restructuring Term Sheet, (a) an interest rate of 10% per annum payable in cash, (b) liens on certain unencumbered properties, priority guarantees from certain entities and equity pledges of certain entities and (c) a full guarantee by the REIT and (iii) 90% of the common equity in the reorganized Company (the “New Equity Interests”), subject to dilution as set forth in the Restructuring Term Sheet.

Each holder of Claim (as defined in section 101(5) of the Bankruptcy Code) under the Operating Partnership’s secured credit facility (the “Bank Claims”) shall receive either (a) treatment as is acceptable to the Company and the Required Consenting Holders in a manner consistent with the Bankruptcy Code, including but not limited to, section 1129(b) of the Bankruptcy Code; or (b) such treatment as determined by the Bankruptcy Court.

If holders of preferred stock of the REIT or preferred units of the Operating Partnership (the “Preferred Holders”) vote in favor of the Plan as a class, they shall receive theirpro ratashare of up to a percentage to be determined as described below of the New Equity Interests and up to a percentage to be determined of warrants to be issued in connection with the Restructuring Transactions (the “Warrants”) which will be exercisable for 20% (in the aggregate and calculated as of the Plan Effective Date and including shares issuable upon exercise of the warrants) of the New Equity Interests exercisable solely for cash, subject to dilution as set forth in the Restructuring Term Sheet.

If the Preferred Holders reject the Plan as a class, they shall receive no recovery under the Plan. In addition, the Plan will provide for a cash out option for the Preferred Holders in the amount of $5 million on terms reasonably acceptable to the Company and the Required Consenting Holders.•If holders of common stock of the REIT or limited partnership units of the Operating Partnership designated as special common units (the “Common Holders”) vote in favor of the Plan as a class, they shall receive theirpro ratashare, of up to a percentage to be determined of the New Equity Interests and of the Warrants, subject to dilution as set forth in the Restructuring Term Sheet. If the Common Holders reject the Plan as a class, they shall receive no recovery under the Plan.

The percentage of New Equity Interests to be issued to the Preferred Holders and the Common Holders shall total 10% in the aggregate. The Operating Partnership shall determine equity splits in consultation with the Required Consenting Holders.The terms of the RSA additionally provide that (i) to the extent that there are holders of any other secured Claims, unsecured Claims or borrowers or guarantors of property level debt and guarantee claims, they shall receive treatment acceptable to the Required Consenting Holders and the Company and (ii) to the extent that any Claims or interests are required or permitted to share in the consideration provided to the holders of the Notes Claims pursuant to the terms of the RSA, the treatment of the Notes Claims and such other Claims and interests may be modified on terms acceptable to the Company and the Required Consenting Holders in a manner consistent with the Bankruptcy Code.

CBL said it is entering into new Executive Employment Agreements with five of its current executive officers, including Stephen D. Lebovitz, Chief Executive Officer; Farzana Khaleel, Executive Vice President-Chief Financial Officer; Michael I. Lebovitz, President; and Jeffery V. Curry, Chief Legal Officer and Secretary).  

It is not entering into an Executive Employment Agreement with Chairman of the Board Charles B. Lebovitz.

Key terms of these new Executive Employment Agreements may be summarized as follows:

Term: Initial 3-year term, with automatic renewal for successive 1-year terms if not terminated (including any such renewals, the “Term”).

Base Salary: Initially equivalent to originally approved 2020 base salaries, with future increases or decreases at discretion of the Board Compensation Committee (provided base salary shall not be decreased by more than 5% during the Term).Annual Bonus:Bonus compensation for 2020 will be pursuant to the KERP as described below.Annual bonus opportunities for 2021 and future years.

Other Incentives:Participation and amounts applicable to future equity incentives/ management incentive plan to be as determined by the Board Compensation Committee.

Insurance/Benefits:Continuation of health insurance benefits for 18 months following termination (24 months for CEO), subject to longer continuation, if applicable, under the terms of the Company’s Tier I, Tier II and Tier III Legacy Retiree Programs as described in the 2020 Proxy Statement.

Severance:If employment is terminated by the Company without Cause (as defined in the agreement) or upon a Change of Control, severance is twice (2x) the sum of (i) then-current annual base salary plus (ii) the Retention Bonus payable pursuant to the KERP (as described below).

Death/Disability:If employment is terminated due to death or disability (other than for the CEO), severance is twice (2x) then-current annual base salary.In the case of the CEO, such severance would equal 1x then-current annual base salary plus the Retention Bonus payable pursuant to the KERP (as described below).

Non-Solicitation/Non-Compete:One year following termination, unless executive was terminated without Cause (as defined in the agreement).

In connection with the Executive Employment Agreements and the KERP, the Company also terminated the following existing arrangements with Charles B. Lebovitz, Stephen D. Lebovitz and Jeffery V. Curry, the terms of which were superseded by the new arrangements:

The non-competition agreements entered into with Charles B. Lebovitz and Stephen D. Lebovitz at the time of the Company’s initial public offering in November 1993, as described in the 2020 Proxy Statement.

The limited severance arrangements approved for Jeffery V. Curry as an inducement to surrender his partnership in a national law firm to join the Company as its Chief Legal Officer in 2012, as described in the 2020 Proxy Statement.

CBL said, "In order to incentivize and retain key personnel during the Company’s restructuring process, the Compensation Committee of the Board approved the KERP, pursuant to which all officers of the Company of the level of Senior Vice President and above will be eligible to receive a Retention Bonus Award in lieu of the annual cash bonuses such officers otherwise would have been eligible for with respect to the Company’s 2020 fiscal year (including cash bonus awards under the AIP for the NEOs as described in the 2020 Proxy Statement).  The amounts of the Retention Bonus were set at slightly reduced levels compared with the cash bonus received by each NEO under the AIP for 2019.

Key terms of the Retention Bonus Awards applicable to the NEOs may be summarized as follows:

Payment Terms: Payable to each NEO on the first payroll payment date after the later of January 1, 2021 or the date on which the Company emerges from the Chapter 11 reorganization process.

Amount of KERP Retention Bonus for Each NEO:

Stephen D. Lebovitz, Chief Executive Officer $953,000

Farzana Khaleel, Executive Vice President-Chief Financial Officer $313,000

Charles B. Lebovitz, Chairman of the Board $414,000

Michael I. Lebovitz, President $313,000

Jeffery V. Curry, Chief Financial Officer and Treasurer $201,000

Clawback: Bonus payment to be returned to the Company if the executive voluntarily resigns or is terminated for Cause (as defined in the Retention Bonus Agreement) within 9 months (270 days) following receipt of the Retention Bonus.

Death/Disability: If employment is terminated without Cause or due to death or disability, the executive will be entitled to receive the Retention Bonus payment.

The Company is providing similar Retention Bonus incentives under the KERP to seven additional senior officers, at an aggregate cost of $1,247,500 if all such bonuses are paid, and to additional employees constituting approximately 35% of the Company’s non-executive workforce at an aggregate cost of $4,027,600 if all such bonuses are paid.

CBL operates a number of malls across the country, including Hamilton Place and Northgate.

A press release says:

  • • It’s business as usual at CBL’s properties. All CBL’s properties have reopened in accordance with the latest guidance from state and local governmental orders and will continue to operate as normal. Visitors to our properties will not notice any change in our operations.
  • • CBL Properties will be strengthened through this process. CBL will continue to own and operate a portfolio of market-dominant shopping centers with a vision to transform our properties from traditional enclosed malls to suburban town centers. This process will allow us to strengthen our balance sheet and provide even more flexibility to execute on our strategies.
  • • CBL will continue to work with our valued vendors, business partners and retailers. CBL has a significant cash position, which along with its net cash flow, provides sufficient liquidity to run our business. We will continue to meet our ongoing financial obligations.
Breaking News
New Hope Fire Department Disputes TWRA Report On Kayaker Rescues
  • 3/28/2024

New Hope Fire Department Corey Comstock disputed a report by the Tennessee Wildlife Resources Agency about the rescue of 33 kayakers from extremely high winds near Nickajack Cave on Monday. ... more

Woman Dies After Being Seriously Injured In House Fire Thursday Afternoon
Woman Dies After Being Seriously Injured In House Fire Thursday Afternoon
  • 3/28/2024

A woman died after sustaining life-threatening injuries in a house fire on North Moore Road Thursday afternoon and was rescued by Chattanooga firefighters. Hamilton County 911 received a call ... more

Motorcyclist Hit Speeds Of 170 MPH; Posted Video Of Outrunning Police
Motorcyclist Hit Speeds Of 170 MPH; Posted Video Of Outrunning Police
  • 3/28/2024

A motorcyclist fled on Sunday, from a Hamilton County Sheriff’s Office deputy attempting to make a lawful stop on Highway 27. Since that time, the deputy has been working leads to identify the ... more