Washington Prime Group

DEBTORS AND THEIR BUSINESSES

Washington Prime Group Inc. (“WPG”) and 88 of its affiliated companies filed for Chapter 11 bankruptcy protection on June 13, 2021. The Debtors collectively own and operate 102 shopping centers totaling approximately 52 million square feet across the United States. The Debtors also own certain undeveloped lands intended for new development or expansion of existing properties. WPG, the parent company, is a publicly traded real estate investment trust (“REIT”).

WPG was formed in 2014 as a spin-off of mall giant Simon Property Group. Its portfolio has flexed from around 95 to 125 properties in its lifespan. Its current 102 shopping centers are comprised primarily of open-air strip malls. A minority of the properties are enclosed malls. Five of the 102 properties are currently in receivership and WPG plans to transition ownership of those properties to its lenders.

Companies in the retail sector like WPG have been fighting adverse market conditions for years as consumers have shifted towards online shopping. The COVID-19 pandemic, which shuttered or severely restricted foot traffic to malls, compounded these issues, leading WPG to file for bankruptcy.

WPG’S DEBT LOAD IS IN THE BILLIONS

On filing for bankruptcy, WPG reported that the Debtors have approximately $3,872,200,000 in debt. That roughly $3.9 billion in debt is a big number, even in the Chapter 11 bankruptcy world. This debt is broken down into:

• $1.1 billion in secured loans
• $2.8 billion in property debt (including mortgages)
• $1 billion in unsecured debt, including unsecured loans and traditional vendor debt

WPG hopes to proceed quickly through the bankruptcy process, which is typical for large business cases these days. In order to accomplish that goal, WPG began negotiating with its major creditors months before actually filing its bankruptcy petitions. The result of the negotiations is a Restructuring Support Agreement (“RSA”) between WPG and its major lenders.

The terms of the RSA call for one of two exits from bankruptcy for WPG. The lenders have agreed to conduct a debt-for-equity swap that would allow WPG to deleverage its balance sheet and pay all unsecured creditors in full. However, they have conditioned this agreement on WPG conducting a marketing and sale process to see if any party is willing to pay more on the open market. So, WPG intends to file a plan that would contain both of these options. It will either restructure with its current lenders or sell, if it finds a willing buyer with billions to spend.

WPG HAS COMMITTED TO PAYING UNSECURED CREDITORS

Somewhat surprisingly, WPG’s RSA includes a provision whereby all general unsecured creditors, including WPG’s trade vendors, will be paid in full. The bidding procedures in the case, if they are approved by the judge, will require any potential buyer to provide enough cash to pay unsecured creditors, too. So, in either a restructure with existing lenders or a sale, WPG’s unsecured creditors should be paid.

However, that does not mean that creditors can sit back and wait for the money to roll in. First, WPG can only pay creditors it knows it has. The best way to get paid is to file a proof of claim (“POC”) in the bankruptcy case. Once a creditor files a POC, they are presumed to be owed the amount stated in the POC unless and until someone objects.

Second, while WPG has ostensibly committed to paying its trade creditors, the timeline on which that will happen is not set in stone. Creditors in Chapter 11 bankruptcies are permitted to argue for better treatment. While WPG says it will pay in full, creditors can still argue to be paid faster. The best way for unsecured creditors to express their preferences in bankruptcy is to work together, form a Committee of Unsecured Creditors, and hire experienced attorneys to advocate for them. If you have any questions about filing a proof of claim, serving on a committee, or the bankruptcy process in general, please reach out to PRLT.