Mall owners CBL Properties and PREIT have filed for Chapter 11 bankruptcy protection as the retail sector continues to struggle amid the COVID-19 pandemic.

CBL, the larger of the two companies, owns about 100 malls in the U.S., mostly in the Southeast and Midwest. PREIT is the largest mall owner in the Philadelphia region. Many of their largest tenants, including JC Penney, Tailored Brands, and Ascena Retail Group, have filed for bankruptcy this year.

CBL chief executive officer Stephen Lebovitz said the bankruptcy would leave it with a significantly stronger balance sheet by eliminating approximately $1.5 billion in unsecured debt and preferred obligations and leaving it with a significant increase in net cash flow.

“We have continued negotiations with the lenders under our secured credit facility since the signing of the [restructuring support agreement] and expect further discussions in an effort to reach a tri-party consensual agreement between the company, noteholders, and credit facility lenders during the bankruptcy process,” Lebovitz said.

The company plans to continue day-to-day operations. As of the end of September, it had more than $258 million in unrestricted cash on hand.

PREIT said a previously announced restructuring support agreement had the support of 95% of its creditors. In a statement, it said its bank lenders had committed to funding an additional $150 million to recapitalize the business, extend its debt maturity schedule, and support operations. It is using properties it owns free and clear as collateral.

In October, PREIT said it was at risk of being delisted from the New York Stock Exchange after its share price fell below $1 across 30 consecutive days.

CEO Joseph Coradino said the bankruptcy had no impact on its operations and the company looked forward to quickly emerging, “as a financially stronger company with the resources and support to continue creating diverse, multi-use ecosystems throughout our portfolio.”

Dan Tian/Xinhua via Getty

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One response to “Two Mall Owners File for Chapter 11”

  1. This is the biggest risk that must be faced by entrepreneurs if the financing of their business, which is mostly funded through bank loans (long-term) with collateral for immovable assets.

    Indeed, there is nothing wrong with this system, all analysis and risk considerations have been carefully considered, but the impact of long-term loan risks, especially for a period of more than 5 years, sometimes always appears beyond reasonable expectations, like it or not, the biggest and heaviest risks must be accepted and faced.

    However, there is nothing wrong if we calculate the unexpected risk, by reopening the historical storm of economic crises that have occurred before.

    The crisis period occurred every 1 decade since entering the millennium, namely in 1998/99 and then in 2009/10, occurring again in 2019/20.
    The three hurricanes of the economic crisis have had a significant impact on global financial turnover, especially what is happening today.

    Therefore, even though the financial market is cheap, you should consider financing your business capital with options;
    1. Own capital 60% -65% + debt 40% -35%, loan term under 5 years or a maximum of 5 years,
    2. Own capital 75% + debt 25%, loan period under 5 years.
    Consideration of the loan value, term and interest expense must be calculated carefully and carefully, because you cannot guess exactly and with certainty the velocity of your cash inflow.

    If the value of your loan is greater than your own capital, for a long period of time, do not be forced to finance a business in the retail sector, because your guaranteed assets will not be able to cover your losses, a domino effect will occur from your bankruptcy.

    Not a pleasant choice between the 3 options as mentioned in the article writing, because the domino effect will be significantly affected by financial institutions which will affect the economic recovery period.
    The restructuring option in case of the current crisis will not have any effect on your cash flow, it will even put a heavy burden on your financial financing.
    The rescheduling option is the same as the restructuring option, if the bankruptcy option has a very significant domino effect for all creditors and debtors.

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