By Mike Spector
NEW YORK (Reuters) - Mall owner Washington Prime Group (NYSE:WPG) Inc is preparing to seek bankruptcy protection as soon as this week after the COVID-19 pandemic forced it to temporarily close some of its roughly 100 shopping centers across the United States and businesses were unable to pay it rent, people familiar with the matter said.
The Columbus, Ohio-based company, formed in 2014 following a spin-off from mall giant Simon Property Group Inc (NYSE:SPG), owns properties that include open-air town centers and enclosed malls, with roughly a third concentrated in the Midwest. Its tenants include brand-name retailers pushed to the brink by the pandemic, such as J.C. Penney Co Inc, which filed for bankruptcy last year. Other tenants include retailers that borrowed money last year to bolster their finances during the crisis such as Bed Bath & Beyond Inc (NASDAQ:BBBY) and Macy's Inc. (NYSE:M)
The real estate investment trust's consideration of a Chapter 11 court restructuring to rework roughly $4 billion of debt marks the latest company in the broader retail landscape to wilt under a global public health crisis that kept U.S. shoppers home for months on end.
The U.S. economy is now sharply rebounding with more than 140 million Americans fully vaccinated and businesses reopening. Nevertheless, previous government stay-at-home orders and business closures designed to slow the pandemic crushed many retailers' bottom lines, imperiling their ability to pay rent to landlords such as Washington Prime. Other mall owners such as CBL & Associates Properties Inc and Pennsylvania Real Estate Investment (NYSE:PEI) Trust filed for bankruptcy last year.
Washington Prime did not immediately respond to a request for comment.
The company could be put up for sale in concert with the expected bankruptcy filing, one of the sources said. It is in talks for roughly $100 million of so-called debtor-in-possession financing to aid operations during bankruptcy proceedings, the source said.
The size of the financing will depend on whether Washington Prime reaches a debt restructuring deal with creditors before filing for bankruptcy or needs to continue negotiations while navigating court proceedings, in which case it could approach $150 million, the source added.
Washington Prime has said in public filings that it is in talks with creditors to restructure its finances and might need to seek bankruptcy protection.
The company has not yet made a final decision on whether it will seek bankruptcy protection, some of the sources said. The timing of any bankruptcy filing, should one occur, could slip depending on the progress of ongoing talks with creditors, these sources said.
Washington Prime is currently operating under a forbearance agreement with bondholders and lenders that expires Monday (NASDAQ:MNDY) night. The agreement has been extended several times since Washington Prime skipped a $23.2 million interest payment on bonds due Feb. 15.
The discussions have dragged on as negotiators wrestle with Washington Prime's improved business prospects and the potential that creditors might realize better financial recoveries, the sources familiar with the proceedings said. Washington Prime's stock soared earlier this year before falling, and experienced another brief surge in early June.
The talks include investment firm SVPGlobal, among Washington Prime's largest creditors, the sources said.
SVPGlobal declined to comment.
Fallout from the pandemic last year forced Washington Prime to close some properties for a time and relax collection of rent from its tenants, squeezing the mall owner's finances. During the throes of the pandemic in 2020, Washington Prime's rental income plummeted about $127 million from 2019 levels due to the pandemic.
During the first three months of this year, Washington Prime's rental income was off roughly $20 million compared with the same time period in 2020. Its cash flows from operations for the three months ending in March were $3.3 million, a plunge from $10 million during the same time period in 2020.