ITEM 1.01 Entry into a Material Definitive Agreement
Restructuring Support Agreement
On August 18, 2020, CBL & Associates Properties, Inc. (the “REIT”) and CBL & Associates Limited Partnership (the “Operating Partnership”), the majority owned subsidiary of the REIT (collectively, the Operating Partnership and the REIT are referred to as the “Company”), entered into a Restructuring Support Agreement (the “RSA”) with certain beneficial owners and/or investment advisors or managers of discretionary funds, accounts or other entities for the holders of beneficial owners (the “Consenting Noteholders”) in excess of 57% of the aggregate principal amount of the Operating Partnership’s 5.25% senior unsecured notes due 2023 (the “2023 Notes”), the Operating Partnership’s 4.60% notes due 2024 (the “2024 Notes”) and the Operating Partnership’s 5.95% senior unsecured notes due 2026 (the “2026 Notes,” together with the 2023 Notes and 2024 Notes, the “Notes”). The press release issued in connection with the signing of the RSA is attached as Exhibit 99.1.
Under the RSA, each Consenting Holder agreed to, among other things: (i) support the restructuring transactions (the “Restructuring Transactions”) set forth in the terms of the RSA and vote and exercise any rights and powers available to it in favor of any matter reasonably necessary to implement such transactions, including but not limited to, supporting any request by the Company for further interest rate forbearance periods in advance of the commencement of any chapter 11 cases as contemplated by the RSA, (ii) use commercially reasonable efforts, subject to applicable laws, to give any notice, order, institution, or direction to the trustee under the that certain indenture, dated as of November 26, 2013, among the Operating Partnership, as the issuer, the REIT, as the limited guarantor, and the Delaware Trust Company, as successor trustee (the “Trustee”), as amended, modified or supplemented by that certain First Supplemental Indenture dated as of November 26, 2013 by and among the Operating Partnership, the Company, and the Trustee, the Second Supplemental Indenture dated as of December 13, 2016 by and among the Operating Partnership, the Company and the Trustee and the Third Supplemental Indenture dated as of January 30, 2019 by and among Operating Partnership, the Company, the Subsidiary Guarantors and the Trustee, governing the Notes to give effect to the Restructuring Transactions and (iii) negotiate in good faith and use commercially reasonable efforts to execute and implement the documentation required pursuant to and consistent with the RSA to which such Consenting Holder is required to be a party.
In addition, each Consenting Noteholder acknowledged and agreed that the “events of default” under the Indenture resulting from the nonpayment of the (a) $11.8 million interest payment that was due and payable on June 1, 2020 (the “2023 Notes Interest Payment”) to holders of the 2023 Notes and (b) $18.6 million interest payment that was due and payable on June 15, 2020 (the “2026 Notes Interest Payment”) to holders of the 2026 Notes are no longer continuing under the Indenture as a result of the Company making each of the 2023 Notes Interest Payment and 2026 Notes Interest Payment in full on August 5, 2020. Further, each Consenting Noteholder agreed that, in the event the Trustee or other holders of the 2023 Notes or 2026 Notes, as applicable, take any action to declare either or both of the 2023 Notes or 2026 Notes immediately due and payable pursuant to Section 502 under the Indenture, as a result of either or both of such “events of defaults” described in (a) or (b) above, the Consenting Noteholders, solely to the extent permitted under the Indenture, agree to rescind and cancel any such acceleration.
The RSA is terminable by the Consenting Holders if certain events occur, including but not limited to: (i) if the Company files, publicly announces or informs counsel to the Consenting Holders of its intention to file a Plan (as defined below) that contains terms and conditions that: (a) do not provide the Consenting Holders with the economic recovery set forth in the restructuring term sheet annexed to the RSA (the “Restructuring Term Sheet”) or (b) are not otherwise consistent in all material respects with the RSA and the Restructuring Term Sheet; (ii) if the Company files with the Bankruptcy Court any motion or application seeking authority to sell material assets outside of the ordinary course of business, with an aggregate purchase price of greater than $15 million, without the prior written consent of the Consenting Holders; provided that the Company Parties shall segregate the proceeds from such sales for the benefit of the Consenting Noteholders; or (iii) the failure of the Company to comply with or achieve any one of the Milestones (as defined below), unless such Milestone is extended with the prior written consent of Consenting Holders who hold at least 75% of the aggregate principal amount of outstanding Notes held by such Consenting Holders (the “Required Consenting Holders”). The RSA is terminable by the Company if certain events occur, including but not limited to, a breach by Consenting Holders holding an amount of Notes that would result in the non-breaching Consenting Holders holding less than 66.67% of the aggregate principal amount of the Notes held by all of the Consenting Noteholders. The RSA automatically terminates on the Plan Effective Date (as defined below).
Milestones
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:
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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”);
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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;
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No later than 3 business days after the Petition Date, the Bankruptcy Court shall have entered an interim order approving use of cash collateral;
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No later than 60 days after the Petition Date, the Bankruptcy Court shall have entered a final order approving use of cash collateral;
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No later than 85 days after the Petition Date, the Bankruptcy Court shall have entered an order approving the Disclosure Statement;
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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
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No later than 195 days after the Petition Date, the Plan shall have become effective (the “Plan Effective Date”).
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Economic Recovery
Pursuant to the RSA, including the Restructuring Term Sheet on the Plan Effective Date:
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Each Holder of a Notes Claim shall receive its pro rata share 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.
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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.
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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 their pro rata share 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.
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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 their pro rata share, 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.
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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.
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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.
A copy of the RSA is filed as Exhibit 10.1 hereto and is incorporated herein by reference. The above description of the RSA is qualified in its entirety by the full text of such exhibit.