PREIT, a real estate investment trust that operates retail and experiential destinations, is taking steps to execute a comprehensive reorganization to strengthen its balance sheet, reduce its total indebtedness by approximately $880 million and extend its maturity runway. The reorganization plan is supported by 100% of PREIT’s first and second lien lenders. To facilitate this process, the company received commitments for new money debtor-in-possession and exit revolver financing in an aggregate amount of approximately $135 million from a group of investors, led by Redwood Capital Management and Nut Tree Capital Management.

“We are pleased to be moving forward with strengthening the company’s balance sheet and positioning it for long-term success through this prepackaged plan. Following the pandemic disruption, PREIT has worked tirelessly to enhance the portfolio, dramatically improve occupancy and diversify its tenancy. However, unusual economic conditions have limited the company’s options with respect to its debt obligations, as meaningful achievements on the operating front were met with inflation and rising interest rates,” Joseph F. Coradino, chairman and CEO of PREIT, said. “Today’s announcement will position a restructured PREIT to execute on strategic initiatives to continue transforming its portfolio for the tenants and communities it serves. We look forward to quickly emerging from this process as a financially stronger company with the resources and support to continue creating diverse, multi-use property experiences throughout our portfolio.”

In order to effectuate the restructuring to make way for a recapitalized PREIT, the company filed a voluntary Chapter 11 bankruptcy petition in the U.S. Bankruptcy Court for the District of Delaware to implement its prepackaged plan. The filing will ensure that PREIT can continue all business operations without interruption while it obtains necessary approvals of its financial restructuring.  In advance of the filing, the company executed a restructuring support agreement with 100% of its first and second lien lenders.  In accordance with the RSA, PREIT expects it will be able to emerge from bankruptcy by early February 2024.

PREIT will pay all vendors, suppliers and employees during the course of the Chapter 11 proceedings and, pursuant to the terms of the prepackaged plan, which will be subject to court approval, the prepetition claims of all vendors, suppliers and employees will be unimpaired.

Under the terms of the Prepackaged Plan, a reorganized PREIT would emerge following the court-supervised process with a restructured balance sheet. Terms of the transaction are detailed in filings with the SEC and summarized below:

• First lien lenders will have the option to receive either a cash payment equal to 100% of their claims, or instead convert their claims into term loans under the exit facility in an amount equal to 101% of their claims.
• Second lien lenders will get their pro rata share of 65% of the new equity interests in reorganized PREIT and, second lien lenders who commit to backstop the exit facility will receive 35% of the new equity interests in reorganized PREIT, in each case subject to subject to dilution by a customary management incentive plan.
• The restructuring will be supported financially through a new money DIP Facility, totaling up to $60 million, which will convert into term loans under the exit facility in an amount equal to 101% of the DIP facility loans.
• In addition, PREIT’s lenders committed to provide revolving loans and term loans under an exit facility, consisting of a $75 million new money revolver, if PREIT is expected to have less than $75 million in unrestricted cash upon emergence from the Chapter 11 proceedings, and exit term loans in an amount sufficient to refinance in cash or in kind the DIP facility and the first lien loans.
• Existing preferred and common shares of PREIT will be canceled and PREIT will no longer be a publicly traded company. An aggregate $10 million payment, net of costs defined in the prepackaged plan and subject to certain conditions, will be provided to holders of the existing preferred and common stock. The payment, if made, will be allocated as follows: 70% for preferred shareholders and 30% for common shareholders.

“In November 2021, the company engaged PJT Partners to engage in a process to explore all strategic options to maximize shareholder value. PJT robustly marketed the company’s properties, sought capital infusion and otherwise explored any available options. That process did not result in any options that would allow the company to refinance or otherwise achieve value that would exceed the aggregate amount of its first and second lien loans,” Michael DeMarco, a lead independent trustee for PREIT’s board of trustees, said. “After months of evaluation and review with our financial advisors, the board has unanimously approved a transaction that we believe to be the alternative that maximizes the value of PREIT for all of our stakeholders.

“While PREIT continues to operate in a challenging market, we are pleased to arrive at an agreement with our key creditors that also provides a $10 million payment to preferred and common shareholders, if certain conditions are met, who otherwise would receive nothing. Based on the advice from its financial advisors, including that the value of the company does not exceed the aggregate amount of the existing first lien and second lien loans, the board has concluded that the consideration provided to preferred and common shareholders is in effect a gift resulting from voluntary agreement with the existing first and second lien lenders to avoid the expense of protracted Chapter 11 proceedings and shall only be available in the event that the equity distribution conditions are satisfied.”

PREIT filed several customary first-day motions with the court to support its operations during the court-supervised process, including the continued payment of employee wages and benefits without interruption. The company expects to receive court approval for these requests.

DLA Piper; Wachtell, Lipton, Rosen & Katz; and Dilworth Paxson are serving as legal counsel and PJT Partners is serving as financial advisor to PREIT.

Paul Hastings and Young Conaway Stargatt & Taylor are serving as legal counsel and Houlihan Lokey is serving as financial advisor to the ad hoc group of PREIT’s first lien and second lien secured lenders.