Debt-laden shopping malls giant Intu today said it was likely to collapse into administration following the failure of talks with lenders, bringing the prospect of some of Britain’s biggest shopping centres having to close.
The company, struggling under £4.5 billion of debts and facing a massive fall in rents from struggling retailers, has been in a desperate scramble to persuade lenders to agree a standstill on its loan agreements ahead of a midnight deadline tonight.
It warned on 23rd June that it could be forced to put the company into administration if the talks failed.
Today it said: “Since that update, discussions have continued with the Intu group’s creditors in relation to the terms of standstill-based agreements. Unfortunately, insufficient alignment and agreement has been achieved on such terms.”
“The board is therefore considering the position of Intu with a view to protecting the interests of its stakeholders. This is likely to involve the appointment of administrators. A further announcement will be made as soon as possible.”
Some analysts expect that to come later today.
KPMG has been waiting in the wings to be appointed as administrator for some time, and Intu has warned that unless creditors stumped up £12 million to pre-fund the administrators’ work, shopping malls would have to close for a period
Intu’s malls include Watford and Lakeside in the London area and employ some 3,000 staff UK wide but a further 102,000 work for the shops in its centres, making it a major plank of many local economies around its 17 locations.
Intu was in a catastrophic position even before covid struck as its tenants got into financial difficulties due to the drift of shoppers away from “bricks and mortar” stores to internet shopping.
It ran up huge debts, and as time went on, the loans structure became increasingly complicated. Some loans are secured against individual shopping centres while others are taken against the group as a whole. Further complexities arise from the way the company “buys” services such as shopping centre support staff from subsidiaries of the group.
However, the forced closures of its shop tenants during the lockdown put its likely demise on fast-forward and made it increasingly unlikely that an agreement could be reached in time for tonight’s deadline on its covenant waiver.
Intu now stands as a poster child for the crisis facing retailers and their landlords. Retailers are claiming landlords have had it too good, for too long, with upward only rent reviews and demands for three months’ rent in advance. Landlords respond that retailers agreed the contracts and should honour them, citing that they, too, have pension funds and bank loans relying on them getting their rents paid in full.
The outcome of the Intu debacle is still most likely to be a restructuring where creditors take over the equity of the business, possibly through a break up of the group if the complex web of debts can be disentangled.
However, analysts point out that banks and hedge funds who own the debt are not experts in running shopping malls. Some were still keen to retain Intu management’s services.
Analysts at Stifel today cited press speculation stating that any deal was vetoed by the junior £250 million lender to the Trafford Centre, who wanted to take control of the mall itself as it was unwilling to accept the standstill conditions.
Without the Trafford Centre being included in the group, lenders on the whole company’s revolving credit facility – the business equivalent of an overdraft – would not give their support.
“It is now likely that the individual lenders on assets, or groups of assets, will take direct control and appoint their own asset managers. This process could take three to six monthsand the lenders will need to continue financial support during that time in order to keep the assets operational.”
Lenders will be caught between not wanting to accept losses on their loans and not wanting to lose further rental income by closing the malls.
After rent quarter day this week, just 13.8% of rents were collected from retailers by landlords.
Many of the biggest chains in difficulty have demanded cuts in rents or put themselves into a form of administration called a CVA in which landlords have to accept closures of many stores and rent cuts.
Landlords have often tried to be accommodating with rent holidays and a move from paying three months in advance to one month, easing the cashflow crisis being faced by tenants.
All Saints is the latest stores group thought to be mulling a CVA.