Just as Shopping Returns, This Mall Owner Finds Trouble

(Bloomberg Opinion) -- One of Britain’s biggest mall operators wants its lenders to cut it yet more slack instead of calling in administrators. Given Intu Properties Plc’s terrible track record, it’s hard to see why creditors should opt for more of the same when they have the chance to take the keys.

Intu owns some of the U.K.’s biggest shopping centers, has 4.5 billion pounds ($5.6 billion) of net debt and a byzantine capital structure with borrowings piled onto individual sites as well as the group as a whole. The pandemic shut most of the retail sector, making it even harder for tenants to afford the rent. While non-essential shopping is now permitted in the U.K., any recovery will come too late and too slowly to generate sufficient cash for Intu to cut its debts and stay within its banking covenants.

The company wants its main lenders — the big four U.K. clearing banks plus Bank of America Corp., Credit Suisse Group AG and UBS Group AG — to accept a so-called standstill agreement suspending covenant tests for as long as 18 months and amending repayment terms. Matters come to a head on Friday when an existing covenant breach waiver expires. There’s no sign yet of any breakthrough.

Intu has lined up auditor KPMG to be the administrator in case no deal materializes. On Tuesday, it cautioned that such a scenario could involve temporary closing some malls if bondholders don’t proffer some cash to fund operations under administration. That sounded like an appeal to tenants to pay their next rent checks, due today, or risk being shuttered just as shoppers are returning, as Bloomberg Intelligence analyst Susan Munden points out.

The warning may backfire by making tenants less willing to pay rent if they think the malls will shut anyway. A complex administration is more likely than a clean standstill agreement, Munden reckons.

The case for the lenders granting a standstill is pretty weak. Creditors are already the de facto owners of this company. That’s what the share price is saying when it values the group at just 60 million pounds. The question is whether they want the existing team to set strategy and run operations, or want to take direct control.

They may decide it’s less bother just to give Intu more time, and avoid the negative publicity that could come with pulling the plug on a company behind some well-known shopping landmarks such as Manchester's Trafford Centre and Lakeside in Essex. Assuming administration happens, it could last for some time. This is a terrible market in which to be selling assets. There is no option of a quick liquidation for creditors to get their money back. Some of the senior debt due in 2023 is trading at roughly half of face value.

Intu’s credibility could scarcely be lower. The company was adapting to the shifting trends in retail, for example by adding more leisure space, but just not fast enough. Intu also failed to address its high leverage despite persistent investor concerns. Having a big shareholder with a blocking stake, property magnate John Whittaker, may have been a complicating factor here. The fact remains that Intu should have tried much harder to raise equity when conditions were favorable, instead of waiting till this year when it was too late.

Decent managers in this sector are sadly in short supply. If lenders keep Intu on board, it will be for want of anyone better.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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