Owners of the Trafford Centre have warned that the shopping centre could be forced to shut if rescue talks with lenders fail.
Intu Properties, which also owns the Lakeside shopping centre in Essex, remains locked in crunch talks as it struggles with £5bn debts after being hard hit by debt and the Covid-19 pandemic. It has appointed KPMG to prepare a contingency plan for administration.
The group is negotiating details with lenders to secure vital funds to stay afloat ahead of a deadline on Friday.
The company’s current debt waivers expire on 26th June. Intu is hoping to arrange a so-called standstill agreement on terms of up to 18 months, but said at this stage it is unlikely to be more than 15 months.
It cautioned that if it cannot reach an agreement and is placed in administration, then without critical up-front funding from its lenders, “there is a risk that centres may have to close for a period”.
The group is trying to negotiate a freeze on loan repayments to its banks but demands from landlords is increasingly making this unlikely.
Intu was already under financial pressure as it came into the coronavirus pandemic, selling properties in the UK and Spain in recent years to help prop up its finances.
In May, the company threatened ‘robust action’ against large tenant businesses who haven’t paid their rent during the coronavirus lockdown.
It said it had only received 40 per cent of all rent and service charge for the first quarter of the year, which was due by the end of March.
The firm warned in March it could collapse if it cannot find further funds after losing £2bn in 2019.
In a statement, Intu said on May 18 it gave an update on lender discussions “in particular looking to achieve stability through standstill-based agreements with relevant financial stakeholders across its structures, at both the asset and group level.”
It said since this update, Intu has been in discussions with key stakeholders to progress this standstill strategy ahead of the revolving credit facility covenant waiver deadline of 26 June 2020.
“At this stage it is not expected that the duration will exceed 15 months,” it said. The extent and basis to which creditors at the individual asset level will share (to the extent it exists after the repayment of debt, accrued interest and applicable break costs) in any future valuation recovery; and creditors of Intu Properties plc may also benefit (including possibly by way of future equitization of PLC debt).
“How the operations of individual centres are to be funded. Some centres haver educed rent collections as a result of Covid-19 and cash trapped under their financing arrangements which restrict their ability to pay for support (such as shopping centre staff) from other entities in the Intu group.
“Securing additional funding in centres funded by bond structures is more difficult to achieve and, in this connection, consent will be sought shortly from the stockholders of Intu Debenture PLC to authorise the trustee to release certain monies within the existing debt structure to be used for short term liquidity needs.
“Other centres may also require cash injections for these purposes. This all remains subject to further negotiations, with no certainty as to whether Intu will achieve a standstill, or on what terms or for what duration.
“Further announcements will be made as appropriate. Notwithstanding the progress made with lenders, Intu has also appointed KPMG to contingency plan for administration. In the event that Intu Properties plc is unable to reach a standstill, it is likely it and certain other central entities will fall into administration.
“In this situation, all property companies would be required to pre-fund the administrator to provide central services to the shopping centres. If the administrator is not pre-funded then there is a risk that centres may have to close for a period.”