Day of Reckoning Nears for Intu After It Pulls Share Sale

(Bloomberg) --

The clock is ticking for the debt-laden owner of some of Britain's biggest malls.

Intu Properties Plc has just four months to raise enough capital to fend off creditors after it was forced to cancel a planned share sale. Furthermore, if mall values keep falling at their current rate, the firm will quickly need to find about 300 million pounds ($385 million) to satisfy lenders.

And that's before Intu even begins addressing its more than 3 billion pounds of loans coming due over the next five years -- a debt burden about 30 times the firm's current market value.

Uncertainty in equity and real estate markets scared a number of potential investors away from Intu's planned capital raising, according to a statement Wednesday. Shares in the company, which owns nine of the U.K.'s top 20 malls, subsequently fell the most on record. The extension of a crucial line of credit with seven banks was dependent on the raising.

The revised terms on Intu's revolving credit facility remain available if it sells 1.3 billion pounds of shares between now and July, Chief Executive Officer Matthew Roberts said in an interview. The firm is now looking at alternative options, including further asset sales or debt restructuring.

“We have expressions of interest in investing in the business at group and asset level, and in doing preferred equity deals,” Roberts said. “So we are going to sit down and work our way through those and talk to stakeholders including lenders in the next few weeks and keep the market updated.”

Bricks and mortar retailers are struggling against high property taxes, a sluggish economy and the rise of online giants like Amazon.com Inc. That's spooked retail property investors and is pushing down mall values, forcing up Intu's relative indebtedness.

The value of Intu's malls and stores plunged by 2 billion pounds in 2019, a 22% decline from the previous year and about a third below their 2017 peak as retailers closed stores and sought rent cuts. The rate of decline accelerated in the second half of the year, reflecting the lack of buyers for big U.K. malls.

Like-for-like net rental income slumped 9.1% last year and the company expects a further but slower drop in 2020.

Volatility caused by the outbreak of the coronavirus “definitely did not help” the share sale process, said Roberts. “It was a very difficult environment to be out trying to raise equity.”

Read more: Struggling Mall Owner Intu Gets Lifeline From Its Lenders

Intu's current 600 million-pound credit facility expires next year. The lenders, which include Bank of America Corp. and Barclays Plc, last week agreed to replace that with a 440 million-pound line of credit that would run to 2024.

A further 10% fall in rents and values would leave the company needing 308 million pounds to ensure it doesn't breach covenants across its credit lines, according to Wednesday's statement. Once a recently agreed round of sales is completed the company will have 168.3 million pounds of cash and a 129.2 million pounds of headroom on its existing loan facilities.

The company has appointed PricewaterhouseCoopers to advise on its capital structure, alongside incumbent advisers Rothschild & Co. and Linklaters LLP.

“A take-private is still possible, but given the precarious nature of the company, any bidder may be better waiting before striking a deal with debtholders,” Peel Hunt analysts including James Carswell wrote in a note Wednesday. “In all outcomes, the equity is looking increasingly worthless.”

--With assistance from Fabian Graber.

To contact the reporter on this story: Jack Sidders in London at jsidders@bloomberg.net

To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, Chris Bourke, James Hertling

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