Intu, troubled retail giant, seeks debt standstill deals

Trafford Centre

Troubled shopping centre operator Intu Properties plc said on Monday it will probably breach its debt covenants at the end of June due to falling rental payments.

Intu said it will now seek debt standstill agreements with creditors in an attempt to survive the coronavirus crisis.

Intu runs Manchester’s Trafford Centre and Arndale Centre, Newcastle’s Eldon Square, Gateshead’s Metrocentre and Glasgow’s Braehead. Its share price has fallen about 95% in the past year.

“Despite today’s update, we continue to believe the company does not survive without government help,” analysts at Liberum wrote in a note to clients. 

In a stock exchange statement on Monday, Intu said: “On 1 May 2020, intu properties plc announced a waiver of certain potential breaches in respect of its revolving credit facility until 26 June 2020, and that it was extending its engagement to key stakeholders of the group at the asset level as it explored all options, including potentially seeking standstills to overcome the current market dislocation. 

“Discussions have been ongoing since then and today intu provides an update on its current plans as part of its ultimate strategic objective to fix the balance sheet over the medium term.

“Significant market uncertainty remains regarding the impact of Covid-19 on the operations of intu’s centres which, with the exception of essential stores, remain semi-closed until at least 1 June 2020.

“Additionally, at this time, the speed of recovery once the UK comes out of lockdown remains unclear.

“The resulting impact on rental collections and valuations at the end of June is likely to result in breaches of covenants or material liquidity requirements if any such breaches are to be cured in accordance with the financing documents at that time.

“This market backdrop, where the investment market is effectively closed, also creates material uncertainty for any asset disposal or additional funding process which intu might pursue to address these covenant issues.

“intu believes that in order to provide a stable environment in which to address this situation, standstill-based agreements with relevant financial stakeholders across its structures, at both the asset and the group level, are the best course of action and its primary focus to maximise value.

“These standstill arrangements would seek relief from financial covenant testing, debt amortisation and facility maturity payments for a period through to no later than 31 December 2021.

“The standstill provisions would also aim to achieve self-funded operational and financial costs only across the different property owning sub-structures, without recourse to intu properties plc for any shortfalls during the standstill period with interest being ‘pay if you can’.

“intu believes that the best way forward is achieving stability through such a standstill until the market dislocation has stabilised and asset valuations and portfolio performance can be better understood by investors and debt providers and risk can be appropriately priced.

“When market dislocation has passed, there will be greater opportunity to explore alternative capital structures and solutions and disposals to ultimately fix the balance sheet.

“intu will seek to promote fairness and stability in its standstill proposals recognising there is risk of competing interests across groupwide stakeholder interests during this period of market dislocation.

“There can of course be no certainty as to whether any standstill can be achieved with all or some of the group’s creditors, or as to the terms.

“Whilst the standstill is the primary focus, it is possible that earlier individual breaches, under certain of the group’s financings, could occur over the coming weeks and the group will seek to address such instances as part of the wider discussions.

“intu will make further announcements as appropriate.”