Intu’s administration: What happens next?

When Matthew Roberts stepped into the chief executive role at intu in April last year, he told EG that his primary aims were to fix the landlord’s balance sheet issues, and to ultimately hand on the business “in a better condition than I had inherited it” to his successor.  “Anyone lucky enough to be a long-term owner of properties, or running that business, would want to hand it on to the next generation in better shape than they received it,” Roberts said at the time. Sadly for Roberts, his aspiration was not to be. KPMG has been formally appointed as intu’s administrator, after the landlord failed to agree covenant waivers on a £600m revolving credit facility with seven banks – Bank of America, Barclays, Credit Suisse, HSBC, Lloyds, Natwest and UBS. Intu’s share price, which has plummeted by more than 97% over the past year, was trading below 2p before shares were suspended. How the next 24 hours will play out Jim Tucker, David Pike and Mike Pink from KPMG’s restructuring practice have been appointed as joint administrators to the topco, intu Properties, in addition to eight subsidiaries. Insolvency experts have said that in the first instance, the administrators will have lined up plans behind the scenes to engage with intu’s 2,373 employees, its creditors and suppliers. Intu previously warned that some of its centres may need to close for an undefined period, if the property companies do not pre-fund the administrator to keep centre operations going. That said, the administrators have already lined up Global Mutual, Ellandi and Sovereign Centros among a host of asset managers to step in and manage some of its key centres, while British Land is touted as one of the names in the running to manage the £1.4bn Trafford Centre. All of the shopping centres will remain operational while the administrators assess options for the business and its assets. It is worth noting that shopping centres themselves in each of intu’s property companies have not gone into administration, meaning the lenders owning each respective vehicle are in line to take control of each SPV, if these eventually default without any waivers or standstill agreements in place. As part of the process, the administrators have assumed control of intu’s stakes within the topco and relevant entities. “The administrators will be able to control the PLC’s shareholdings in the SPVs that own the properties sitting in each one,” said a restructuring partner at a law firm, who did not wish to be named. If the administrators fail to rescue the parent company, it will seek to maximise creditor recoveries by selling the relevant assets. This could ultimately result in a fire sale, to gain as much return as possible for creditors – meaning that intu’s stakes in its centres could be sold at heavily discounted prices. This may create a knock-on effect for shopping centre values at fellow landlords such as Hammerson. Over time, the administrators may see enforcement action around intu’s different structures, such as the appointment of administrators or receivers to shareholdings. However, they will likely aim to preserve their economic interest in those assets. If the administrators opt for a pre-pack process – a controversial insolvency procedure where the business is sold back to its owners or to its lenders – bondholders may be able to reclaim their debts through the transfer of assets to a new company vehicle. However, a management buyback is not seen as a likely outcome. “It is more likely we’ll end up seeing a fire sale than a pre-pack,” said another top restructuring lawyer, highlighting that the value of intu’s brand remains in question. KPMG will need to submit core proposals, detailing its aims and the purpose of the administration, to the landlord’s creditors within eight weeks of its appointment. The beginning of the end Intu has been embroiled in tense negotiations with its lenders ahead of today’s midnight deadline. It was targeting an 18-month standstill agreement on its debt repayments, but some stakeholders pushed for shorter periods. It has also been discussing the scope for a debt-for-equity swap, as well as funding for individual shopping centres. Notably the Canada Pension Plan Investment Board, which has a £250m junior loan in the Trafford Centre structure, was the last bastion opposing intu’s proposal. A spokesperson for CPPIB said: “The company and its creditors across the capital structure have not been able to reach an agreement on the terms of a debt standstill. “In respect of our specific, ring-fenced financing of the Trafford Centre, we will work with the administrator of Intu Group to support the long term future of the Trafford Centre and also ensure that we are fulfilling our fiduciary duties to act in the best interest of the 20 million CPP contributors and beneficiaries.” The landlord is mired in a £4.5bn debt pile; its corporate-level debt comprises the £600m revolving credit facility, as well as £375m of unsecured convertible bonds due in 2022. It also has several debt instruments secured against different shopping centres, either as individual properties or in groups in special purpose vehicles.  Some of these include commercial mortgage-backed securities. Intu therefore faced the difficulty of getting all of its lenders and bondholders to agree on a universal solution.  The writing was on the wall While intu’s balance sheet problems have been well documented in recent years, its future has been in the hands of its lenders since March, when its hopes of a £1.3bn equity raise were dashed. At that point, a critical amendment and extension of its £600m RCF had depended on its ability to raise this amount. Pre-lockdown market uncertainty had, according to Roberts at the time, deterred “a number of potential investors from committing capital within a tight timeframe”.  These had included Hong Kong’s Link REIT, which decided not to back a £1bn recapitalisation plan in February. The REIT’s problems have lately been worsened by a lack of rental income owing to Covid-19 disruption. It collected just 40% of rents and service charges that were due on March rent day, according to its latest update on the matter.  In the meantime the government has extended measures to block landlords from evicting occupiers until the end of September, prolonging intu’s woes. See also: intu is running out of options To send feedback, e-mail pui-guan.man@egi.co.uk or tweet @PuiGuanM or @estatesgazette