As new retail looks out onto the horizon, old retail struggles to survive.

We’ve been following the beleaguered Washington Prime Group Inc. ($WPG) for years (see here and here). Our last update indicated that WPG’s tenants are struggling to pay rent, which is making it tough on the mall operator to manage its ~$4b of debt. WPG reported Q4 and FY 2020 earnings on March 16, and they were NOT good. For a high level recap:

• Revenue down 12% for the quarter and 21% annually, YoY;

• Adj. EBITDA (EBITDAre) down 22% for the quarter and 33% annually, YoY; margins absolutely CRUSHED; and

• Comparable NOI down 14% for the quarter and 24% annually, YoY.

Exactly one month earlier, WPG announced it wouldn’t be making its $23.2mm interest payment on its Senior Notes due 2024 and entered into a 30-day grace period. With the grace period set to expire on March 17th and ripen into a full-blown Event of Default, WPG and its lenders needed to get back to the table.

Included in its earnings release was an announcement by WPG that it had entered into a forbearance agreements with “certain beneficial owners of more than 67% of the aggregate principal amount” of the 2024 Senior Notes and with respect to its Credit Agreements. The forbearance period expires “on the earlier of March 31, 2021 and “the occurrence of any of the specified early termination events” including “negotiations of the terms and conditions of a financial restructuring…of the existing debt of, existing equity interests in, and certain other obligations of the Company and certain of its direct and indirect subsidiaries.” WPG warns that a restructuring “may need to be implemented…under chapter 11 of the United States Bankruptcy Code.”

Management provided neither 2021 guidance nor a conference call. And on March 17 S&P downgraded WPG’s issuer credit rating to 'D' from 'CC'. Can’t say we’re surprised.

None of that fundamental weakness stopped the retail speculators from getting into the action.

“Blow up,” sure, but not in the way @ersindemirtas expected. On the day of the ⬆️ prognostication, the stock was trading at $3.39/share. After the earnings report, the stock dipped below $3/share only to pop back 10% and close slightly over $3/share. Maybe because, as this guy ⬇️ astutely points out, things are kinda backwards these days:

On Monday, however, Bloomberg reported that WPG is in the market for a DIP loan:

Guggenheim, the company’s investment bank, has asked prospective lenders to indicate their interest in providing a potential $150 million debtor-in-possession loan, according to one of the people, who asked not to be identified discussing confidential talks. The negotiations are ongoing and the terms could change, the people said.

Which is where the WPG story is these days. It’s not a question of ‘if’ or ‘when.’ It’s a question of ‘how much.’

The stock initially dropped over 12% on the news, regained some ground to end Monday down 7.6% before rallying slightly after the market closed. Because, like, 🤷‍♀️.

Of course, that small rally didn’t hold. The company got smoked by over 10% in trading on Tuesday:

While — ⚡️shocker⚡️ — the market appears to be acting rationally for once, there are, of course, certain participants who appear unfazed.

There’s not much suspense left in this story beyond just how wrong @MaxValue1 will be.