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Marks' Oaktree Gains CBL & Associates Properties Stake Following Reorganization

The mall operator filed for Chapter 11 bankruptcy a year ago

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Nov 12, 2021
Summary
  • The REIT filed for bankruptcy as the Covid-19 pandemic wreaked havoc on the retail space.
  • The stock resumed trading earlier this month.
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Oaktree Capital Management disclosed a stake in CBL & Associates Properties Inc. (

CBL, Financial) earlier this week.

The alternative asset management firm headquartered in Los Angeles, which was founded by renowned guru

Howard Marks (Trades, Portfolio) and several fellow investors in 1995, focuses on delivering superior results while observing its six-tenet investment philosophy of risk control, consistency, market inefficiency, specialization, bottom-up analysis and disavowal of market timing. Specializing in credit strategies, the firm also invests in high-yield bonds, convertible securities, distressed debt, real estate, control investments and listed equities.

According to GuruFocus Real-Time Picks, a Premium feature, the firm acquired 2.16 million shares of the Chattanooga, Tennessee-based real estate investment trust on Nov. 3, allocating 1.05% of the equity portfolio to the position. The stock traded for an average price of $30.75 per share on the day of the transaction.

The REIT, which invests in shopping centers primarily in the Southeastern and Midwestern U.S., has a $6.15 billion market cap; its shares were trading around $31.52 on Friday with a price-sales ratio of 75.84.

The stock, which began trading at the beginning of November following its emergence from bankruptcy, has risen 2.31% so far.

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The company filed for Chapter 11 bankruptcy a year ago as the Covid-19 pandemic lockdowns took their toll on retailers and mall owners alike due to stores closing down and tenants' rents going unpaid.

The stock ceased trading on the New York Stock Exchange on Nov. 3, 2020, but shares were still available on the OTC Markets.

As part of its reorganization, the REIT reduced its debt load by $1.7 billion. Following a planned note redemption, CBL & Associates will have more than $1.4 billion on its post-bankruptcy balance sheet.

The plan also provides an 89% common equity stake to certain noteholders. Consenting noteholders will receive $95 million in cash and $555 million worth of new senior secured notes.

As for the remaining bank lenders, which hold $938.7 million in principal amount under the secured credit facility, will receive $100 million in cash and a new $883.7 milllion secured term loan.

Existing common and preferred shareholders are expected to receive up to an 11% ownership stake in the REIT.

The company was granted approval from the court to emerge from bankruptcy in August.

In a statement following its exit from Chapter 11 restructuring on Nov. 1, CEO Stephen D. Lebovits commented on the “huge day” for CBL & Associates.

“After a year of focused effort and collaboration with our major stakeholders, we emerge a renewed organization with a fresh start,” he said. “The entire CBL team has shown incredible resilience, persistence and extraordinary effort in getting us to this point. Our improved cost structure, disciplined approach to capital investment and diverse portfolio of freestanding outparcels, open-air shopping centers and market-dominant malls, along with our talented team, position CBL to generate robust free cash flow and generate significant shareholder value.”

So far, the only guru invested in the stock is Marks’ firm with a 1.10% stake.

Portfolio composition

Oaktree's $6.32 billion equity portfolio, which was composed of 72 stocks as of June 30, is heavily invested in the energy sector, followed by smaller positions in industrials, financial services and utilities. The real estate space represents 7.62%.

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Other real estate stocks Marks’ firm held as of the end of the second quarter were Columbia Property Trust Inc. (

CXP, Financial), Americold Realty Trust (COLD, Financial), Kilroy Realty Corp. (KRC, Financial), Uniti Group Inc. (UNIT, Financial) and Equity Residential (EQR, Financial).

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I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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