Sometimes shoppers show up at the mall early, ahead of the masses, before the bargains are all picked through. Distressed debt traders like to wake up early in the morning too. On Monday, US shopping mall company Washington Prime Group filed for bankruptcy protection. As a part of the announcement, the company said it had a deal sewn up with most creditors that slashed the company’s debt by nearly $1bn and gave junior bondholders most of the equity of the reorganised group.

Washington Prime had been attempting to restructure its balance sheet for months but its public shareholders seemed to be taken off guard by the terms. Its market capitalisation fell by more than a quarter on Monday. The US is in the midst of a vaccine-led economic boom. The question now is whether this deal sparks a bidding war. Or perhaps permanent damage to the US shopping business from the 2020 shutdown makes that less likely.

Among its 121 malls, Washington Prime has many in mid-tier cities in the Midwest such as Lima, Ohio. Several anchor tenants such as JCPenney and Belk have declared their bankruptcies in recent months. Between shutdowns and the shift to ecommerce, cash flow from operations fell from $209m in 2019 to $79m in 2020. At the same time, the company had to deal with interest payment, debt maturities and covenant compliance. For canny creditor investors, that can create an opening to cut a canny deal with a desperate company.

The investor sponsoring the current restructuring plan is SVPGlobal. This big debtholder is willing to inject hundreds of millions of fresh dollars into the company to finance the restructuring. It would result in existing preferred and common shareholders sharing just $40m in cash.

Washington Prime has said it is willing to consider other bidders. But that would require any new investors to round up even more capital. While the company’s shares sank on Monday, its bonds traded up from 64 cents on the dollar to 70 cents. It was a clear sign of first-mover advantage.

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