The winter cold snap in Texas has led to the postponement until March 5 of the bankruptcy dispute between Wells Fargo & Co. and CBL & Associates Properties Inc.
Wells Fargo has asked that a U.S. Bankruptcy Court judge terminate the Chapter 11 protection case of CBL Properties, claiming the shopping center operator has violated repayment agreements on loans worth nearly $1.2 billion.
CBL, based in Chattanooga, Tenn., owns Hanes Mall of Winston-Salem and Friendly Center of Greensboro.
A virtual trial began Feb. 3 in the Southern District of Texas with CBL stating that it did not default on its loans.
The trial was put on hold Feb. 11 because of the deep freeze in Texas. It would resume on Day Five of the trial.
Wells Fargo said it agreed in January 2019 to provide CBL Operating Partnership with a secured $685 million revolving line of credit and a secured $500 million term loan.
The bank said in its filing that the loan terms give it the right to take certain steps, including seizing control of the company and the rents from many of CBL's retail tenants, if CBL defaulted on loan terms.
CBL filed for Chapter 11 protection on Nov. 2, about a month after it had projected taking the financial step. It listed between $1 billion and $10 billion in assets and liabilities.
Since the filing, CBL has operated business as usual at all of its owned and managed properties.
The bank said the loan terms should have prevented CBL from filing for bankruptcy protection. It's not clear whether Wells Fargo intends to possess CBL's properties.
CBL also filed an adversarial proceeding against Wells Fargo on Nov. 2.
According to the U.S. Bankruptcy Court, an adversarial proceeding "has the same meaning as a lawsuit in other courts. In many situations, an adversary proceeding is required if a plaintiff wants to obtain a particular type of relief."
CBL is seeking a judgment against the bank, injunctive relief and damages for what it claimed are the bank's breaches of the loan agreements.
Wells Fargo and CBL have declined to make comment beyond their bankruptcy filings.
Tony Plath, a retired finance professor at UNC Charlotte, said it's uncommon for a creditor to attempt to vacate a bankruptcy filing.
"Usually the bankruptcy filing is a first step toward debtor-creditor negotiations, not a reason for the creditor to claim the debtor’s action is invalid and/or inappropriate," Plath said.
"Commercial real-estate borrowers almost always file for a Chapter 13 reorganization under financial hardship, since this action stops creditors from a foreclosure action and preserves the debtor’s ownership of the real estate."
Plath said that given Wells Fargo's own financial and legal problems since September 2016, "mall ownership is the last thing they’d want to do."
"Wells is clearly (frustrated) at CBL’s performance as a debtor, and this suit is a consequence of the magnitude of the bank’s anger at the behavior and performance of their borrower."