Mortgage and Other Indebtedness

Debt of the Company

CBL has no indebtedness. Either the Operating Partnership or one of its consolidated subsidiaries that the Operating Partnership has a direct or indirect ownership interest in is the borrower on all of the Company's debt.

CBL is a limited guarantor of the 5.25% senior notes, issued by the Operating Partnership in November 2013, for losses suffered solely by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates. The Company also provides a similar limited guarantee of the Operating Partnership's obligations with respect to its unsecured credit facilities and two unsecured term loans as of March 31, 2014.

CBL also has guaranteed 100% of the debt secured by The Promenade in D'Ilberville, MS, which had a balance of $50,640 at March 31, 2014.

Debt of the Operating Partnership

Mortgage and other indebtedness consisted of the following:



	March 31, 2014			December 31, 2013
	Amount		Weighted- Average Interest Rate ⁽¹⁾	Amount		Weighted- Average Interest Rate ⁽¹⁾
Fixed-rate debt:
Non-recourse loans on operating properties⁽²⁾	$	3,441,803	5.54%	$	3,527,830	5.54%
Senior unsecured notes ⁽³⁾	445,495		5.25%	445,374		5.25%
Financing obligation ⁽⁴⁾	—		—%	17,570		8.00%
Total fixed-rate debt	3,887,298		5.51%	3,990,774		5.52%
Variable-rate debt:
Non-recourse term loans on operating properties	11,306		1.95%	133,712		3.14%
Recourse term loans on operating properties	50,640		1.87%	51,300		1.87%
Construction loan	19,361		2.16%	2,983		2.17%
Unsecured lines of credit	381,212		1.55%	228,754		1.57%
Unsecured term loans	450,000		1.70%	450,000		1.71%
Total variable-rate debt	912,519		1.66%	866,749		1.91%
Total	$	4,799,817	4.77%	$	4,857,523	4.88%


(1)	Weighted-average interest rate includes the effect of debt premiums (discounts), but excludes amortization of deferred financing costs.


(2)	The Company had four interest rate swaps on notional amounts totaling $108,787 as of March 31, 2014 and $109,830 as of December 31, 2013 related to four variable-rate loans on operating properties to effectively fix the interest rate on the respective loans. Therefore, these amounts were reflected in fixed-rate debt at March 31, 2014 and December 31, 2013.


(3)	Net of discount in the amount of $4,505 and $4,626 as of March 31, 2014 and December 31, 2013, respectively.


(4)	This amount represented the noncontrolling partner's equity contribution related to Pearland Town Center that was accounted for as a financing due to certain terms of the CBL/T-C, LLC joint venture agreement. In March 2014, the Company purchased the noncontrolling interest as described below.

Senior Unsecured Notes

In November 2013, the Operating Partnership issued $450,000 of senior unsecured notes that bear interest at 5.25% payable semiannually beginning June 1, 2014 and mature on December 1, 2023 ("the Notes"). The interest rate will be subject to an increase ranging from 0.25% to 1.00% from time to time if, on or after January 1, 2016 and prior to January 1, 2020, the ratio of secured debt to total assets of the Company, as defined, is greater than 40% but less than 45%. The Notes are redeemable at the Operating Partnership's election, in whole or in part from time to time, on not less than 30 days notice to the holders of the Notes to be redeemed. The Notes may be redeemed prior to September 1, 2023 for cash, at a redemption price equal to the greater of (1) 100% of the aggregate principal amount of the Notes to be redeemed or (2) an amount equal to the sum of the present values of the remaining scheduled payments of principal and interest on the Notes to be redeemed, discounted to the redemption date on a semi-annual basis at the treasury rate, as defined, plus 0.40%, plus accrued and unpaid interest. On or after September 1, 2023, the Notes are redeemable for cash at a redemption price equal to 100% of the aggregate principal amount of the Notes to be redeemed plus accrued and unpaid interest. After deducting underwriting and other offering expenses of $4,152 and a discount of $4,626, the net proceeds from the sale of the Notes was $441,222, which the Operating Partnership used to reduce the outstanding balances on its credit facilities.

Financing Obligation

In March 2014, the Company exercised its right to acquire the 12.0% noncontrolling interest in Pearland Town Center, which was accounted for as a financing obligation upon its sale in October 2011, from its joint venture partner. The $17,948 purchase price represents the partner's invested capital plus accrued and unpaid preferred return at a rate of 8.0%. See Note 5 for additional information.

Unsecured Lines of Credit

The Company has three unsecured credit facilities that are used for retirement of secured loans, repayment of term loans, working capital, construction and acquisition purposes, as well as issuances of letters of credit.

Each facility bears interest at LIBOR plus a spread of 100 to 175 basis points based on the Company's credit ratings. As of March 31, 2014, the Company's interest rate based on its credit ratings of Baa3 from Moody's Investors Service ("Moody's") and BBB- from Fitch Ratings ("Fitch") is LIBOR plus 140 basis points. Additionally, the Company pays an annual facility fee that ranges from 0.15% to 0.35% of the total capacity of each facility. As of March 31, 2014, the annual facility fee was 0.30%. The three unsecured lines of credit had a weighted-average interest rate of 1.55% at March 31, 2014.

The following summarizes certain information about the Company's unsecured lines of credit as of March 31, 2014:



	Total Capacity		Total Outstanding			Maturity Date	Extended Maturity Date⁽¹⁾
Wells Fargo - Facility A	$	600,000	$	222,829	⁽²⁾	November 2015	November 2016
First Tennessee	100,000		34,000			February 2016	N/A
Wells Fargo - Facility B	600,000		124,383		⁽³⁾	November 2016	November 2017
	$	1,300,000	$	381,212


(1)	The extension options are at the Company's election, subject to continued compliance with the terms of the facilities, and have a one-time extension fee of 0.20% of the commitment amount of each credit facility.


(2)	There was an additional $1,775 outstanding on this facility as of March 31, 2014 for letters of credit. Up to $50,000 of the capacity on this facility can be used for letters of credit.


(3)	There was an additional $123 outstanding on this facility as of March 31, 2014 for letters of credit. Up to $50,000 of the capacity on this facility can be used for letters of credit.

Unsecured Term Loans

The Company has a five-year $400,000 unsecured term loan, which bears interest at a variable rate of LIBOR plus 150 basis points based on the Company's current credit ratings and has a maturity date of July 2018. At March 31, 2014, the outstanding borrowings of $400,000 had an interest rate of 1.65%.

The Company also has a $50,000 unsecured term loan that bears interest at LIBOR plus 190 basis points and matures in February 2018. At March 31, 2014, the outstanding borrowings of $50,000 had a weighted-average interest rate of 2.05%.

Covenants and Restrictions

The agreements for the unsecured lines of credit, the Notes and unsecured term loans contain, among other restrictions, certain financial covenants including the maintenance of certain financial coverage ratios, minimum net worth requirements, minimum unencumbered asset and interest ratios, maximum secured indebtedness ratios, maximum total indebtedness ratios and limitations on cash flow distributions. The Company believes that it was in compliance with all covenants and restrictions at March 31, 2014.

Unsecured Lines of Credit and Unsecured Term Loans

The following presents the Company's compliance with key covenant ratios, as defined, of the credit facilities and term loans as of March 31, 2014:



Ratio	Required	Actual
Debt to total asset value	< 60%	51.2%
Unencumbered asset value to unsecured indebtedness	> 1.60x	2.39x
Unencumbered NOI to unsecured interest expense	> 1.75x	4.58x
EBITDA to fixed charges (debt service)	> 1.50x	2.22x

The agreements for the unsecured credit facilities and unsecured term loans described above contain default provisions customary for transactions of this nature (with applicable customary grace periods). Additionally, any default in the payment of any recourse indebtedness greater than or equal to $50,000 or any non-recourse indebtedness greater than $150,000 (for the Company's ownership share) of CBL, the Operating Partnership or any Subsidiary, as defined, will constitute an event of default under the agreements to the credit facilities. The credit facilities also restrict the Company's ability to enter into any transaction that could result in certain changes in its ownership or structure as described under the heading “Change of Control/Change in Management” in the agreements for the credit facilities.

Senior Unsecured Notes

The following presents the Company's compliance with key covenant ratios, as defined, of the Notes as of March 31, 2014:



Ratio	Required	Actual
Total debt to total assets	< 60%	55.1%
Secured debt to total assets	< 45%⁽¹⁾	39.7%
Total unencumbered assets to unsecured debt	> 150%	224.7%
Consolidated income available for debt service to annual debt service charge	> 1.50x	3.28x


(1)	On January 1, 2020 and thereafter, secured debt to total assets must be less than 40%.

The agreements for the Notes described above contain default provisions customary for transactions of this nature (with applicable customary grace periods). Additionally, any default in the payment of any recourse indebtedness greater than or equal to $50,000 of the Operating Partnership will constitute an event of default under the Notes.

Other

Several of the Company’s malls/open-air centers, associated centers and community centers, in addition to the corporate office building, are owned by special purpose entities that are included in the Company’s condensed consolidated financial statements. The sole business purpose of the special purpose entities is to own and operate these properties. The real estate and other assets owned by these special purpose entities are restricted under the loan agreements in that they are not available to settle other debts of the Company. However, so long as the loans are not under an event of default, as defined in the loan agreements, the cash flows from these properties, after payments of debt service, operating expenses and reserves, are available for distribution to the Company.

Mortgages on Operating Properties

The Company has repaid the following loan, secured by the related property, since January 1, 2014:



Date	Property	Interest Rate at Repayment Date	Scheduled Maturity Date	Principal Balance Repaid ⁽¹⁾
January	St. Clair Square ⁽²⁾	3.25%	December 2016	$	122,375


(1)	The Company retired the loan with borrowings from its credit facilities.


(2)	The Company recorded a loss on extinguishment of debt from a $1,249 prepayment fee.

In February 2014, the lender of the non-recourse mortgage loan secured by Chapel Hill Mall in Akron, OH notified the Company that the loan had been placed in default. Chapel Hill Mall generates insufficient income levels to cover the debt service on the mortgage, which had a balance of $68,563 at March 31, 2014.

In the third quarter of 2013, the lender of the non-recourse mortgage loan secured by Citadel Mall in Charleston, SC sent a formal notice of default and initiated foreclosure proceedings. Citadel Mall generated insufficient income levels to cover the debt service on the mortgage and, in the second quarter of 2013, the lender on the loan began receiving the net operating cash flows of the property each month in lieu of scheduled monthly mortgage payments. A foreclosure sale occurred in January 2014 and the lender received the deed to the property in satisfaction of the non-recourse debt, which had a balance of $68,169 at the time of foreclosure. The Company recognized a gain of $43,909 related to the extinguishment of debt in the first quarter of 2014. See Note 4 to the condensed consolidated financial statements for further information.

The lender of the non-recourse mortgage loan secured by Columbia Place in Columbia, SC notified the Company in the first quarter of 2012 that the loan had been placed in default. Columbia Place generates insufficient income levels to cover the debt service on the mortgage, which had a balance of $27,265 at March 31, 2014 and a contractual maturity date of September 2013. The lender on the loan receives the net operating cash flows of the property each month in lieu of scheduled monthly mortgage payments. The servicer for the loan secured by Columbia Place is proceeding with foreclosure which the Company anticipates will occur in 2014.

See Note 16 to the condensed consolidated financial statements for information on loans on operating properties obtained subsequent to March 31, 2014.

Scheduled Principal Payments

As of March 31, 2014, the scheduled principal amortization and balloon payments of the Company’s consolidated debt, excluding extensions available at the Company’s option, on all mortgage and other indebtedness, including construction loans, term loans, the notes and lines of credit, are as follows:



2014	$	194,885
2015	752,147
2016	846,937
2017	488,826
2018	671,936
Thereafter	1,840,019
	4,794,750
Net unamortized premiums	5,067
	$	4,799,817

Of the $194,885 of scheduled principal payments in 2014, $164,040 relates to the maturing principal balances of two operating property loans, $3,580 represents scheduled principal amortization and $27,265 relates to the principal balance of one operating property loan secured by Columbia Place with a maturity date of September 2013. One maturing operating property loan with a principal balance of $50,640 outstanding as of March 31, 2014 has an extension available at the Company's option, leaving one loan maturity in 2014 of $113,400 that the Company intends to retire. The servicer for the loan secured by Columbia Place is proceeding with foreclosure which the Company anticipates will occur in 2014.

The Company’s mortgage and other indebtedness had a weighted-average maturity of 4.8 years as of March 31, 2014 and 4.7 years as of December 31, 2013.

Interest Rate Hedge Instruments

The Company records its derivative instruments in its condensed consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the derivative has been designated as a hedge and, if so, whether the hedge has met the criteria necessary to apply hedge accounting.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

The effective portion of changes in the fair value of derivatives designated as, and that qualify as, cash flow hedges is recorded in AOCI and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Such derivatives are used to hedge the variable cash flows associated with variable-rate debt.

As of March 31, 2014, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:



Instrument Type	Location in Condensed Consolidated Balance Sheet	Notional Amount Outstanding	Designated Benchmark Interest Rate	Strike Rate	Fair Value at 3/31/14			Fair Value at 12/31/13			Maturity Date
Cap	Intangible lease assets and other assets	N/A	3-month LIBOR	5.000%	N/A			$	—		Jan 2014

Pay fixed/ Receive variable Swap	Accounts payable and accrued liabilities	$52,588 (amortizing to $48,337)	1-month LIBOR	2.149%	$	(1,722	)	$	(1,915	)	Apr 2016
Pay fixed/ Receive variable Swap	Accounts payable and accrued liabilities	$32,928 (amortizing to $30,276)	1-month LIBOR	2.187%	(1,102		)	(1,226		)	Apr 2016
Pay fixed/ Receive variable Swap	Accounts payable and accrued liabilities	$12,309 (amortizing to $11,313)	1-month LIBOR	2.142%	(402		)	(446		)	Apr 2016
Pay fixed/ Receive variable Swap	Accounts payable and accrued liabilities	$10,962 (amortizing to $10,083)	1-month LIBOR	2.236%	(377		)	(420		)	Apr 2016
					$	(3,603	)	$	(4,007	)



	Gain (Loss) Recognized in OCI/L (Effective Portion)				Location of Losses Reclassified from AOCI into Earnings (Effective Portion)	Loss Recognized in Earnings (Effective Portion)						Location of Gain Recognized in Earnings (Ineffective Portion)	Gain Recognized in Earnings (Ineffective Portion)
Hedging Instrument	Three Months Ended March 31,					Three Months Ended March 31,							Three Months Ended March 31,
Hedging Instrument	2014		2013			2014			2013				2014		2013
Interest rate contracts	$	404	$	276	Interest Expense	$	(548	)	$	(557	)	Interest Expense	$	—	$	—

As of March 31, 2014, the Company expects to reclassify approximately $2,142 of losses currently reported in AOCI to interest expense within the next twelve months due to amortization of its outstanding interest rate contracts. Fluctuations in fair values of these derivatives between March 31, 2014 and the respective dates of termination will vary the projected reclassification amount.

Interest Rate
Derivative

Number of
Instruments

Notional
Amount
Outstanding

Interest Rate Swaps