Mortgage

Credit score issues improve the chance for American Dream bonds

Three failed mortgage payments for another mega-property owned by the owners of the American Dream development, which is financed by bonds, have worried investors whether the large project in New Jersey can withstand the lengthy closure caused by the COVID-19 pandemic.

American Dream developer Triple Five Group missed three monthly mortgage payments of $ 1.4 billion for the Mall of America in Minnesota, which he also owns. Last year, Triple Five was forced to deposit the Mall of America as collateral for a construction loan for American Dream.

The American Dream shopping mall and entertainment complex in New Jersey have been closed since March 17 due to the COVID-19 pandemic.

Bloomberg news

"The unknowns of whether developers will be strengthened make it very difficult for bondholders," said Joseph Krist, a municipal bond analyst. "At the end of the day, you want to know that you have someone behind the credit who makes a deal in difficult times."

Wells Fargo, the service technician who oversaw the Mall of America mortgage, did not immediately respond to a comment.

Triple Five's financial problems with the Mall of America loans exacerbate the risk of American Dream bonds four months after the pandemic is closed with no reopening in sight. The 3 million-square-meter complex in East Rutherford, New Jersey, was only partially opened last fall with some entertainment attractions.

The development, originally known as Xanadu, broke ground in 2004 before encountering a number of delays related to the 2008 credit crunch.

The construction was finally completed 15 years later with the help of a $ 1.1 billion tax-free tax bond in June 2017, led by Goldman Sachs and supported by a payment instead of the tax agreement between Triple Five and East Rutherford . The unrated deal consisted of $ 800 million restricted bonds and $ 287 million grant proceeds bonds supported by expected sales tax revenue.

According to Dan Berger, senior market strategist at Refinitivs Municipal Market Data, American Dream bonds were barely traded this summer. On July 6, a $ 1.7 million trade was made with a 2050 maturity on junk level spreads that were 650 basis points above the triple-A scale. The same bonds were trading at a spread of 500 basis points in early April, he said.

Krist said that many bondholders would like to sell but could not find buyers. While some bond investors have been attracted by the high yield, they fear the ongoing health crisis and the question of when consumers will take large-crowd attractions without coronavirus treatment or vaccine.

"Something like a pandemic of this magnitude combined with the response to it, I don't know how anyone could have considered it," said Krist. "You now have a truly black swan event."

The Wisconsin-based Public Finance Authority acted as a conduit issuer for the New Jersey Sports & Exposition Authority, which operates the Meadowlands District where American Dream is located. Triple Five received $ 1.6 billion in private construction loans from JPMorgan before the bond was sold.

The Triple Five Group's press office did not immediately respond to a comment. Triple Five announced in April that around 70% of the entertainment and 30% of retailing in American Dream was kept track of. Previously it was geared towards 55% entertainment and 45% retail.

Evi Kokalari-Angelakis, founder and CEO of Golden Key Realty, a New York City-based investment sales company, is optimistic about American Dream despite its current challenges and states that its entertainment options such as the Nickelodeon Universe and an indoor water park are attractive to families . She was also confident of helping JPMorgan and Wells Fargo fight the short-term headwind from the pandemic.

"The Triple Five Group's loans will be given by companies that understand the situation very well and will work with the owners and will be creative to overcome this crisis," said Kokalari-Angelakis. "Because of the excellent track record and experience of everyone involved, the parties will minimize the risk."

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