Moody’s Investors Service last week dropped to Ba2 from Baa3 $150 million of debt that was used to develop the Jersey Gardens Mall in northeastern New Jersey.

Moody’s changed the rating on Series 1998B and Series 2002 Kapkowski Road landfill reclamation improvement district project bonds to non-investment grade because of weak liquidity support and no debt-service reserve funds. The debt includes tax-exempt and taxable bonds along with bonds subject to the alternative minimum tax.

Glimcher Properties LP makes quarterly payments in lieu of taxes to ­Elizabeth to pay down the debt. A subsidiary of Glimcher operates the mall and holds it for long-term investment.

Midland Loan Services is the standby liquidity provider for the PILOT bonds. If Glimcher were to miss a payment to Elizabeth, Midland Loan has the option to consider ultimate loan recovery before making a payment on the PILOT bonds.

“In Moody’s opinion, a critical weakness in the support agreement is that the requirement to remit the PILOT shortfall is subject to a bank officer’s reasonable judgment of ultimate loan recovery,” Moody’s said.

“Therefore, it is conceivable that the agreement would not cover all debt-service shortfalls under circumstances subject to the bank officer’s judgment. The lack of a debt-service reserve fund and the requirement of only sum-sufficient debt-service coverage from PILOT payments effectively results in zero liquidity should Midland Loan Services opt to withhold funding of PILOT shortfalls,” according to Moody’s.

The retail center’s operations have been sufficient for debt-service payments. Its yearly net revenues are more than double the annual PILOT payments after debt service is paid and triple the annual ­PILOT payment, according to Moody’s.

The 2010 payment is $10.5 million. It grows by 10% every five years until the bonds’ final maturity in 2031.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.