Syracuse mall bonds downgraded after coronavirus-forced shutdown
The well-documented struggles of retailers, compounded by the indefinite closure of New York retail businesses during the COVID-19 pandemic, pushed two rating agencies to downgrade revenue bonds issued for the state’s largest mall.
Destiny USA in Syracuse already faced declining profits prior to a forced shutdown of non-essential businesses in New York state on March 18 in an attempt to combat spread of the virus. The closing increased the risk of the mall defaulting on some debt, prompting Moody’s Investors Service and Fitch Ratings to downgrade payments-in-lieu of taxes-backed-debt sold in 2007 for an expansion of the mall, which opened in 1990 and was formerly called Carousel Center.
Fitch lowered the Syracuse Industrial Development Agency’s $292 million of outstanding Carousel Center Project PILOT tax-exempt revenue bonds into junk territory last week with a three-notch downgrade to BB from BBB and retained a negative credit outlook. Moody’s downgraded the same bonds by one notch to Ba3 from Ba2 and placed them on review for further downgrade on April 17.
“The downgrade reflects concerns that value of the Carousel Center is on a declining trend, increasing risk to the property owner's incentive and ability to continue to make the PILOT payments,” Fitch analyst Amy Laskey wrote in a May 6 report. “The negative outlook reflects the potential impact of the continued closure of Destiny USA as part of state and national efforts to mitigate the coronavirus outbreak on the mall's value and its performance after it reopens.”
The Syracuse IDA’s PILOT bonds were issued in 2007 to finance an 874,200-square-foot expansion of the mall that is operated by Pyramid Management Group. The expanded mall debuted in 2011 with increased dining and entertainment options supplementing its traditional retail outlets.
Pyramid pays fixed annual PILOT payments to fund debt service obligations. The city of Syracuse and Onondaga County waived their right to the PILOT payment funding as part of the terms for issuing the bonds.
The mall’s shutdown has put Pyramid at further risk of defaulting on $430 million in commercial mortgage-backed security loans issued for the expansion, which were securitized by JPMorgan Chase Bank, Moody's said. The CMBS loans were originally due in March 2019 and then transferred to mortgage servicer, Wells Fargo Bank, which provided a conditional extension, if improved financial metrics were met. Pyramid is expected to receive a further extension on the loans before their maturity date on June 6, according to Moody’s.
“The downgrade toBa3 reflects our view that the issuer's overall credit risk has increased owing to the unprecedented coronavirus outbreak and subsequent public health response that resulted in the closure of all malls in New York State on March 18, 2020,” Moody’s analyst John Medina wrote. “We believe this reduces the potential for meaningful equity support and results in full reliance on the CMBS loan servicer to provide the project with liquidity.”
The press office for Pyramid did not immediately respond for comment on the downgrades or efforts to obtain an extension on the CMBS loan.
An exact timetable for Destiny USA's reopening is unknown. Gov. Andrew Cuomo’s "New York State on Pause" order closing non-essential business is scheduled to be lifted on May 15 for certain regions that meet safety benchmarks, in four phases. Retail outlets would not be permitted to open until phase two, followed by restaurants in phase three, and entertainment attractions in phase four.