KBRA Releases Research – Coronavirus (COVID-19): CMBS SASB Retail Mall Loans to Underperform


NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) releases a report on commercial mortgage-backed security (CMBS) single asset-single borrower (SASB) retail mall performance in the wake of the coronavirus (COVID-19) contagion.

As COVID-19 became a pandemic, malls were one of the early commercial casualties. Community mandates ordering the closure of nonessential retail continues to take a toll on properties that were already under pressure as shopping visits slowed owing to virus fears and government calls to maintain social distancing. At this point in the U.S., many retail malls have shuttered or are operating only with essential retail offerings. It is still unknown how long these closures will last but the growing concern is that the negative effects may be much longer lasting. Weaker retailers may be pushed into bankruptcy, and others may request rent relief and/or reduced common area maintenance charges. Mall owners may be forced to reduce rents to keep occupancy levels high, with any such measures potentially to be far from temporary. The pandemic may also accelerate consumer shopping preference to online retail. As events surrounding the crisis unfold, our thoughts are with the individuals and families who have been exposed to the virus.

As a result, the KBRA Performance Outlook (KPO) for loans which serve as collateral for 22 CMBS SASB retail mall transactions have been assigned or revised to Underperform. A KPO is an assessment of Outperform, Perform, or Underperform based on recent and expected collateral performance. KPOs are generally assigned to loans approximately one year after securitization, at the time of our first annual surveillance review.

As the events unfold over the next few weeks and months, we will continue to reassess our KPOs in conjunction with our rating monitoring effort for these SASB deals. In addition to these transactions, there are approximately $63 billion of retail loans across KBRA-rated commercial real estate multi-borrower transactions, including conduits, large loan transactions, and commercial real estate (CRE) collateralized loan obligations (CLO). More than $15 billion are malls. However, the performance of different types of retail will vary as the pandemic and economic aftermath has run its course. As discussed, the above malls are at risk, while needs-based retailers (grocers, drug chains, etc.) and big box stores such as Target and Walmart, are likely to fare better. The extent to which negative performance for retail loans impacts ratings in such transactions will be determined in conjunction with our ongoing surveillance effort and will be a function of how significant the loans are to the transactions relative to outstanding credit support.

Click here to view the report.

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KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA. Kroll Bond Rating Agency Europe Limited is located at 6-8 College Green, Dublin 2, Ireland.


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