Sports Authority bankruptcy threatens $3bn of CMBS

The American sporting goods chain joins the growing list of retailers with heavy CMBS exposure who are facing layoffs and store closings

The American sporting goods chain joins the growing list of retailers with heavy CMBS exposure who are facing layoffs and store closings 

Sports Authority is reportedly preparing to file for bankruptcy, which could impact $3.13 billion in CMBS, according to Morningstar.

The report from the ratings agency follows news from Bloomberg that the 450-store sporting goods retailer missed a $20 million interest payment on subordinate debt and is talking with lenders to pay it off.

Like the other long list of big box retailers — JCPenney, Sears, Macy’s among them — who find themselves in dire straights following the recession, Sports Authority finds itself forced into layoffs and store closings.

imgresThe retailer has already laid off 100 employees at its Englewood, Colorado headquarters and reportedly plans to close up to 200 stores.

Of 75 CMBS loans backed by Sports Authority as one of the three largest tenants, six totaling $154.5 million are already in special servicing (see chart below), and five will see combined losses of more than $30 million, Morningstar forecasts.

“Should the company file for bankruptcy protection and close these stores, we believe that these loans could see increases in their loss projections,” the agency added.

The largest master-serviced loan of concern is the $62.9 million Pacific Coast Plaza loan, 4.5 percent of JPC 2007-LD12, which “could push the loan’s debt service coverage ratio close to the red line of 1.0x.”

SARetail CMBS saw declining issuance and delinquency rates through 2015 as investors avoided exposure amid a wave of additional retailers facing major setbacks.

CMBS exposure to retail has declined over the past five years in response to growing investor concern over weak (and even unprofitable) chains and the continued growth of e-commerce,” Kroll Bond Rating Agency noted in a report.

Macy’s for instance plans to close 36 Macy’s stores by early spring, which could spell death for more than a dozen malls and cause hundreds-of-millions of dollars in losses on the CMBS deals tied to them. 

About $114 million in CMBS spread among 16 loans could also be affected by Hancock Fabric’s second bankruptcy filing in nine years, Morningstar said.

It’s not all bad news. Year-over-year retail vacancy rates declined from 6.5 percent to 5.9 percent as of 3Q 2015 thanks to job growth and increased spending, according to the CoStar Group.