Bonds

Affiliate of American Dream Mall owner ordered to pay junior lenders

A New York judge has ordered an affiliate to the owner of the American Dream Mall to pay $389 million to a group of junior lenders.

New York Supreme Court Judge Andrew Borrock this week granted a summary judgment to a group of the mall’s private financers, who sued in February, alleging the mall failed to pay back a mezzanine loan, part of a $1.7 billion private investment package backed construction of the $5 billion shopping and entertainment complex in East Rutherford, New Jersey.

Senior lenders on those loans granted the American Dream Mall a four-year extension on the debt in November, following the mall’s default and a renegotiation.

“The referenced lawsuit does not involve American Dream nor is there any demand made against American Dream,” said Jessica Griffin, spokesperson for the mall. “The case and claim are filed against a single purpose entity which has no ownership of the American Dream.”

The lawsuit, brought by SOL-MM III LLC, an administrative agent working on behalf of firms linked to lenders Western Asset and Nonghyup Bank of South Korea, according to Bloomberg, targeted an entity of the mall, Ameream Mezz LLC.

“It’s part of a broader pattern that the project isn’t performing as it expected, and that has implications across the whole capital stack,” Lisa Washburn, managing director of Municipal Market Analytics, said. “When you see the stress popping up all over the capital stack, it just suggests that there’s overall difficulties with the project’s cash flows.”

The mall’s grand opening occurred months before the COVID pandemic’s lockdown measures drastically cut into brick-and-motor retail sales nationwide. Along with issues meeting obligations on private debt, the mall’s developer, Triple Five, also took on $1.1 billion of municipal debt to finance construction. It has struggled to meet obligations on that debt at times as well, as “overall foot traffic and gross revenue” continue to lag, Washburn said.

On February 1, the mall missed its second consecutive debt payment on $287 million of limited obligation grant revenue bonds issued through the Public Finance Authority in 2017. At the time the bond’s trustee said the reserve account did not have enough funds to cover the payment.

The mall also owes on $800 million of revenue bonds backed by payments in lieu of taxes for which the trustee had to draw on debt reserves to make a Dec. 1 interest payment.

Public and private debt for the mall remain under different corporate entities. In a case of a dire worsening of mall’s finances, that debt could potentially be rolled into one as a court of law usually retains “the ability to substantively consolidate entities if they really are all one in the same,” Washburn added.

“It’s a highly leveraged project and the developers have been active in trying to do renegotiate the terms of their obligations,” she said. “Now heading into what’s probably going to be a slower economy, if not a recession, it becomes even more difficult.”