Positive retail news has not been abundant in recent years. Corn, Hudson’s Bay Company (HBC) has a happy ending to share. The retail group of companies has just emerged victorious from its 18-month effort to amend and remedy an overdue commercial mortgage-backed securities (CMBS) loan, Commercial Observer may first report.
On September 30, HBC and its joint venture partner Simon Real Estate Group, finalized the restructuring of a defaulting $ 846.2 million CMBS loan backed by 24 Lord & Taylor stores over 10 Saks Fifth Avenue stores. The restructuring was carried out at par, with no discount or interest rebate.
Management of iron dogs‘s Chris Herron led the restructuring on behalf of the partnership.
âFrom the onset of the pandemic, we have sought to modify the loan in a way that is fair to all voters and we are happy that this has been accomplished,â an HBC spokesperson told the CO. “We are optimistic for the future as we look to close 2021 stronger than ever with significant liquidity, and are well positioned to support plans to grow our commercial and real estate assets, as well as our holdings in e-commerce. . ”
A source close to the restructuring said the result speaks volumes about the quality of the real estate collateral: âA retailer, in the midst of COVID-19, completed a nominal restructuring of an $ 850 million loan and invested over $ 90 million transaction. It does not happen every day.
The loan was securitized in the Simon JV Hudson’s Bay Trust 2015-HBS CMBS transaction in 2015, and sponsored by the HBC / Simon joint venture – also known as HBS. The collateral properties total 4.5 million square feet and include 19 fee simple property interests and 15 leasehold interests.
When the coronavirus hit the United States in March 2020 and retail sales tumbled, retailers across the country braced for lengthy store closings amid the bigger unknown.
The HBS partnership missed its first loan payment on April 1, 2020, about two weeks after the COVID hit, and the loan was transferred to a special department in May. The first restructuring proposal was submitted to the special loan department, Site, within 45 days of the April fault. He asked for an extension of the approximately $ 150 million variable rate component of the loan – which had an extended final maturity date of August 2020 – as well as a deferral of interest.
While several CMBS borrowers contacted their special services for help early in the pandemic, in HBS’s case, a restructuring was vital. The loan was made on 34 assets that were open and operational at the time of the loan’s securitization in 2015, but shortly after the COVID hit, 24 of those assets were closed due to the bankruptcy of Lord & Taylor.
Lord & Taylor had sold its operations to The tote in 2019 and no longer owned tenant Lord & Taylor. So when Le Tote filed for bankruptcy in August 2020, Lord & Taylor also ceased operations and triggered several restrictive loan covenants, such as âgo darkâ provisions and EBITDA, or earnings before interest, taxes, depreciation and amortization, ratios.
By May, Site, the special duty agent for the $ 846 million loan, had filed a complaint to accuse HBC to engage in a corporate shell game that diluted the creditworthiness of the loan, The real deal reported. HBC has denied these allegations.
As COVID extended its grip until 2020, much of the year following HBS’s default in April was spent settling the dispute.
But in March 2021, the special loan department was transferred to Green loan services and the restructuring conversations have resumed in earnest, finally culminating in the change that ended last month.
The dispute is now resolved with the recent restructuring.
Talk about a resolution
Upon closing of the restructuring, HBS reduced all debt service on the CMBS loan from April 2020 to the modification date of September 30, 2021 and also made the October payment, which is a payment of about $ 90 million. The CMBS loan is now at 100 percent.
The loan had three components: a $ 149.9 million floating rate “A” component that had an initial term of two years and three one-year extension options and had now passed its final term; a fixed rate “B” component of $ 371.2 million with a term of seven years; and a fixed rate âCâ component of $ 324.9 million with a term of 10 years, by DBRS analysis. Components A and B have been extended to match the component C maturation date of August 2025.
HBS pays debt service and operating rent each month, and there is also an acceleration schedule that will see full resumption of operating rent payments by the first anniversary of the closing date.
The restructuring also includes the possibility for the borrower to continue with the modifications – with the consent of the lender – of the old Lord & Taylor guarantee. Given the strength of real estate collateral, the highest and best use of that collateral may ultimately take a different form, sources said.
Indeed, one source said part of the reason the partnership was so committed to this transaction was the high net worth of the physical collateral for the loan.
Lord & Taylor’s locations in the trust include properties in affluent suburban communities like Eastchester, NY, Stamford, Connecticut and Garden City, NY, as well as the King of Prussia Shopping Center in the King of Prussia, Pennsylvania.
The Beverly Hills location of Saks Fifth Avenue – near Rodeo Drive in 9600, boulevard Wilshire – is one of the crown jewels of the deal, as a revamping game that also has great value. Sources said that Saks’ collateral in the pool is “going gangbusters” (in other news, the retailer’s e-commerce unit is now prepare for an IPO, The the Wall Street newspaper reported). Although it was reported last November that the Beverly Hills asset was for a foreclosure sale, that too was put on hold as restructuring negotiations resumed early this year.
Also as part of the restructuring, the release price has been increased for some higher value assets to reduce leverage over the next three years as a refinancing and divestiture plan is executed – a plan which is now achievable given the terms of a long-awaited restructuring.
“This closure represents 18 months of continuous effort by all parties involved to achieve a resolution to a problem that arose out of circumstances beyond anyone’s control,” Iron Hound’s Herron told the CO. âThe structure and capital investment made by the borrower reaffirms the strength of both the underlying collateral and the operating activities of HBC.
Situs officials and a spokesperson for Green Loan Services did not return a request for comment.
Cathy Cunningham can be reached at [email protected].