Distressed-debt fund seizes one of America’s biggest malls

“A distressed-debt fund is seizing control of one of the largest malls in America after a series of moves that wiped out some creditors and even left holders of bonds once rated AAA nursing steep losses,” reports Bloomberg News:

The trade was set in motion after Black Diamond Capital Management bought more than 70% of the top-ranking slice in a commercial mortgage-backed security tied to the struggling Palisades Center shopping mall in West Nyack, New York. The firm then used its position to acquire the sole mortgage backing the CMBS at a discount, triggering the bond’s liquidation, according to court filings and deal documents reviewed by Bloomberg.

The maneuver puts Black Diamond in control of a roughly 2 million-square-foot mall in West Nyack, a bedroom community for legions of middle-class New York City commuters. It also cemented about $231 million in losses for bondholders — including a $72 million blow to the AAA tranche — only the second instance since the financial crisis where top-rated CMBS investors have been hit.

Analysts and investors warn more pain is likely in store for holders of CMBS backed by individual mortgages — known as single asset, single borrower bonds, or SASBs — tied to older retail and office properties, a multibillion-dollar corner of the market that’s still struggling to recover from the pandemic.