Fri 04/09/2021 13:52 PM
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Editor’s Note: Reorg's coverage on Destiny USA is part of an expansion of our municipals-focused offerings. Please reach out to for more information.

Relevant Documents:
PILOT 2016A Offering Statement
PILOT 2016B Offering Statement
PILOT 2007 Offering Statement

Owners of the Destiny USA mall, billed as New York’s largest shopping center, are operating under a reworked and extended financing arrangement with its mortgage lender in the wake of a series of credit downgrades affecting the project’s $430 million mortgage loan and nearly $286 million in outstanding payments in lieu of taxes, or PILOT, revenue refunding bonds. The mall’s owner, Pyramid Management Group, engaged Orrick as restructuring counsel and Houlihan Lokey as financial advisor after hearing pitches, according to sources. Bond insurer Syncora Guarantee, which Syncora Holdings sold to GoldenTree affiliate Star Insurance Holdings in 2019, retained White & Case as legal advisor and Moelis as financial advisor, the sources said.

Last month, both Fitch Ratings and Moody’s downgraded more than $285.8 million of PILOT revenue refunding bonds issued by the Syracuse Industrial Development Agency, New York, or SIDA, in connection with Destiny USA. Fitch downgraded the bonds to B from BB, while Moody’s downgraded the bonds to B3 from B1. In addition, Kroll Bond Rating Agency downgraded six series of certificates in connection with the $430 million CMBS large loan transaction related to Destiny USA.

The bond downgrades were driven by decreased valuation and occupancy amid the Covid-19 pandemic, which prompted a roughly four-month closure of the mall that stretched into summer 2020.

Located in Syracuse, Destiny USA is the rebranded multiphase shopping, dining and entertainment center that grew out of the legacy Carousel Center mall and expanded through the development of the Destiny USA area. Destiny USA is the sixth-largest shopping center in the United States, containing about 2.4 million square feet of gross leasable area, or GLA, of which the Carousel Center contains about 1.5 million square feet. Fitch Ratings describes Destiny USA as the “dominant shopping center” in the Syracuse area, with a “dominant market position” and a geographically broad-reaching customer base.

The mall was shuttered for several months last year due to the pandemic, reopening in July, and is currently operating at less than full capacity. According to Fitch, Carousel Center was reported to be 59% leased and Destiny USA 70% leased. Notably, the mall faces exposure to certain “distressed anchors,” as Macy’s is the property’s largest tenant by total square foot and Regal Cinemas is the second largest, as noted by Kroll. Additionally, Best Buy’s lease, which made up 4% of the trust collateral, expired March 31.

Destiny USA’s outstanding debt includes the following components:
  • PILOT revenue refunding bonds (Series 2016A): $198.8 million
  • PILOT revenue refunding bonds (Series 2016B): $10.6 million
  • PILOT revenue refunding bonds (Series 2007B): $76.4 million
  • Nonrecourse mortgage loan (secured by Phase I): $300 million
  • Nonrecourse mortgage loan (secured by Phase II): $130 million

Moody’s explained that its rating action followed the “severe deterioration” in the publicly reported value of the mall “at $203 million with the legacy Carousel portion valued at $118 million, which is about 41% of the $285 million of PILOT bonds outstanding” (emphasis added).

KBRA notes that in June 2020, Wells Fargo, as special servicer for the CMBS, entered into a standstill agreement for each of the two CMBS loans with the agreements providing “for a moratorium of eight payments of debt service and a waiver of deposits into the reserve funds, (other than with respect to deposits into the tax and insurance escrow account) commencing with the payment date due on April 9, 2020 and continuing through the earlier of (i) the payment date on September 9, 2020 or (ii) the occurrence of a termination event.” The standstill agreement provided that at the end of the moratorium period, “the accrued debt service payments, deferred reserve deposits and special servicing fees would be due in 12 monthly installments.”

KBRA explains that in light of “the ongoing struggle with COVID-19, the borrower requested additional relief in November 2020,” which ultimately resulted in the special servicer entering into an amended and restated standstill agreement in December with each of the borrowers. KBRA points out that the agreements “required the borrower of the loans to reduce the forborne amounts by $5.0 million” and also “give each borrower the ability to repay the remaining forborne amounts from excess cash flow through loan maturity.” Further, the December 2020 amendment also extends the maturity date of each of the CMBS loans through June 2022. KBRA points out that the special servicer “is limited on extending the loans any further pursuant to the transaction documents,” observing that the relevant certificates “have a rated final distribution date in June 2027.”

KBRA notes, however, that if the transaction “continue[s] to experience sustained performance declines, the borrower may not be able to continue making the repayment amounts which began in January 2021.”

Pyramid Management Group, Orrick, GoldenTree and White & Case did not immediately respond to requests for comment. Representatives for Houlihan Lokey and Moelis declined to comment.

--Kevin Mead, Harvard Zhang
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