Even with Winn-Dixie's recent bankruptcy, analysts reported that the risk for loss has already been priced in for many of the loans. Furthermore, researchers from Citigroup Global Markets said that the diversity of collateral within CMBS deals is buffering the impact of potential lease terminations.

In a report released last Friday, Citigroup said that although Winn-Dixie is a frequent tenant in CMBS properties (with 265 loans in 157 CMBS transactions having some exposure) data shows that there are no excessive concentrations in any one deal.

The one exception is a single-borrower CTL private placement, WINN 1999-1, which has 100% exposure. Aside from this, there are only two recent transactions with more than 1% exposure to Winn-Dixie, JPMCC 2003-CIBC6 and GSMS 2004-C1. Although even those stores that were set to close because of lease rejections are still entitled to some minimum rental revenue and may eventually re-lease, stated analysts.

Citigroup analysts used Winn-Dixie as an example to predict that the retail sector might see further asset rationalization occur through M&A activity (i.e. Kmart/Sears merger) or via closings resulting from competition or from stale retail concepts. However, overall, in terms of Winn-Dixie the slight exposures, as well as the diversity within CMBS, will probably limit any credit impact that could transpire due to the coming lease terminations and lease closings, concluded analysts.

Additionally, Merrill Lynch analyzed CMBS loan exposure to Winn-Dixie and to leases the firm rejected, noting that CMBS loan exposure to Winn-Dixie is about $2.7 billion or $745 million on an allocated basis, meaning Winn-Dixie as a percentage of the related allocated loan. Of the 148 store leases the bankrupt company rejected, 25 could impact outstanding commercial mortgage loans. About 44% of the Winn-Dixie exposure is found in Florida (where its headquarters are located) and the next largest concentration, 9%, is to collateral in Georgia. In terms of percentage, the CMBS deal with the largest allocated exposure to Winn-Dixie is CALFS 1997-CTL1 at 7.87%.

Winn-Dixie, which operates 920 supermarkets in eight southern states, filed for Chapter 11 bankruptcy on Feb. 21, after a $400 million second quarter loss, reduced liquidity, rating downgrades, and vendor limits on trade credit. The company has an $800 million debtor-in-possession credit facility to be approved by the court, replacing its existing $600 million facility. The court has subsequently approved the firm's motion to reject the leases for two warehouses and roughly 148 previously closed stores, a move Winn-Dixie anticipates will limit costs by roughly $60 million a year. Analysts would not be surprised to see future store closures and more lease rejections going forward, according to Merrill Lynch. Before the bankruptcy, Winn-Dixie had closed 135 stores, three distribution centers as well as several manufacturing facilities to limit losses.


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