Difficulty refinancing loans by troubled sponsor Pyramid Management Group, a privately held shopping mall developer, has prompted DBRS Morningstar to downgrade to below investment-grade one class of commercial mortgage-backed security (CMBS) managed by
The rating agency said in a December 12 press release that it downgraded to BB from BBB the Class B bonds in the
"The credit rating downgrade is reflective of Morningstar DBRS' concerns regarding the lack of resolution over the past year for the two remaining assets in the pool, Holyoke Mall and Sangertown Square," DBRS Morningstar said.
The rating agency says that Pyramid Management has encountered difficulty meeting debt payments and maturity dates on other encumbered assets within its portfolio in recent years.
Both loans were modified at their initial maturity dates in 2021 to include three-year maturity extensions, the rating agency says, but Pyramid Management has been unable to secure refinancing prior to the extended maturity dates earlier this year, and the loans transferred back to the special servicer. The servicer recently noted an agreement with Pyramid on terms for an additional modification, but that had yet to occur.
The rating agency notes that its stress testing of the loans to determine the recoverability of the outstanding bonds indicates that the senior tranches, including the classes B and C, continue to be insulated from losses. Nevertheless, recoverability is likely to be delayed, exposing the securitization trust to expenses and interest shortfalls.
"This expectation was considered a primary factor in Morningstar DBRS's decision to downgrade the Class C below investment-grade," the rating agency said.
