Office Depot’s planned merger with Office Max, announced on Wednesday, could lead to some store consolidation that would negatively impact the performance of CMBS deals.

Analysts at Barclays Capital said in a Feb. 22, CMBS report that approximately $1.25 billion of loans in CMBS it rates could be affected by the proposed merger. The bank calculated that around 350 loans spread across 220 deals have at least some exposure to either Office Max or Office Depot as tenants; these account for about $4.4 billion in CMBS outstanding balance. 

Separately, Office Depot is the 43rd largest tenant exposure (by loan balance) while OfficeMax is the 53rd largest tenant exposure (by loan balance) in CMBS, according to a Feb. 20 report by the Royal Bank of Scotland. RBS said that, together the two firms operate around 2700 stores, and if none of the stores closed, they could otentially become a top 20 CMBS tenant by exposure.  

Analysts at both RBS and Barclays think it’s likely that some stores will close as a result of the proposed merger, however.

The CMBS deals with the highest exposure to default risk are the MLMT 2007-C1 and MLMT 2005-CK1, with about $50 million in outstanding balance each, according to Barclays.

“Given that only a subset of these stores may be in line for closure, actual default numbers will likely be much lower,” said the Barclays analysts. “In addition, due to staggered lease expiration schedules, timelines for possible defaults may stretch out over several years.”






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