With consumer confidence diving 11.5 points in October - its fourth consecutive monthly dive and the lowest reading since February 1994 - retail credits across the capital markets are feeling the crunch, particularly in the credit-focused world of credit tenant leases, where below-investment-grade retail issuers are getting all but shut out.

"The CTL structure right now for strong investment-grade companies is still a very viable structure," said one commercial real estate banker, "but when you start looking at triple-B or triple-B-minus companies that are retailers trying to do twenty-year paper, there's just not a lot of takers right now. I'm not sure that there were that many pre-September 11, and I think there's a lot less now."

According to market sources, one recent sale/leaseback transaction for a well-known convenience-store chain got the cold shoulder from investors when packaged as a CTL. The agent on the deal is reportedly exploring other options, including an all-cash REIT bid which one source outside the transaction said he would recommend - were he the advisor on the deal - "without hesitation".

"CTLs are, by their nature, high leverage deals," said the commercial real estate banker. "From a sale/leaseback standpoint, there's very little equity being put into them, so the debt economics drive the deal. You can always get someone to buy it, but once you go above a 350 spread, there's a better way to get that deal done."

One market player, however, took the opposite tack.

"The only alternatives to the CTL structure put the buyer in a worse position," said Larry Reitman, managing director of private placements at Phoenix Investment Partners.

"The CTL structure gives you the mortgage," he continued, "so you have the cashflow, you have an iron-clad lease, so you're really looking at credit. Should your credit go belly up, you have underlying collateral. Anything other than that doesn't sound as good for the investor to me."

He points out that issuers have a known cashflow, known expenses, and they know what they can spend on debt-service coverage, therefore the crux of the matter is the coupon, which remains the same regardless of spread.

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