American Dream bondholders will get overdue payments as sales tick up

Bondholders of a chunk of unrated debt floated for the troubled American Dream megamall in New Jersey will see a partial payday next week when the borrower makes up some of the overdue interest payments.

The $287 million of grant revenue bonds, which are backed by New Jersey economic development grants based on the mall’s sales tax collections, will receive $25 million of the $46 million in overdue interest payments, according to an Aug. 23 notice posted by trustee US Bank on the Municipal Securities Rulemaking Board’s EMMA.

The bonds were issued through Wisconsin’s Public Finance Authority in 2017 on behalf of developer Triple Five, which also owns the Mall of America in Minneapolis, the only U.S. mall larger than American Dream. The developer borrowed $1.1 billion of municipal bonds, on top of nearly $3 billion of private loans, to help finance the $5 billion megamall and entertainment complex.

One of the highest-profile credits in the high-yield municipal market, the mall has been dogged by financial woes since its doors swung open late and over-budget in October 2019 only to be shut by lockdown orders months later driven by the COVID-19 pandemic.

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In addition to the $287 million of grant revenue anticipation bonds, the borrower floated $800 million in revenue bonds backed by payments in lieu of taxes. US Bank has reported repeated draws on reserve funds to cover the PILOT payments.

Bondholders have missed the last five interest payments on the grant revenue bonds, which the developer has blamed in part on a slow state grant distribution process. The missed interest payments — which do not constitute a default event under the bond indenture — must be made up before principal payments can be made.

After continued losses last year, the mall has seen strong increases in sales taxes this year, according to quarterly postings on EMMA.

The debt is secured and primarily payable from grants from the state of New Jersey that are based on incremental sales tax revenues it receives from the project. US Bank said it received $26.6 million from the Grant and Credit Review unit of the New Jersey Department of Taxation, and deposited $25.6 million into the interest account. The payment will be made on Sept. 3.

Bonds due in 2027 with a 6.25% coupon most recently traded in April of 2023 for 76.3 with a 13.6% yield. That’s down from a high of 109.25 in early 2021.

Nuveen is the largest holder of the American Dream bonds. Its position in the limited-obligation PILOT bonds account for the second-largest position in its High Yield Municipal Bond Fund. The firm declined to comment.

On the PILOT bond front, bondholders have formally intervened in a lawsuit brought by the developer to challenge the tax assessment valuation for tax years from 2019 through 2024, according to an EMMA disclosure. The PILOTs previously deposited in the bond interest accounts have been insufficient to cover the full payments due to a reduction in the assessed value and a reduction in the tax rate, according to EMMA filings.

At the direction of the bondholders, US Bank hired counsel to intervene in the litigation. Discovery ends in September and a trial is set for January.

American Dream declined to comment. The New Jersey Economic Development Authority did not respond to a request for comment.