$5.5 Billion In CMBS Exposed To Toy’s “R” Us Bankrutpcy

Trepp findings show that 109 outstanding loans totaling about $5.5 billion currently carry Toys “R” Us exposure. A large portion of the loans are CMBS 2.0 and 3.0 notes issued after 2010. Backed by 123 Toys “R” Us and Babies “R” Us stores, the $404.7 million Toys R Us portfolio is the loan with the largest CMBS exposure. The loan is the only one behind the single-asset/single-borrower TRU 2016-TOYS transaction, and also includes a $102.4 million freely payable portion. Those 123 collateral properties span a combined five million square feet across 29 different states. The loan, which amortizes on a 30-year schedule, features relatively conservative underwriting metrics. At securitization in 2016, DSCR (NCF) and LTV clocked in at 1.85x and 58.3%, respectively.

  • The $380 million Bronx Terminal Market loan, which is split into a $140 million piece that makes up 12.06% of COMM 2014-CR17, a $135 million note that comprises 13.96% of COMM 2014-CR18, and a $105 million piece that represents 10.13% of COMM 2014-UBS3. Toys “R” Us is listed as the fourth-largest tenant (8.43% of the net rentable area) at the 912,333 square-foot, superregional mall in Bronx, New York with a lease that runs through January 2020.


  • The $123 million The Plant San Jose note, which makes up 8.76% of WFRBS 2013-C14 and matures in May 2023. As the second-largest tenant, Toys “R“ Us/Babies “R“ Us occupies 13.35% of the 485,895 square-foot regional mall in San Jose, California under a lease that expires in January 2023. The retail center was 90% occupied for the first quarter of 2017 and generated a DSCR (NCF) of 2.75x.
  • Toys “R“ Us is the second-largest anchor behind the $61.1 million Plaza La Cienega note, which comprises 6.13% of JPMBB 2013-C14. Backing the loan is a 308,146 square-foot, mixed-use property in Los Angeles, California. The retailer leases 20.11% of the property’s space through November 2020. Scheduled to mature in August 2023, the loan generated a DSCR (NCF) of 1.97x on an occupancy rate of 98% last year.
  • The $31.5 million Summerhill Square loan is secured by a 125,862 square-foot community shopping center in East Brunswick, New Jersey. Toys “R“ Us occupies 51.45% of the retail center’s space on a lease that runs through December 2023. For the 2016 fiscal year, the property was fully leased while DSCR (NCF) clocked in at 1.50x. Scheduled to mature in May 2023, the loan represents 2.28% of the remaining collateral behind MSBAM 2013-C10.



The Hysteria Curve: US Treasury 10Y-2Y Curve Slope Declines To 78.6 BPs As 10 Year Soveriegn Yields Decline In Americas and Europe

Choose your hysteria to explain the Treasury market: 1) debt ceiling crisis, 2) hurricane (Global Warming) crisis, 3) North Korean nuclear attack crisis, 4) Trump’s Russian collusion investigation crisis, 5) the DACA (“Dreamer”) crisis, 6) Brexit crisis, 7) NAFTA crisis or 8) fill-in-the-blank crisis dejure. Please tune to CNN or MSNBC (and even Bloomberg) for the latest in hysteria.

Which ever portfolio of crises you select, we watching the US Treasury 10Y-2Y curve slope fall below 80 to the lowest slope since September 2016.


10 year sovereign yields in the Americas and Europe can down with the US falling around 10.1 BPS and Argentina down almost 40 BPS.1010

Gold prices are up since the 2016 election while the US dollar basket is down.


We are seeing a jump in equity and Treasury volatility, but not much.


Tune into MSNBC’s Rachel Maddow and Lawrence O’Donnel for particularly entertaining hysterical rants (like about Trump’s 2005 tax return).


Already Gone II: Minnesota’s Public Pensions Drop To 7th-worst Funded From 30th (Heartache Tonight?)

The Eagles said it best in their song: (Minnesota’s public pensions are) already gone.  They left out the part where Minnesota tax payers are on the hook for $33.4 billion in debt ($6,000 for every resident).

(Bloomberg) — Minnesota’s debt to its workers’ retirement system has soared by $33.4 billion, or $6,000 for every resident, courtesy of accounting rules.

The jump caused the finances of Minnesota’s pensions to erode more than any other state’s last year as accounting standards seek to prevent governments from using overly optimistic assumptions to minimize what they owe public employees decades from now. Because of changes in actuarial math, Minnesota in 2016 reported having just 53 percent of what it needed to cover promised benefits, down from 80 percent a year earlier, transforming it from one of the best funded state systems to the seventh worst, according to data compiled by Bloomberg.

“It’s a crisis,” said Susan Lenczewski, executive director of the state’s Legislative Commission on Pensions and Retirement.

The latest reckoning won’t force Minnesota to pump more taxpayer money into its pensions, nor does it put retirees’ pension checks in any jeopardy. But it underscores the long-term financial pressure facing governments such as Minnesota, New Jersey and Illinois that have been left with massive shortfalls after years of failing to make adequate contributions to their retirement systems.

The Governmental Accounting Standards Board’s rules, ushered in after the last recession, were intended to address concern that state and city pensions were understating the scale of their obligations by counting on steady investment gains even after they run out of cash — and no longer have money to invest. Pensions use the expected rate of return on their investments to calculate in today’s dollars, or discount, the value of pension checks that won’t be paid out for decades.


The guidelines require governments to calculate when their pensions will be depleted and use the yield on a 20-year municipal bond index to determine costs after they run out of money.

The Minnesota’s teachers’ pension fund, which had $19.4 billion in assets as of June 30, 2016, is expected to go broke in 2052. As a result of the latest rules the pension has started using a rate of 4.7 percent to discount its liabilities, down from the 8 percent used previously. Its liabilities increased by $16.7 billion.

The worsening outlook for Minnesota is in line with what happened nationally. Pension-funding ratios declined in 43 states in the 2016 fiscal year, according to data compiled by Bloomberg. New Jersey had the worst-funded system, with about 31 percent of the assets it needs, followed by Kentucky with 31.4 percent. The median state pension had a 71 percent funding ratio, down from 74.5 percent in 2015.

While record-setting stock prices boosted the median public pension return to 12.4 percent in 2017, the most in three years, that won’t be enough to dig them out of the hole.

Only eight state pension plans, in Minnesota, New Jersey, Kentucky and Texas, used a discount rate “significantly lower” than their traditional discount rate to value liabilities, according to a July report by the Center for Retirement Research at Boston College.

“Because of that huge drop in the discount rate under GASB reporting, their liabilities skyrocket,” said Todd Tauzer, an S&P Global Ratings analyst. “That’s why you see that huge change compared to other states.”

In Minnesota lackluster returns and years of shortchanging have taken a toll. The state’s pensions lost 0.1 percent in fiscal 2016.

But other factors also helped boost Minnesota’s liabilities: Eight of Minnesota’s nine pensions reduced their assumed rate of return on their investments to 7.5 percent from 7.9 percent, while three began factoring in longer life expectancy.

Minnesota funds its pensions based on a statutory rate that’s lower than what’s need to improve their funding status. School districts and teachers contribute about 85 percent of what’s required to the teacher’s pension, according to S&P Global Ratings.

“It’s woefully insufficient for the liabilities,” said Lenczewski, the director of Minnesota’s legislative commission on pensions. “You just watch this giant thing decline in funding status.”

Minnesota has officially joined other states in promising more benefits than can be delivered.

2017.08.31 - Pension Map

While the public pension crisis isn’t a heartache tonight, it will in the near future. Add the growing debt issued to keep public pension funds going, and the amount of the tab for other government spending like The Federal debt (currently $165,819 per taxpayer) and unfunded liaibilities such as Medicare and Social Security ($899,500 per taxpayer) and we have a party.




US 10Y-2Y Yield Curve Declines On Yellen’s Uninteresting J-Hole Speech (VIX Declines As Well)

I read Janet Yellen’s speech at Jackson Hole. And it was so uninteresting that I decided to read the NY Times article entitled “Why Women Had Better Sex Under Socialism.” Far more interesting.

Yellen largely defended post-crisis financial regulation and suggested to be careful with deregulation. She also expressed concern over Algo trading growth and a concern over a return of overoptimism.


After the hype about discussing something interesting faded away, the 10 year – 2 year yield curve slope fell to 83.689 basis points.


And the VIX remained muted.


True, the stock market rose today about 100 points then backed off a bit.


No mention, of course, of the out-of-control Federal spending (2x current tax receipts) that is contributing to staggering Federal debt increases.


Or the explosive growth in mandatory (aka, entitlement) spending since 2009.


She also didn’t mention the enormous wage growth gap in the US.


Or the lack of productivity since the financial crisis.


So in the words of Frank Drebin, “Nothing to see here. Please disperse.”


Crazy Train: Norway’s Wealth Fund Ordered To Increase Its Stock Holdings

All aboard the Central Bank Crazy Train!

(Bloomberg) — As many investors question a global stock-market rally that’s now in its eighth year, the world’s biggest wealth fund is prepared to splurge.

Norway’s $970 billion wealth fund has been ordered to raise its stock holdings to 70 percent from 60 percent in an effort to boost returns and safeguard the country’s oil riches for future generations. Any short-term view on growing risks will play little part, according to Trond Grande, the fund’s deputy chief executive.

“We don’t have any views on whether the market is priced high or low, whether bonds and stocks are expensive or cheap,” he said in an interview after presenting second-quarter returns in Oslo on Tuesday. The decision to add stocks “was made at a strategic level, on a long-term expected excess return that we’re willing to take risk to achieve. And parliament has said that they wish to spend some time to phase in that increase.”

The fund has doubled in value over the past five years and is continually adding risk to its portfolio. It returned 202 billion ($26 billion) kroner in the second quarter, and 499 billion kroner in the first half, the best on record for the period.


Owning 1.3 percent of global stocks, the Norwegian fund largely follows indexes but is allowed some active management of its portfolio. It has been expanding more into emerging markets and recently got permission to raise its stock holdings after Norway last year started withdrawing cash from the fund for the first time.

While the investor can look beyond short-term, or even medium-term volatility, it does see potential risks. Chief Executive Officer Yngve Slyngstad in April said that the fund had turned a bit “cautious” on stocks. But in practical terms, that means very little.

“It doesn’t lead to anything in concrete terms, other than the fact that we’re keeping a close eye on the indicators that could indicate whether there’s a risk there, and what they’re saying,” Grande said. “Some risk indicators have actually not shown underlying risk — take growth for example. So you should be a little cautious when the skies are all blue.”

The fund held 65.1 percent in stocks in the quarter, 32.4 percent in bonds and 2.5 percent in properties. Its mandate is now to keep about 70 percent in stocks, 30 percent in bonds, with about 7 percent in real estate that’s now separate from the main portfolio.
The Finance Ministry is currently working on a plan on how to move the portfolio to 70 percent and the fund will stick to that, Grande said.

The fund also indicated it can withstand pressure on its balance sheet from government withdrawals. Norway started taking money out of the fund last year for the first time to cover budget shortfalls after oil revenue slumped. The government withdrew 16 billion kroner in the second quarter, reaching about 36 billion kroner so far. It has flagged it will take out just a little bit above 70 billion kroner.

Norges Bank Deputy Governor Egil Matsen, who’s in charge of oversight of the fund, says it’s liquid and can finance new real estate purchases from a steady income stream.

Of course they can, with the costs of funds from Norway’s Central Bank at 50 basis points.


Between the various Central Banks, only the US Federal Reserve has raised their target rate recently. But the ECB, Bank of England and Norway’s Norge Bank are all at 50 basis points or lower.

All aboard the Central Bank Crazy Train!!



Stock Market Alert! Hindenburg Omen Sighted Again (But With Fed Rate Hikes …)

The Hindenburg disaster occurred on May 6, 1937 in Lakehurst, New Jersey. But the Hinderburg Omen is a technical analysis tool named after the Hindenburg disaster.  

The Hinderburg Omen has been spotted again. It portended the 2008 crash.


The culprit causing for concern could be the McClellan Oscillator.


But it is likely the disparity between 52 week highs and lows.


Bear in mind that there have been many sightings since 2009, mostly associated with periods of The Fed’s quantitative easing (QE1, 2, 3). And there were not significant drops in the S&P 500 index.

But with The Fed’s recent flurry of rate hikes, I hope that we will hear “Oh the humanity” again.


Perhaps there is a communications breakdown between Yellen and financial markets.


Dick’s Sporting Goods Suffers Terrible Earnings Report, Joins Other Big Box Retailers In Real Estate Hell

Yes, Dick’s Sporting Goods, a big-box retailer for sporting goods, just suffered a big decline in their sales and earnings, a -3.66% downward surprise.


A closer look at Dick’s earnings per share reveals their downward momentum.


Big-box retailers in particular are suffering from over-building and rising vacancies.


Like another big-box retailer Macy’s, both have suffered declining stocks prices courtesy of on-line retailers like Amazon and the overbuilding of retail space. For comparison, McDonald’s restaurants (green line) are exploding upwards in price.


Hopefully this doesn’t mean that Americans are exercising less and chowing down on Big Macs, fries and shakes.