Poor Borders (UK).
Beloved by book-buyers and Oxford Street procrastinators everywhere — but not, it seems, enough to keep it in business.
The bookseller announced it was going into administration last week, taking 1,000 jobs and, apparently, some CMBS with it.
From Moody’s on Monday:
London, 30 November 2009 – Moody’s Investors Service has analysed the EMEA CMBS transactions it monitors in relation to exposure to the bookshop chain Borders (UK) Limited (“Borders UK”) as a tenant. Borders UK was placed into administration last week. The administrators continue to trade all 45 stores while they assess the financial position of the company and the possibilities to sell the business as a going concern. Moody’s published its updated central scenarios in March 2009 highlighting that the corporate (tenant) default rates are expected to be above the historically observed trend. Moody’s incorporated its heightened default risk expectations for retail tenants while monitoring and reviewing CMBS transactions over the course of 2009.
Based on the information available to Moody’s, the rating agency has identified the following three EMEA CMBS transactions that rely to some extent on rental income from Borders UK:
- Epic (Culzean) p.l.c.;
- Hercules (Eclipse 2006-4) plc; and
- REC Retail Parks Limited;
Moody’s notes that at present, the current tenant contribution as a percentage of the total rental income of each transaction ranges between 0.7% and 2.1%. At loan level for multi-borrower transactions, the percentage of rental income contributed by Borders UK is not higher than 3.5%.
Which means that while the three CMBS deals have some exposure (not more than 3.5 per cent of rental income, to be exact), it’s not enough to warrant a Moody’s downgrade, according to the rating agency, thought it is enough to make them “more sensitive” to further troubles.
From the press release:
Moody’s has analysed the affected loans to assess whether a potential adverse performance of Borders UK (in terms of rental arrears and/or vacating the properties) would significantly increase the assumed default risk of the securitised loan. For loans where the default risk could increase, Moody’s analysed the impact of such increased default risk on the assigned ratings of the Notes. Based on this analysis and on the information available today, Moody’s is of the opinion that its current ratings on the outstanding Notes should not be negatively impacted by such potential adverse performance of Borders UK. However, the outstanding ratings of affected transactions could become more sensitive to further adverse developments.
Meanwhile – the Borders liquidation continues apace.
With everything — even the bookshelves — available for sale.
CMBS investors presumably have first claim on that discounted Paper Chase wrapping paper (with proof of tranche-holding).
Related links:
The Borders school of bookselling – The Guardian
Borders collapse a sign of changing times – FT