NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) releases a special report, Party Over for Party City?, which examines CMBS exposure to the party goods and Halloween specialty retailer. In early August, Party City Holdco Inc. (“Party City”) reported earnings for its fiscal second quarter 2019. Comparable store sales declined 2.1% and EBITDA margin eroded 2.8%, marking the fourth consecutive quarter of operational deterioration. The company is facing a myriad of challenges, including trade tariffs, a global shortage of helium, a growing online threat, and an increasingly competitive pop-up retail segment. To combat diminishing sales, fund ongoing operations and reduce leverage, the company is divesting assets. It sold one distribution center and two manufacturing facilities in June 2019 and is expected to close on the sale of its Canadian business (65 stores) by October 1, 2019. In addition to divestment activities and efforts to boost liquidity, Party City has ramped up store closures. The company is expected to close 55 stores in 2019, a considerable increase from its typical annual rate of 10 closures. Party City faces significant headwinds in stabilizing its business, despite recent initiatives to improve liquidity and shutter underperforming locations.
KBRA Credit Profile (KCP) examined its coverage universe of more than 1,000 commercial real estate (CRE) securitizations with an aggregate balance of over $600 billion to identify CMBS exposure to Party City’s store portfolio. Across 175 transactions, there are 194 loans secured by 203 properties, $5.20 billion by allocated loan amount (ALA), with exposure to Party City as either a collateral (95%) or non-collateral/shadow (5%) tenant. KBRA has already identified 14 KBRA Loans of Concern (K-LOC), $362.2 million (7%), with exposure to Party City, including nine specially serviced assets securing $261.6 million in securitized debt (5%). Delinquent loans with exposure to the party goods retailer represent 5.0% of the total ALA exposure. We will continue to monitor ongoing developments related to Party City and report on potential consequences for CMBS collateral within our monthly KBRA Credit Profile (KCP) report for each transaction. For subscribers of the KCP platform, a list of loans and properties exposed to Party City is available by clicking here.
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KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
Maverick Force, Associate
Abhi Patel, Associate
Patrick Czupryna, Director
Mike Brotschol, Senior Director