Prices Drop on $2.7 Billion of Bonds Tied to Amazon Leases
(Bloomberg) — Investors bid down prices on around $2.7 billion of bonds backed by warehouses leased to Amazon.com Inc., as concern mounted that debtholders won’t get paid back in full, after similar securities ran into trouble this week.
The $2.7 billion of bonds, sold by Affinius Capital, traded as low as 81 cents on the dollar on Wednesday, a sign that investors aren’t expecting to get all their money back. Fortress Investment Group was struggling to refinance around $2 billion in debt on a different set of securities, also secured by Amazon warehouses, and faced an important deadline earlier this week.
Both sets of bonds are getting hit by higher interest rates. Holders of Affinius’ securities, originally sold in 2021, need to repay principal to investors by October 2026 or else interest payments will step up steeply, according to original offering documents seen by Bloomberg. If Affinius chooses to pay those stepped-up costs in exchange for more time to refinance, bondholders will have to wait longer than they had anticipated to get their principal back, potentially hurting their portfolios.
Even if the company does successfully refinance its debt, it would need to pay interest rates that are significantly higher than when it sold the bonds four years ago. Those heftier interest expenses would eat up much of the cash flow being generated by the warehouse lease payments. Affinius — formerly called USAA Real Estate Group — didn’t respond to requests for comment. Fortress declined to comment.
A handful of the Fortress securities traded at prices ranging from 75 to 82.5 cents on the dollar on Tuesday, according to data compiled by Bloomberg. An entity tied to Fortress warned in late June that while it was working on a solution to refinance the bonds, it would likely miss the July deadline to repay principal, which occurred on Tuesday.
The debt in both situations is similar to a commercial mortgage backed security, which many banks and other real estate investors use to pay for large commercial real estate projects, from warehouses to offices. Unlike CMBS, the asset-backed debt used to finance the Amazon-leased warehouses specifies key deadlines beyond which issuers must pay steeper interest rates, which can be deferred but still accumulate.
(Updates with detail about impact of missing deadline in third paragraph)
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