Mortgage bonds held on trade center could be in danger of default
Thursday, September 13, 2001
New York's World Trade Center, which was destroyed Tuesday by a terrorist attack, was collateral for $946-million (U.S.) in mortgage bonds that may now be in danger of default, analysts say.
GMAC Commercial Mortgage Corp. of Horsham, Pa., sold $563-million in bonds in connection with a loan to Silverstein Properties Inc., a New York-based property developer, which teamed with Los Angeles-based shopping centre owner Westfield America Inc. to lease the twin towers. The 99-year leasing deal was struck two months ago. There are also $383-million in securities related to a Bank of America Corp. loan involving World Trade Center 7, which also collapsed in Tuesday's attack.
Bankers and lawyers are trying to determine whether the insurance on the complex covers the bondholders in case of an act of terrorism.
"Our bankers are meeting with counsel to review all issues related to the transaction," said Michael Youngblood, head of real estate research at Bank of America in Charlotte, N.C. "We hope to make an official statement as soon as possible."
The prospectus for the securities sold by GMAC says the insurance may not cover losses caused by terrorism if such "coverage is unavailable at commercially reasonable rates."
GMAC officials couldn't be reached.
A 1991 commercial mortgage bond transaction arranged by investment dealer Lehman Brothers Inc. resulted in losses for bondholders after insurance failed to cover property damage caused by the 1994 earthquake in Northridge, Calif., Mr. Youngblood said.