American Dream bonds tumble

Municipal bonds issued to finance New Jersey's megamall and entertainment complex American Dream dropped by nearly 18% this week after bondholders filed a lawsuit challenging the property's assessment.

More than $28.5 million of tax-exempt so-called PILOT bonds with a 7% coupon due in 2050 traded Monday for 78 cents. That's down from 95 cents in the most recent institutional trade, last June, when $11 million of the paper traded hands. The 78 cent trade marks the lowest large trade price since the bonds were issued in 2017, according to the Municipal Securities Rulemaking Board website. An odd lot of the bonds traded at 40 cents in November.

An odd lot of bonds with a 6.75% coupon due in 2042 traded Monday for 78 cents, down from 100.8 cents in the most trading last April.

The price drops follow a lawsuit filed Friday by bondholders alleging the mall's owners, Ameream LLC, colluded with the borough of East Rutherford to lower the property assessment. Since the bonds are backed by payments to local governments in lieu of property taxes, the lower assessment lowers bondholder payments.

The lawsuit marks the latest hurdle for the $5 billion megamall located in New Jersey's Meadowlands. Wisconsin's Public Finance Authority floated $1.1 billion of unrated bonds in 2017 to support the project. Roughly $800 million of the bonds are backed by the PILOT payments.

Another $287 million of bonds secured by New Jersey grants conditioned on the mall meeting sales-tax revenue targets have missed interest payments since 2022. The grant-backed bonds are not part of the new lawsuit. With a reserve account balance of $967, the borrowers again missed the most recent debt payment on Feb. 2, according to a Feb. 2 EMMA notice. The bonds come due in 2027 and 2031. In the most recent trading, last August, $20 million of the bonds traded hands at 80 cents.

The decline in PILOT bond prices and litigation isn't surprising given the mall's performance and general lack of bondholder protections, said Lisa Washburn, managing director for Municipal Market Analytics.

"The one-sidedness of the transaction has been perplexing to me from the start," Washburn said in an email. "Given how central the assessment process and the PILOT payments are to bondholder repayment, the lack of meaningful bondholder protections (generally) and any practical control over the repayment source and the process to determine it, seemed to be questionable structuring decisions," she said.

The bond terms "seem to reflect an initial bondholder focus on the project's hypothetical success rather than the highly predictable likelihood that, if performance disappointed, the developer would use every available lever to reduce cash outflows to investors," Washburn said.

Nuveen is the majority holder of the $800 million of PILOT bonds, with the 7% bonds due in 2050 making up the second-largest position, and largest muni holding, in Nuveen's High Yield Municipal Bond Fund.

A Nuveen spokesperson called the 2025 appraisal process and resulting valuation "deeply flawed." The firm directed bond trustee U.S. Bank Trust Company to retain legal counsel to protect bondholders and "act in the best interest of our shareholders and investors," the spokesperson said.

"The appraisal process has important implications for bond pricing," the spokesperson said. "We expect future Borough of East Rutherford appraisals to represent fair, accurate, and independent assessed valuations, without any undue influence."

The complaint was filed Friday in the Superior Court of New Jersey Chancery Division on Friday.