American Dream sees first default on PILOT bonds

New Jersey megamall American Dream last week missed an interest payment on $800 million of so-called PILOT bonds, marking the first default on that part of the mall's debt stack.

The June 1 lapsed payment was expected by those who track the credit and does not constitute a technical default under the bond structure. It comes after the mall's assessed value backing was trimmed dramatically by a new Jersey tax court last summer. The assessed property value is used to determine the payment in lieu of taxes that is paid to PILOT bondholders.

It's the latest blow to bondholders in the long-running American Dream saga. All holders of the $1.1 billion of unrated muni bonds floated in 2017 to finance the $5 billion shopping and entertainment complex, which includes an amusement park, water park and ski slope, have seen missed payments amid the mall's underperformance and the owner's annual challenge to its assessed valuation.

Holders of $287 million of grant revenue bonds supported by anticipated sales tax revenue have seen a series of missed interest payments since 2022.

"Four years after the American Dream's grant revenue (land secured) bonds began missing debt service payments, the NJ financing's PILOT (TIF) side has begun to default, making only about half of the interest due on 6/1," Municipal Market Analytics noted in a June 3 default report.

The PILOT valuation process is the subject of a lawsuit filed in February by bondholders. Bond trustee U.S. Bank Trust Company, National Association, and bondholders, led by Nuveen, accused the Borough of East Rutherford and mall owners Ameream LLC of colluding to reduce the assessed value.

The bondholder lawsuit alleges Ameream LLC convinced East Rutherford to switch to a less experienced property value appraiser, who produced a far lower valuation for the mall. American Dream and East Rutherford then worked to ensure that the new, lower appraisal wouldn't hold up in court.

The mall's 2025 assessed value was cut by a court to $1.65 billion last August. That's compared to between $3.13 billion to $3.3 billion between 2019 and 2024. Amerean has appealed those valuations.

The new valuation, $850 million lower, means American Dream's payments in lieu of taxes were $24 million annually in 2025. Meanwhile, the mall's $800 million of bonds, which are backed by those payments, require payment of $54.1 million in interest annually.

The June 1 interest payment totaled $26.7 million. The trustee was able to cover only $14.1 million, some of which came from the reserve account, U.S. Bank said in a May 29 Electronic Municipal Market Access website filing.

The lapsed payment does not constitute a technical default under the bond structure; instead the unpaid interest simply accrues and principal payments are pushed out, with a final date of 2056.

A motion to dismiss hearing was set for last Tuesday at the Bergen County Chancery Court. The defendants have argued that the lawsuit is a disguised appeal of the tax court's determination, and that the complaint should either be dismissed or sent to New Jersey's tax court.

The bond trustee and bondholders argue that their case challenges misconduct by the borough and the developer, and violations of a "carefully negotiated framework allocating rights and obligations among the borough, the [issuer, New Jersey Sports and Exposition Authority], the developer, and the trustee with respect to the PILOT stream."

Meanwhile, American Dream on May 1 sued East Rutherford over the 2026 valuation, accusing the borough of an "improperly excessive" assessed value for 2026 and asking for damages.

The PILOT bonds account for the largest municipal bond position in Nuveen's High Yield Municipal Bond Fund, with the 7% bonds due in 2050 making up 1.4% of the fund. A Nuveen spokesperson declined to comment.

More than $47 million of the PILOT bonds with 7% coupons due in 2050 traded around 78 cents on the dollar in February after the lawsuit was filed.

"While there are a lot of uncertainties ahead, we think that at $78 the market downside is limited and bonds are currently trading close to fair value, accounting for all possible outcomes," Barclays (BCS) said in a February municipal note.