This month’s bankruptcy filing by Midwestern retailer Shopko seems set to cause some choppy financial waters across the board. Shopko’s recent grocery expansion does not seem to have done enough to keep it in the black. This is an equal-opportunity bankruptcy affecting a range of financial players, as CMBS, REITs and balance-sheet lenders alike are impacted.
The small and midsize cities in the Midwest and Pacific Northwest that have been home to Shopko will certainly be affected by the planned closure of more than 100 stores. But for the financial ecosystem at large – and for its shareholders – the banks and bonds with Shopko-risk on their books are likely of greater concern.
While the Wisconsin-based Shopko, which is backed by private equity firm Sun Capital, may have attempted to cultivate a homey, neighborhood image, CrediFi data shows its real estate was financed by large financial players like Column Financial, an affiliate of Credit Suisse, and Spirit Realty Capital, a publicly traded net lease REIT.
There are large loans at play, such as a $165 million facility originated by Column Financial in November that was backed by a Shopko-heavy portfolio of real estate in multiple states. While it’s not clear whether Column is looking to securitize this loan, it may have a harder time of it, given the short time between the loan and bankruptcy.
That loan was issued to Spirit Realty, but Spirit, as both landlord and lender has some pretty significant exposure to Shopko and its affiliates. Among other things, Spirit had extended a $35 million term loan to Shopko last January, as a component of a broader lending facility.
Local banks may also be in trouble, and given their smaller balance sheets, that sting may hurt even more. Regional and community banks with exposure to Shopko include Park Bank, a Wisconsin regional bank that made a 2018 loan for $7 million to Quickdraw Capital (that’s really the borrower’s name.. you can’t make this stuff up) relating to a Shopko property in-state. Another example: Pacific Premier Bank, which originated a $4 million acquisition loan for the 2017 purchase of a Shopko property in Walla Walla, Washington.
We don’t know yet what all the implications of the Shopko bankruptcy will be, but we do know one thing: while the bankruptcy filing will wend its way, slowly, through the courts, those with financial exposure to the retailer may need to scramble fast to protect their interests.