Retail loans may fail

Bloomberg

Retail delinquency rates may reach 4.6 percent, Morgan Stanley analysts led by Andy Day in New York said in a report Thursday.

The U.S. holiday season in November and December typically accounts for 30 percent to 50 percent of annual sales for many retailers, and weak sales last year may lead to bankruptcy for some companies, the analysts said.

"Lackluster holiday sales confirm the weakness of the retail environment," the analysts said. "We caution investors on loans backed by malls, community centers, and big box centers, where declining consumer discretionary sales are most apparent."

The lack of demand for space is the fundamental source of pressure in the retail property sector, the analysts said. Retailers are increasingly closing stores, while prospective tenants are harder to come by, the report said.

The most recent holiday-shopping season was the worst in 40 years as U.S. same-store sales dropped 2.2 percent in the last two months of the year, according to the International Council of Shopping Centers. The decline was the biggest such drop since the trade group started tracking the data in 1969.