(Bloomberg) -- Municipal bonds tied to Destiny USA, the biggest shopping mall in New York state, will probably default, just not imminently, according to Fitch Ratings. 

Fitch raised its rating Monday on about $260 million of municipal bonds, backed by payments-in-lieu-of-taxes, from C — the lowest category before default — to CC. The debt, issued to expand the Carousel Center mall in Syracuse into a super-regional shopping complex, will continue to be paid from net-operating income, the rating company said. 

Destiny USA’s value has declined by 81% since 2014 as large tenants like JC Penney and Lord & Taylor filed bankruptcy and the Covid-19 pandemic accelerated online shopping, Fitch said.

Net-operating income “will continue to experience pressures due to the overall decline in the performance of non-trophy malls, which is attributed to slower revenue growth and rising expenses,” the ratings firm said in a news release published Monday. “This situation is exacerbated by declining consumer demand in the retail sector, inflationary costs, and a shift in spending from goods to services, which is anticipated to further impact weaker malls.” 

Destiny USA is owned by a subsidiary of the Pyramid Companies. The Carousel portion of the 2 million square foot mall is valued at $64 million, a quarter of the municipal bonds outstanding, while the expansion portion is valued at $69 million, according to Moody’s Ratings. 

In addition to the municipal bonds, Destiny USA owes $430 million on two mortgage-backed securities. The mall met a $16 million net-operating income target to extend the CMBS loan through June 6, 2024, but faces a $19 million goal to extend the forbearance until June 6, 2025. Pyramid is in the the process of confirming an extension of the loan through next year, Fitch said. 

The annual targets to extend the CMBS loan jump to $22 million in 2026 and $24 million in 2027. The property could enter receivership if it doesn’t meet those benchmarks. 

Fitch said the municipal bonds, which are senior to the CMBS, will continue to be paid in the near term even if the mortgage-backed securities aren’t extended beyond June 6. 

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