This means that some department stores are trying to survive the economic stagnation by enhancing their liquidity but those that already were in a lot of debt are at a "distinct disadvantage," Boni added.

Neiman Marcus, a department store for luxury apparel, on May 7 filed for bankruptcy in light of its accumulating debt and limited cash. On its heels, J.C. Penney filed for bankruptcy as well, becoming the second department store and third major retailer to seek reorganization protection since the onset of the coronavirus.

Other department stores with relatively healthier credit quality are expected to better weather the pandemic such as Nordstrom Inc., which has a Baa3 negative rating, and  Kohl's Corp., which has a Baa2 negative rating. Kohl's is benefiting from having stand-alone locations with direct outdoor access that appear to be faring better as consumers avoid enclosed spaces such as malls.

Collateralized loan obligations, or CLOs, exposed to department stores and other retailers are playing some role in the decline of the credit quality of transactions.

"Given the extensive credit deterioration resulting from the COVID-19 pandemic and the subsequent pressure on Caa holding limits, most managers have sold a considerable portion of longstanding distressed collateral," report co-author Kevin Anthony, Moody's AVP-Analyst, said in prepared remarks.

Moody's currently rates CMBSs with collateral comprised of 27.4% retail properties and 7.3% mall properties. For CLOs, the retail collateral exposure sits at 3.7%, down from 6.3% three years ago.