Arbor – May CLO Update

Author: Viceroy Research Published on: May 16, 2024 Published in: Arbor Realty Trust (NYSE:ABR)

May 16, 2024 – Arbor’s underlying CLO performance data for May is now live. 38% of Arbor’s CLO loans are now delinquent and/or modified. Arbor has modified loans against 11 properties in the last month.

These modifications substantially comprise of capitalization of interest, “temporary” rate reductions, forbearance agreements, maturity extensions and/or a combination of the same.

In total: Arbor have modified loans of 127 properties in 2024 alone. We note the following:

The weighted DSCR of modified loans is 0.54x, about 500bps lower than the average CLO weighted DSCR.
The nature of many extended loans are various, high leverage loans secured against the same assets.
- Adjusting for this: the LTV of loans modified in 2024 ranges between 0.3x to 1.13x, with the average at about 80%.
We reiterate that the LTV denominator, being the values of the properties, is ludicrous. The LTV is vastly understated.
- We note that the cap rate of underlying assets whose loans were modified in 2024 is ~3.9% against a 10 year T-bill rate of 4.35%.
Loans modified this year have already begun falling delinquent again.

Arbor simply kicks the can down bankruptcy boulevard. Modified loans exhibit zero potential for any operational improvement. Over 40% of Arbor’s CLO loan book is either distressed, modified, or both.

There is no rate cut large enough, no rate caps cheap enough, and no investors dumb enough to save Arbor.

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