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Arbor – May CLO Update

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.