October 16, 2024 –Viceroy Research has obtained copies of Arbor’s CLO prospectuses, which shows that Arbor is deficient in the servicing of these deals. A correction and completion of Arbor’s servicing deficiencies would result in a Mandatory Redemption event.
Under the terms of the CLO, modifying collateral interests (being the loans against underlying properties) triggers an Appraisal Reduction Event upon which Arbor is required to make their best efforts to obtain a new appraisal for the collateral interests within 60 days. Arbor has NOT re-appraised underlying collateral assets of modified loans.
Arbor appears to fail the Par Value Test for 3 of its deals; 2021-FL4, 2022-FL1 and 2022-FL2.
Arbor’s underwriting cannot be trusted as they have continuously and knowingly failed to carry out their duty as servicer. If bondholders call for a mandatory redemption (which is within their right), Arbor will be forced to use principal, and interest proceeds to repay bondholder principal until the Note Protection Test is passed. The loans vastly exceed the value of any underlying collateral: this is effectively an equity wipe-out event.
Arbor exists at the mercy of its bondholders. The question now: who will be left standing when the music stops?