Arbor – October 2024 CLO Update

Author: Viceroy Research Published on: October 18, 2024 Published in: Arbor Realty Trust (NYSE:ABR)

October 18, 2024 –Arbor’s systematic can-kicking exercise continues to fail, as Arbor is forced to purchase bad loans from its CLOs and modified loans become delinquent once more. Federal rate cuts have not provided any respite for Arbor’s almost exclusively distressed borrowers, as DSCR of underlying investments remains below 0.50x.

Arbor’s modifications have not improved their borrowers’ ability to meet interest obligations. Arbor’s effective interest income spread has also diminished, as interest on loans have now been modified to below the Secured Overnight Financing Rate (SOFR).

Arbor is no longer picking up pennies in front of a freight train, it is dropping them.

Arbor’s rapidly diminishing Net Interest Spread will not improve with any realistic federal rate cuts. We note that Strat Spreads across Arbor’s CLOs have fallen sharply, with Arbor effectively losing money by restructuring its loans. Interest income spreads are now scraping Arbor’s cost of debt.

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