Skip links

Arbor – PIK-ing Holes in CLO Data

Author: Published on: Published in: Arbor Realty Trust (NYSE:ABR)

EDIT 12/20/2024: We note that our data appears to have corrupted at some point in pulling this table, pulling the same data for 2021-FL4, 2022-FL1, 2022-FL2. This has now been corrected, alongside relevant analysis. There were no material differences in correction.

December 16, 2024 – Arbor Realty Trust (NYSE:ABR) continued to materially mislead investors during 2024. This report will highlight especially egregious misrepresentations made by Arbor in its Q3 2024 10-Q and earnings call, and CLO trust reporting throughout the year.

  • Arbor has modified $5.7b of loans (up 26% month-on-month) and holds ~$1bm of delinquent loans (up 46% month-on-month) in its CLO portfolio. Modified loans represent ~86% of Arbor’s ~$6.8b CLO portfolio, and delinquent loans ~15%.
  •  Viceroy’s granular analysis of individual CLO loan data over 12 months shows Vast sections of financial data including delinquencies and modifications have been manipulated, adulterated, and/or erroneously under-reported.
  • Almost every underlying sponsor’s debt servicing costs are substantially higher than the scheduled interest due to Arbor, and this figure has been growing at an alarming rate. Substantially all of Arbor borrowers have obtained third party mezzanine financing to pay unaffordable Arbor interest.
  • Arbor appear to modify spreads for distressed borrowers (a large portion of Arbor’s book), month-on-month, to create a quasi cash-sweep program where borrowers simply pay what they. Arbor does not record delinquencies or modifications on these loans.
  • Arbor’s net interest spread has dropped by 13-55% across its various CLOs. The portfolio of distressed loans, is teetering on the edge of a negative spread with over 95% of borrowers unable to afford interest repayments from slim operational margins. The portfolio has an LTV ratio of 85% (approximately a 4.2% cap rate), with Arbor holding the equity stake.
  • Only 9 Arbor loans have an underlying DSCR of >1.0. There is no sign of operational turnaround among sponsors, as LTM NOI remains flat across the board, and debt servicing costs increased due to presumed mezzanine financing.
  • Arbor’s CFO incorrectly claims that only $15m of PIK accrued in Q3 2024. This is a logical impossibly against reported cash pay-rate and weighted average yield. Viceroy’s calculations suggest between $35m and $37m PIK accrued in Q3 2024, reflecting the severe liquidity constraints faced by sponsors.
  • Arbor deceives investors by falsely claiming a robust sales pipeline while its loan book has been shrinking. New originations appear to be substantially the refinancing of existing loans, sometimes to the same borrowers.

The current common dividend remains unsupported by true cash flow available to support it. Arbor is no longer picking up pennies in front of a freight train, it is dropping them.

REPORT DOWNLOAD LINK

SOME OF OUR RECENT WORK

Important Disclaimer – Please read and acknowledge before continuing

Viceroy Research LLC are an investigative financial research group registered in Delaware, USA.

Our research reports have been prepared for educational purposes only and expresses our opinions. Our reports and any statements made in connection with them are the authors’ opinions, which have been based upon publicly available facts, field research, information, and analysis through our due diligence process, and are not statements of fact. All expressions of opinion are subject to change without notice, and we do not undertake to update or supplement any reports or any of the information, analysis and opinion contained in them. We believe that the publication of our opinions about public companies that we research is in the public interest. We are entitled to our opinions and to the right to express such opinions in a public forum. You can access any information or evidence cited in this report or that we relied on to write this report from information in the public domain.

To the best of our ability and belief, all information contained herein is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable, and who are not insiders or connected persons of the stocks covered herein or who may otherwise owe any fiduciary duty or duty of confidentiality to the issuer. We have a good-faith belief in everything we write; however, all such information is presented “as is,” without warranty of any kind – whether express or implied.

In no event will we be liable for any direct or indirect trading losses caused by any information available on this report. Think critically about our opinions and do your own research and analysis before making any investment decisions. We are not registered as an investment advisor in any jurisdiction. By downloading, reading or otherwise using our research reports, you agree to do your own research and due diligence before making any investment decision with respect to securities discussed herein, and by doing so, you represent to us that you have sufficient investment sophistication to critically assess the information, analysis and opinions in this report. You should seek the advice of a security professional regarding your stock transactions.

This website, all documents contained herein or any information herein should not be interpreted as an offer, a solicitation of an offer, invitation, marketing of services or products, advertisement, inducement, or representation of any kind, nor as investment advice or a recommendation to buy or sell any investment products or to make any type of investment, or as an opinion on the merits or otherwise of any particular investment or investment strategy.

Any examples or interpretations of investments and investment strategies or trade ideas are intended for illustrative and educational purposes only and are not indicative of the historical or future performance or the chances of success of any particular investment and/or strategy.

You should assume that the authors have a direct or indirect interest/position in all stocks (and/or options, swaps, and other derivative securities related to the stock) and bonds covered herein, and therefore stand to realize monetary gains in the event that the price of either declines.

The authors may continue transacting directly and/or indirectly in the securities of issuers covered herein for an indefinite period and may be long, short, or neutral at any time hereafter regardless of their initial recommendation.