July 24, 2025 –Arbor Realty’s net spreads continue to nosedive, suggesting a further fall in Q2 2025 revenues. More significant errors in Arbor’s reporting of delinquencies, total debt, and debt servicing costs against underlying collateral have also been uncovered.
- Arbor’s underlying CLO Debt Service Coverage Ratio (DSCR) has deteriorated to approximately 0.50x, down sharply from 0.60x at year-end 2024.
- This includes Viceroy’s corrections to obviously misreported debt servicing costs made by Arbor to the US Bank Trustee. Without corrections, the underlying DSCR would be 0.35x.
- For context, A DSCR of 1.0x signal the underlying asset operates at break-even; anything materially below that, as is the case here, reflects significant distress and a heightened risk of default and foreclosure.
- We have found enormous errors in CLO reporting over 18 months, none of which have been corrected or addressed.
- Delinquent loans have risen sharply since our last update in May 2025, from $750m to $1,048m, an increase of 40%.
- Delinquent loans now represent >25% of the CLO loan book.
- $242m of these delinquencies are >90 days.
This is fraud. There is no underlying operational improvement secured against these loans, no opportunity to transition these loans into agency, or any other feasible lending product, and (obviously) no buyer for these loans at their marked price. These loans are in transition to foreclosures, and nothing else.
- The DSCR of modified loans now fully captures 75bps of rate cuts and still only sits slightly above ~0.3x
- Note: on correcting Arbor’s reporting errors in respect to the underlying debt servicing costs of borrowers, we expect the DSCR is actually closer to 0.5x.
- Implied underlying cap rates sit at 4.3%. Any realistic revaluation of underlying collateral values will completely wipe out Arbor’s equity stake of its CLO.