In almost every CMBS securitization there are a small number

In almost every CMBS securitization, there are a small number of ARD loans. Upon the ARD, hyperamortization and an increase of the interest rate become effective, yet they are requested by and are intended to be beneficial to the borrowers. In what way are these ARDs beneficial to the borrowers?

Solution

ARD stands for anticipated repayment date loan which is not the same as repayment date. It is a suggested date by which the CMBS loan should be paid off. If the loan is not paid off on that day there are steep consequences but does not trigger a default (which includes foreclosure). The consequences typically include an increased interest rate for the loan as well as provision that requires all cash flows after debt service to be applied to principal. The revised (accelerated) payment schedule will be in affect till the maturity of the loan.