DEFINITION of 'B-Note'

The secondary tranche in a commercial mortgage-backed security. B notes are a component of A/B financing or A/B/C financing. They have a lower credit rating than a class-A notes, but a higher credit rating than a class-C notes. The financed property serves as collateral for a B note.


Also known as a "class B note".

BREAKING DOWN 'B-Note'

As long as the borrower is paying the mortgage on time (in other words, as long as the loan is performing), investors in all tranches will receive their respective shares of the borrower's payments concurrently. However, if the borrower defaults, holders of class A notes are paid their interest and principal payments before holders of class B notes.


Similarly, holders of class B notes are paid before holders of class C notes. The interest rate and rating on class B notes reflects this level of risk. Alternatives to A/B note or A/B/C note financing include preferred equity, mezzanine debt and second mortgages, all of which are forms of secondary financing used in addition to a first mortgage.

RELATED TERMS
  1. Class Of Shares

    1. Types of listed company stock that are differentiated by the ...
  2. Secured Note

    A type of loan that is backed by the borrower's assets. If a ...
  3. Mortgage-Backed Note

    A type of promissory note that is associated with a particular ...
  4. Class B Shares

    A classification of common stock that may be accompanied by more ...
  5. Sequential Pay CMO

    A type of collateralized mortgage obligation (CMO) in which there ...
  6. Tranches

    A piece, portion or slice of a deal or structured financing. ...
Related Articles
  1. Investing

    What are Class B Shares?

    Class B shares are one classification of common stock issued by corporations.
  2. Personal Finance

    Why Are Mortgage Rates Increasing?

    Learn how the secondary mortgage market and investor demand affect the cost of home ownership.
  3. Investing

    Introduction To Asset-Backed And Mortgage-Backed Securities

    In this article, we will go through the structure, along with some examples of ABS and valuation.
  4. Investing

    What are Tranches?

    Tranches often describe specific classes of bonds within a security that hold different degrees of risks and maturities.
  5. Investing

    The ABCs Of Mutual Fund Classes

    Do you understand how the various types of shares differ? We give you the pros and cons of each.
  6. Investing

    Asset Allocation In A Bond Portfolio

    An investor's fixed-income portfolio can easily beat the average bond fund. Learn how and why!
  7. Investing

    What is an Asset-Backed Security?

    An asset-backed security (ABS) is a debt security collateralized by a pool of assets.
  8. Investing

    The ABCs of Mutual Fund Classes

    There are three main mutual fund classes, and each charges fees in a different way.
  9. Investing

    Understanding Structured Finance

    Structured finance refers to a complex financial transaction involving large financial institutions and companies with unique needs.
  10. Small Business

    What Does Corporate Finance Do?

    Corporate finance is the subset of finance that involves how corporations use leverage to fund their operations and capital purchases.
RELATED FAQS
  1. What is the difference between Berkshire Hathaway's Class A and Class B shares?

    The primary difference between Berkshire Hathaway Class A stock and Class B stock is price. Read Answer >>
  2. Who bears the risk of bad debts in securitization?

    Bad debts arise when borrowers default on their loans. This is one of the primary risks associated with securitized assets, ... Read Answer >>
  3. How are a mutual fund's C shares different from A and B shares?

    Learn how a class C share differs from a class A or B share in relation to a mutual fund. Read Answer >>
Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Acid-Test Ratio

    A stringent indicator that indicates whether a firm has sufficient short-term assets to cover its immediate liabilities. ...
  3. Floating Exchange Rate

    A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that ...
  4. Taxes

    An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government ...
  5. Impaired Asset

    A company's asset that is worth less on the market than the value listed on the company's balance sheet. This will result ...
  6. Solvency Ratio

    One of many ratios used to measure a company's ability to meet long-term obligations. The solvency ratio measures the size ...
Trading Center