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".


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.