A number of investment banks have been increasing the portion of high quality loans backing commercial mortgage bonds. These loans, while not publicly rated, have many of the characteristics of investment grade loans, such as good structure and experienced sponsorship, and they are secured by good quality properties in primary markets. They are the type of loans that, if sizeable, might end up being securitized on their own. When added to the mix of collateral in CMBS conduits, they boost the overall credit metrics of a deal.
Last year, investment grade loans accounted for just 3% of conduits rated by Kroll Bond Ratings, on average. But so far this year, the average level has risen to 4.1%. And since April, there have been several deals with exposures to investment grade loans in the mid- to high teens.