Fitch Ratings said in a report today that it is looking to extend its CMBS rating methodology to address the particular attributes of single loans made by insurance companies and other institutional investors.

This group of investors, the report said, are considering mortgage lending opportunities in European commercial real estate (CRE) as a way to make up the lending shortfall created by bank deleveraging.

The report said that insurance companies, in particular, are exploring the use of ratings  to meet capital adequacy rules prescribed under forthcoming Solvency II regulations.

One of the key differences between these loans and those made by commercial banks, the report highlights, is that these loans do not have a "tail period" that allows for mortgage enforcement proceeds to be realized, which means ratings are capped no higher than 'A'.

Fitch said that investment grade ratings may be assigned "to high quality loans with low leverage, secured on 'defensive' collateral yielding stable cash flow – such as prime real estate or highly diversified portfolios – and made to 'bankruptcy-remote' borrowers."


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