How Ratings Agencies Inflate Credit Ratings to Get Deals & Fees

by Wolf Richter
Wolf Street

This time, a new thingy, “Commercial-Real-Estate CLOs.” But investors don’t care because they’re too busy chasing yield.

There is a fairly new and popular creature in the hopping party-town of securitizations: “commercial-real-estate Collateralized Loan Obligations.” These CLOs are bonds backed by risky commercial real-estate “transitional loans,” such as loans to fix up malls, dilapidated apartment buildings, and the like, with the hope that the property will then produce higher rental income. The loan is based on this hoped-for higher cash-flow. But that calculus might be wrong. And lenders want to off-load this risk. So they package the loans into commercial-real-estate CLOs.

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