Known as a resecuritization, the deal pools together 18 bonds created by Freddie Mac, each of which is backed by apartment loans of up to $7.5 million, according to offering documents seen by Bloomberg as well as a note from the credit rating firm Morningstar DBRS. 

The roughly $500 million of mortgage bonds included in the deal are tied to Freddie Mac's Small Balance program, which offers loans of between $1 million and $7.5 million for apartment buildings with five or more residential units, according to an investor presentation. Freddie Mac obtains the underlying loans from a variety of lenders and then bundles them into bonds. 

In the new deal, the credit investor Axonic Capital contributed all 18 of the underlying mortgage bonds, the offering documents show. It's the first time that this type of Freddie Mac debt has been re-packaged into new bonds and received credit ratings, according to Matt Weinstein, co-chief investment officer at Axonic. 

"Our motivation was to take advantage of the strong demand for mortgage credit, in particular multifamily debt," Weinstein said in an interview, referring to real estate deals focused on apartment buildings. 

A spokesperson for JPMorgan declined to comment. 

While Freddie Mac provides a financial guarantee on the bonds tied to the small balance program, the backing doesn't apply to the riskiest bonds, known as the B-Pieces, which are the first in line to take losses if the underlying loans fail. It's these risky bonds that Axonic contributed to the resecuritization, the offering documents show. 

Axonic focuses heavily on commercial real estate debt and owns roughly half of all the B-Pieces tied to Freddie Mac's small balance loans, according to Weinstein.  

While this deal may be the first time Freddie Mac's small balance loans have been resecuritized and rated, other non-guaranteed loans from the quasi-government lender have been. For example, Bank of America has done similar transactions, this year and last, involving large balance loans, according to people familiar with the matter, who declined to be identified discussing sensitive information. 

A spokesperson for Bank of America declined to comment. 

Bond managers are eager to sink more dollars into commercial mortgage debt, and particularly the apartment sector, which enjoys strong demand from tenants because of a nationwide shortage of housing. Risk premiums on a variety of commercial mortgage securities have steadily narrowed since the 2023 collapse of Silicon Valley Bank, which sparked fears of a wave of commercial real estate debt sales from regional banks.