According to an FT article it does - apparently BAA are trying to avoid being in Series 9 of the index - due to be launched on 20th March

http://www.ft.com/cms/s/0/937f2be0-e031-11dc-8073-0000779fd2ac.html

http://uk.reuters.com/article/UK_SMALLCAPSRPT/idUKL1076761820070910

"Inclusion in the iTraxx Crossover list of mostly junk-rated European companies generally translates into a premium in a company's cost of protection on credit default swaps (CDS), which provide a kind of insurance against non-payment of corporate debt. The premium comes from the higher levels of activity for companies in the index"

Does higher activity equate to a higher spread? If there are more buyers than sellers this would be the case - one example may be when the market is volatile -  people wanting to buy credit protection tend to buy an index as it is a lot easier than buying the underlying constituents. This sends the index spread wider. If the single names didn't widen an arbitrage would now exist

http://www.noelwatson.com/blog/PermaLink,guid,edc5d058-1a2d-4e43-88a4-d58c63a9cb74.aspx

Easier to execute in theory than in practice - in volatile times, the single name spreads widen and liquidity dries up. Looking at the current XOver spread, it is hard to justify the spreads based on current levels of default (last European default was Parmalat). Hence, it could be argued that the underlying constituents have spreads that are too wide.

However, as with equities and banks having a low P/E ratio, we are taking current, not future assumptions - a lot of things could change!