(Bloomberg) -- Deutsche Bank AG bolstered the size of a significant risk transfer by $1 billion after strong investor demand, according to people with knowledge of the matter.
The SRT now hedges exposure to a $3 billion portfolio of leveraged loans after a private credit manager offered to take a significant portion of the deal, the people said, asking not to be identified as the transaction is private.
SRTs, also known as synthetic risk transfers, allow banks to insure their loans against default by selling notes to investors such as pension, sovereign wealth and hedge funds. For banks, the benefit is that they are able to tie up less of their own capital to meet regulatory requirements. Some of the SRTs have been priced at a yield in the low double digits.
Global issuance of SRTs for the whole of 2024 is on pace to reach $28 billion to $30 billion, based on a strong second-half pipeline, according to Chorus Capital estimates released in July. That compares with about $24 billion last year, the highest annual volume on record.
Deutsche Bank sold the security via one of its SRT issuance programs called Loft, the people said. The riskiest portion of the transaction was priced at 10.5 percentage points over the Secured Overnight Financing Rate, or SOFR. A mezzanine portion, which typically absorbs losses after the junior piece, was priced at a spread of 3.75 percentage points over benchmark rates, they said.
The anchor investor in the latest Loft deal took almost half of the notes priced in August, the people said.
Loan Provisions
The deal went ahead at a time when European Central Bank officials are discussing asking banks to add about €7 billion ($7.7 billion) in provisions for leveraged loans going bad, roughly half the amount it had initially estimated, after its in-depth review of the business sparked a backlash among lenders, Bloomberg News reported in July.
The weighted average spread of the transaction was about 9%. A representative for Deutsche Bank declined to comment.
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