(Bloomberg) -- GoldenTree Asset Management is buying a significant risk transfer linked to about €1.2 billion ($1.3 billion) of loans from Bawag Group AG, according to people with knowledge of the matter.
The New York-based credit investor emerged as the winner after a competitive process that lasted weeks, the people said, asking not to be identified because the transaction is private. The deal will allow Vienna-based Bawag to insure a portfolio of consumer loans, according to the people. Alantra Partners SA is acting as arranger, they said.
Bawag is bolstering its loss-absorbing buffers as it works to complete the purchase of the German consumer finance business of Barclays Plc. In its latest quarterly report, Bawag said it expects a reduction of about 140 basis points on its Common Equity Tier 1 ratio.
Representatives at GoldenTree, Bawag and Alantra declined to comment.
In SRTs, banks offload the risk of loan portfolios, holding on to the assets but paying investment firms to share future losses. Usually, a bank would obtain default protection for as much as 15% of potential losses. In return, investors receive yields frequently in the low double-digits.
The deals boost solvency ratios for banks, reducing the amount of capital they need to set aside to cover potential loan losses.
Bawag also recently raised €500 million of perpetual securities, which count toward its Additional Tier 1 buffer, according to data compiled by Bloomberg. The transaction was priced Sept. 10 to yield 7.25%.
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