(Bloomberg) -- Landesbank Baden-Württemberg is selling a significant risk transfer linked to a portfolio of about €2.8 billion ($3 billion) of loans, according to people familiar with the matter.
The size of the SRT is about €142 million, referenced to a portfolio of corporate loans, said the people, who asked not to be identified because the matter is private. Final terms of the transaction are subject to discussions with investors.
Loans tied to significant risk transfers have reached about $1 trillion as deals are running at the fastest pace on record for the fourth year in a row, according to data compiled by Chorus Capital Management. Among recent transactions in Europe, Banco Santander SA is selling an SRT linked to a portfolio of about £1 billion ($1.3 billion) of UK consumer loans, and HSBC Holdings Plc is issuing a significant risk transfer linked to a portfolio of about €2 billion of corporate loans, Bloomberg reported earlier this month.
SRTs, also known as risk-sharing transactions or RSTs, enable banks to hold onto loan assets and offload the risk by paying investment firms to share any potential future losses. Usually, a bank would obtain default protection for as much as 15% of portfolios, and in return investors can receive yields that frequently top 10%.
Such transactions for business areas such as corporates, infrastructure or real estate are part of normal bank operations, a representative for LBBW said in an emailed reply to questions, while declining to comment on the specific transaction.
Separately, LBBW received more than 1.75 billion euros of investor orders for its sale of €750 million of Additional Tier 1 securities, a person familiar with the matter said. AT1s are the riskiest form of bank debt, as the notes can be written off or converted into equity if the lender’s capital levels drop too low.
LBBW’s common equity Tier 1 was at 14.6% at the end of June, up from 14.2% a year earlier, according its latest earnings report.
--With assistance from Olga Voitova.
(Adds final terms of AT1 in penultimate paragraph.)
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