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(Bloomberg) -- Deutsche Bank AG is selling a significant risk transfer linked to a portfolio of $7 billion of corporate loans, according to people with knowledge of the matter.
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The size of the SRT is around 8% of the portfolio, or about $560 million, and the loans are in regions including North America, said the people, who asked not to be identified because the matter is private.
SRTs allow banks to essentially buy insurance on debt, freeing up capital, while still keeping the assets on their balance sheets. The transactions allow banks to manage regulatory capital requirements by offloading credit risk to investors.
The notes in the transaction being sold by Deutsche Bank are being priced at a spread of around 750 basis points over a lending benchmark, said the people.
A representative for Deutsche Bank declined to comment.
Deutsche Bank is also discussing with investors an SRT tied to around €2 billion ($2.2 billion) of loans to German mid-cap companies, Bloomberg reported in December. The Frankfurt-based lender has said that securitizations will play an important role in its efforts to improve capital efficiency.
A bank usually obtains default protection for as much as 15% of the value of the loans in an SRT. Investors agree to absorb some losses if the loans go bad, and in return they receive yields that frequently top 10%. That’s driving demand for the asset class as investors seek to gain access to high-yielding assets at a time when spreads in the wider credit markets have tightened.
The sale of SRTs is expected to keep growing. The global amount of loans linked to SRTs to be issued this year could rise to close to €300 billion from €260 billion last year as banks continue to pile into the deals, according to estimates from Bloomberg Intelligence.
Chorus Capital Management, which invests in SRTs, projects global issuance of such deals to grow to as much as $35 billion this year, which would be a new record.
--With assistance from Arno Schütze and Steven Arons.
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