Bank of America Corp. is preparing a significant synthetic risk transfer (SRT) deal tied to a $3 billion portfolio of loans issued to private market funds, according to people familiar with the matter.
Sources said the loans in the portfolio consist mainly of subscription lines — credit facilities extended to private equity and other investment funds to manage liquidity and enhance returns. The terms of the transaction are still under discussion with potential investors, and the bank has not commented publicly on the matter.
Subscription line financing, typically backed by the undrawn capital commitments of fund investors, provides short-term liquidity to funds, helping them manage capital calls efficiently during both active and slow dealmaking periods.
SRTs, meanwhile, allow banks to offload credit risk by insuring part of their loan portfolios against default. These transactions are often structured as credit-linked notes sold to institutional investors such as pension funds, sovereign wealth funds, and hedge funds. In doing so, lenders can free up regulatory capital and better manage exposure to specific loan segments.
Generally, banks seek default protection for between 5% and 15% of the value of the underlying loans. Last year, Bank of America executed a similar deal covering $1 billion in corporate loans through an SRT valued at about $90 million.
The move comes amid rising interest among major global lenders in risk-transfer transactions. Morgan Stanley is reportedly planning an SRT tied to $6 billion of private credit loans, while Japan’s Sumitomo Mitsui Banking Corp. marketed a comparable deal in July.
According to Bloomberg Intelligence, the global SRT market is projected to expand by an average of 11% annually over the next two years, with JPMorgan Chase, Goldman Sachs, and UBS among the banks exploring or finalizing dollar-denominated transactions.
Comments are closed.