(Bloomberg) -- BNP Paribas SA increased the size of a corporate loan portfolio linked to a significant risk transfer for a second time, according to people familiar with the matter, providing the latest sign of growing investor demand for these transactions.
The lender bolstered the pool of debt to €17 billion ($18 billion), an increase from €14 billion set more than two months ago, said the people, who asked not to be identified because they’re not authorized to speak publicly about the matter. Initial discussions were for a portfolio in a range of €8 billion to €12 billion, Bloomberg News reported in July.
A representative for BNP declined to comment.
SRTs, also known as synthetic risk transfers, allow banks to insure loans against default by selling credit-linked notes to pension, sovereign wealth and hedge funds. For lenders, the benefit is that they are able to tie up less of their own capital to meet regulatory requirements. In return, investors receive yields that frequently top 10%.
The size of the SRT providing protection on the BNP portfolio was set at €764 million in credit-linked notes, according to data compiled by Bloomberg. That compares with €700 million planned after the first increase and as much as €650 million during initial discussions.
Insurance companies also take part in the market but frequently issue a guarantee instead of buying the notes, using a product known as an unfunded credit protection. BNP Paribas placed an additional €103 million under a unfunded credit protection format, the people familiar said.
The transaction was priced at a spread of 690 basis points over Euribor, according to data compiled by Bloomberg. That’s in line with the level set more than two months ago and around 60 basis points tighter than the spread that was discussed with potential investors in July.
Loans tied to SRTs have reached about $1 trillion this year, according to data compiled by Chorus Capital Management. Global issuance of SRTs reached about $16.6 billion in the first nine months of 2024, with European banks accounting for almost 70% of that, the London-based asset manager said in a report in October.
Besides BNP, strong investor demand has allowed banks including Deutsche Bank AG and Spain’s Banco Bilbao Vizcaya Argentaria SA to bolster the size of their SRT deals from what was originally planned. Banco Santander SA, one of the world largest issuers of SRTs, has been selling at least a dozen such deals in effort to bolster profitability ratios, Bloomberg reported Nov. 21.
(Adds unfunded credit protection format in sixth paragraph.)
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