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Morgan Stanley Selling Bonds Tied to More Than $4 Billion of Private Loans

The Morgan Stanley headquarters in New York, US, on Wednesday, July 10, 2024. Morgan Stanley is scheduled to release earnings figures on July 16. Photographer: Michael Nagle/Bloomberg (Michael Nagle/Bloomberg)

(Bloomberg) -- Morgan Stanley is sounding out investors for a bond offering that would help offload risk tied to a more than $4 billion portfolio of loans to private market funds. 

The planned deal is a type of synthetic risk transfer, according to people familiar with the matter. Conversations are in the preliminary stages and details could still change, they added, asking not to be identified discussing private information. 

A spokesperson for Morgan Stanley declined to comment.

SRTs, also known as significant risk transfers, have become more popular in the US in recent years. The deals allow banks to purchase protection on loan portfolios, which helps them to both release regulatory capital and also better lever their risk profile. 

The loans tied to Morgan Stanley’s deal, called subscription lines, are credit lines typically extended to private equity and other private market funds to help them manage liquidity. The short-term funding is a tool that helps the funds boost returns by delaying their use of investor capital.

The pace of SRTs is anticipated to accelerate this year as uncertainty around the final Basel III bank capital rules is resolved. Wall Street banks have been preparing for the revamped rules from the Federal Reserve that may require them to hold more capital.  

The potential SRT from Morgan Stanley comes on the heels of a similar offering from Goldman Sachs Group Inc., backed by about $2 billion of subscription lines, Bloomberg reported earlier this week. 

--With assistance from Carmen Arroyo and Esteban Duarte.

©2024 Bloomberg L.P.