ROME: Intesa Sanpaolo SpA has wrapped up two significant risk transfers (SRT) tied to corporate loans worth about US$4.8bil as it takes advantage of robust demand to make greater use of the hedging tool.
Italy’s largest bank recently finalised an SRT linked to US$2.5bil of US corporate loans, according to a person familiar with the matter who asked not to be identified discussing private information. It also hedged a portfolio of 2bil of loans to companies that score highly against environmental, social and governance or ESG and sustainability indicators, the person said.
SRTs protect banks against the first wave of bad debts in a loan book, and typically cover between 5% and 15% of the overall portfolio.
The instruments help lenders free up capital and offer investors coupons that frequently exceed 10% at current benchmark interest rates, attracting hedge funds as well as managers of pension assets and private credit.
The market is booming. About 11.1%, or US$509bil, of corporate loans at Europe’s major banks were tied to SRT trades at the end of last year. — Bloomberg
