HSBC plans risk transfer linked to 2 billion euros of corporate loans

HSBC Holdings plans to issue a significant risk transfer (SRT) linked to a portfolio of about 2 billion euros (S$2.9 billion) of corporate loans, according to people familiar with the matter.

In SRTs, banks offload the risk of loan portfolios, holding on to the assets but paying investment firms to share any potential future losses. Usually, a bank would obtain default protection for as much as 15 per cent. In return, investors receive yields that frequently top 10 per cent.

The potential transaction is linked to a pool of European corporate loans, said the people, who asked not to be identified because the deal is private. A representative at HSBC declined to comment.

HSBC is reaching out to investors in SRTs – often configured as credit-linked notes – during what is traditionally a busy period into year-end. Among transactions, NatWest Group plans an SRT linked to a portfolio of about £1.4 billion (S$2.4 billion) of corporate loans, while Greece’s Piraeus Bank and Spain’s Banco Bilbao Vizcaya Argentaria are also marketing deals, Bloomberg reported last month.

Global SRT issuance is on track to reach as much as US$30 billion this year, according to an estimate by Chorus Capital Management in July. That would outpace last year’s figure of about US$24 billion, the highest annual volume on record. BLOOMBERG