UniCredit Plans Risk Transfers Linked to €8.5 Billion in Loans

UniCredit SpA is working on three significant risk transfer deals tied to up to €8.5 billion (RM42.95 billion) in loans to Italian and German companies, according to sources familiar with the matter.

The Milan-based bank is arranging two synthetic risk transfers (SRTs) linked to €3.5 billion in leases with Italian companies and €2 billion in loans to Italian small and medium-sized enterprises (SMEs), the sources said, who requested anonymity as the details are private and the deal is not yet finalized. UniCredit also plans to issue SRTs tied to up to €3 billion in loans to German SMEs by summer, according to these sources.

SRTs, or synthetic risk transfers, enable banks to insure their loans against default by selling notes to pension funds, sovereign wealth funds, and hedge funds. This allows lenders to reduce the capital they must hold to meet regulatory requirements, while investors can earn returns in the low double digits.

Typically, a bank would secure default protection for up to 15% of potential losses. In exchange, investors receive a coupon on their holdings.

The size of the SRTs offering protection on the portfolio of Italian leases and Italian SMEs could be around €200 million and €120 million, respectively, the sources said. The SRTs linked to the pool of German SME loans could amount to as much as €150 million, the sources added.

These transactions have become a rapidly growing segment of the credit markets, totaling more than €206 billion in 2023, up from around €97 billion in 2020, according to data collected by AXA IM Alts. UniCredit’s competitor, Banco Santander SA, is also exploring interest in potential SRT transactions tied to more than US$6 billion (RM28.28 billion) in loans to automakers and other borrowers in Mexico and Brazil, sources with knowledge of the matter discussed last month.