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Goldman Sachs (NYSE:GS) is reportedly selling a significant risk transfer (SRT) — also known as a credit risk transfer — linked to a ~$3B portfolio of leveraged loans.
SRTs occur when a financial institution offloads a substantial chunk of the credit risk associated with a pool of assets, such as loans, to third-party investors. This is typically done through securitization or credit derivatives.
By transferring this risk, the institution can reduce its capital requirements, as the assets are no longer fully on its balance sheet, while still retaining some exposure to potential gains.
The investment bank is selling notes secured by a portfolio of revolving credit facilities and term loans, Bloomberg reported, citing people familiar with the matter, adding that the terms of the deal are currently under discussion with prospective investors.
The Basel III Endgame rules are expected to boost Wall Street banks’ regulatory capital requirements and further increase SRT growth. Federal Reserve Vice Chair for Supervision Michael Barr proposed on Tuesday a revised version of the bank capital overhaul, calling for a 9% increase in the capital that the eight biggest U.S. banks would hold as a cushion against potential losses and financial turmoil.
