BNP Paribas weighs jumbo €16B SRT as European issuance accelerates - Bloomberg

BNP Paribas SA (EPA:BNPP) is preparing a landmark synthetic risk transfer (SRT) tied to approximately €16 billion ($17.9 billion) in corporate loans, marking one of the largest such transactions ever conceived. According to a Bloomberg report citing people familiar with the matter, the Paris-based lender intends to offload the first-loss tranche of the portfolio, equivalent to roughly 5% of its total value.

The transaction would be executed through BNP Paribas' Resonance program, a vehicle the bank routinely deploys to hedge corporate credit exposures across North America, Europe, and other primary markets. In addition to the flagship facility, the lender is reportedly weighing a separate SRT backed by about €1.5 billion in mid-market leveraged buyouts.

The dual offerings form part of a broader wave of five potential European transactions tied to €25.2 billion in aggregate underlying assets, underscoring resilient demand for synthetic regulatory capital relief. Continental lenders are accelerating issuance even as broader debt markets confront macroeconomic headwinds, including persistent inflation, strained public balances, and geopolitical friction.

Under synthetic risk transfers, banks purchase credit protection on junior tranches, typically representing 5% to 15% of a loan pool, freeing up regulatory capital while keeping underlying client assets on their balance sheets. The structure has gained widespread traction among institutional investors seeking yield premiums, driving total market issuance toward a potential record.

Other major European lenders are similarly tapping the market, with Société Générale SA exploring an SRT tied to roughly €3 billion in French small and medium-sized enterprise loans, according to Bloomberg. The transaction is set to test investor appetite for exposure to France's domestic economy, particularly among pension funds and specialized private credit managers.

Meanwhile, the report noted that Banco Santander SA is actively gauging interest for a pair of transactions, including a €3.3 billion Spanish SME portfolio under its established Magdalena platform. The Spanish lender is also preparing an unfunded credit protection structure covering approximately €1.4 billion in Portuguese residential mortgages, further reflecting the growing geographic and asset diversification across the asset class.