Bank of Nova Scotia is working on a significant risk transfer tied to around US$2 billion of loans, joining a growing list of lenders looking to take advantage of strong demand to wrap up deals before year-end. The potential transaction would hedge a portfolio of large corporate loans , according to people familiar with the matter. Terms of the deal may change during discussions with investors, they said, asking not to be identified because the talks are private. SRTs are high-risk, high-yield investments that typically insure a first loss or junior portion of a portfolio in exchange for coupons that regularly exceed 10 per cent. Issuance has boomed in recent years, enabling mainly European and North American lenders to offload risk tied to US$1 trillion in loans to investors, releasing regulatory capital for new lending, shareholder payouts or acquisitions. Other lenders discussing transactions that could be completed this year include BNP Paribas SA, Societe Generale SA, Banco Santander SA and Intesa SanPaolo SpA. Scotiabank’s deal would cover a first loss piece of the reference portfolio, the people said. Representatives for Scotiabank didn’t respond to multiple requests for comment. Canadian banks are regular issuers of SRTs. Earlier this year, Bank of Montreal completed two deals covering about US$5 billion of corporate loans . Bloomberg.com
Scotiabank plans SRT transaction tied to US$2 billion of loans
