(Sept 12): Goldman Sachs Group Inc is selling a significant risk transfer tied to a portfolio of about US$3 billion (RM13 billion) of leveraged loans, according to people with knowledge of the matter.

The bank is selling notes that are tied to a pool of revolving credit facilities and term loans, the people said. Deal terms are still being discussed with potential investors, said the people, who asked not to be identified because the details are private.

A Goldman Sachs representative declined to comment.

Significant risk transfers — also known as credit risk transfers — have become increasingly popular in recent years as European banks in particular have turned to them.

However, so-called Basel III Endgame rules are expected to increase Wall Street firms’ regulatory capital requirements and boost SRT growth further.

The proposed changes, previewed Tuesday by Federal Reserve vice chair for supervision Michael Barr, stipulate that the eight biggest US banks would now face a 9% increase in the capital they must hold as a cushion against financial shocks.

While that would be considerably less onerous than the 19% hike originally proposed, which sparked a fierce lobbying campaign, it will still increase banks’ capital requirements.

In an SRT, banks typically issue notes linked to a pool of loans that also include a credit derivative and provide default protection for loan portfolios. The deal effectively transfers a bank’s credit risk, allowing the lender to cut the amount of regulatory capital required to hold against the assets.

Investors usually receive a floating-rate coupon, offering a fixed premium above the Secured Overnight Financing Rate. Yields on SRTs have frequently topped 10%.

Uploaded by Siow Chen Ming