JPMorgan Chase said to sell significant risk transfer tied to $3B loan portfolio

JPMorgan Chase (NYSE:JPM) is offloading a significant risk transfer (SRT), also referred to as a credit risk transfer, linked to a ~$3B portfolio of net asset value loans, according to a Wednesday media report.

The SRT size offering protection for the portfolio is about $250M, Bloomberg reported, citing a person with knowledge of the matter. The ideal’s terms are still under negotiations with investors.

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.

SRTs have been growing in popularity in recent years. The issuance of SRTs is on track to hit a record high of $28B-$30B this year, Bloomberg noted, citing Chorus Capital estimates released in July. That;s up from some $24B in 2023.

Bloomberg reported last month that Goldman Sachs (GS) was selling an SRT inked to a ~$3B portfolio of leveraged loans. In July, Goldman reportedly was set to sell bonds that will allow it to transfer risk from a pool of about $2B of loans.