Its offer includes more than $53 million worth of bonds to be sold through an auction, with pricing for the deal expected sometime this week, according to people familiar with the matter.
Banks have lately been selling more bonds that transfer credit risk to investors, allowing them to book a lighter capital charge on their assets. One newly popular form of the trade in the U.S. is called a significant or synthetic risk transfer, in which a bank buys insurance on risky portions of a specified pool of assets.
Unlike some types kinds of credit transfer arrangements,
After transferring $531 million of mortgages to an off-balance sheet vehicle, that entity will issue bonds tied to the riskiest portions of the loans but keep the remainder, or $477 million. To keep assets and liabilities balanced, the vehicle will then enter a credit agreement with a
The bank has described the deal as "inaugural" in details shown to prospective investors. Fitch and Morningstar DBRS assigned preliminary ratings ranging from AAA to B- to the bonds backed by the riskier portions, according to the people with knowledge of the transaction, who were not authorized to discuss it publicly.
The assets involved are large, or "jumbo," loans originated recently by
Significant risk transfers first became popular among European lenders, but have taken off in the US recently as big banks prepare for more stringent capital rules known as Basel III Endgame.
