Insiders have revealed that Apollo Global Management (APO, Financial) has conducted a significant risk transfer (SRT) transaction with Deutsche Bank (DB) involving a $3 billion leveraged finance debt portfolio. Apollo has acquired more than 50% of the shares in this SRT transaction, initiated through Deutsche Bank's Loft project.
In an SRT, banks retain the assets but offload the risk of a loan portfolio to investment firms, paying them to share future losses. Usually, banks secure default protection for up to 15% of potential losses, while investors often see returns in the low double digits.
Reports earlier this month indicated that Deutsche Bank increased the transaction size due to strong investor demand. The most risky portion of the $420 million bonds priced 10.5 percentage points above the Secured Overnight Financing Rate (SOFR). Meanwhile, the $120 million mezzanine bonds, which absorb losses after the junior bonds, are priced at 3.75 percentage points above the benchmark rate.
Chorus Capital estimated in July that global SRT issuance for 2024 could reach $28 billion to $30 billion, driven by strong growth in the latter half of the year. This compares to approximately $24 billion in transactions last year, marking a record high.
