S&P Global outlines how it assesses SRT risk for private credit funds
The significant risk transfer market is gaining momentum as banks use these structures to move portions of lending portfolio credit risk to outside investors. The trend is drawing more private credit funds into the market, with leverage, ratings demand and underlying asset quality becoming central to risk assessment.
Highlights
- S&P Global Ratings highlights growing prominence of significant risk transfer (SRT) instruments as banks offload credit risk to investors, notably private credit funds.
- S&P Global's risk assessment for private credit funds in SRTs focuses on underlying asset quality and application of its Alternative Investment Funds methodology.
- Private credit funds increasingly use leverage such as repo, NAV facilities, and rated note feeders, driven by demand for rated and leveraged exposure among regulated investors.
SRT structures and fund risk assessment
As reported by S&P Global Ratings, significant risk transfer instruments help banks manage capital and risk by offloading part of the credit risk tied to lending portfolios to investors.The report says assessing the quality of the underlying assets is critical when determining the risk profile of investment funds participating in these transactions. It adds that SRTs are becoming a more prominent part of the credit market as investor interest expands.
Private credit funds are among the largest investors in SRTs and are increasingly seeking leverage and credit ratings. S&P Global Ratings says its review focuses on how its Alternative Investment Funds methodology applies to these structures and the risks embedded in fund financing arrangements.
Leverage demand shapes market development
Funds may use back leverage, including net asset value facilities, repo and other forms of asset leverage, to support returns and financing flexibility.Some funds also use rated note feeders to attract prudentially regulated investors and create levered returns for residual equity holders. That structure underscores how the expanding SRT market is linking bank balance-sheet management with growing demand from private capital investors for rated and leveraged credit exposure.
Our earlier article on Hainan Rubber’s proposed subordinated perpetual sustainable securities explained how the instrument’s position in the capital structure and coupon deferral features drove a lower rating and influenced refinancing plans. We also outlined the company’s leverage and liquidity profile and the role of group support in underpinning access to funding—factors that help investors gauge risk in structured and rated credit exposures.
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