KBRA releases research that examines synthetic risk transfer (SRT) transactions. Dialogue with market participants regarding SRTs has increased ahead of upcoming Basel 3 regulations set to take effect in mid-2025.

The regulations will substantially change how risk-weighted assets are calculated, resulting in rising capital charges for various portfolio assets. The combination of higher expected regulatory risk weightings and substantial legacy portfolio holdings with unfavorable prospects for sale—since the assets are priced below prevailing higher interest rates—is expected to further encourage risk transfer efforts.

KBRA’s approach to SRTs involves the utilization of asset-specific methodologies applicable to cash securitizations, with consideration given to transaction structures that continue to evolve. KBRA will evaluate features that provide additional credit support as well as key counterparties, in determining whether credit-linked notes are not constrained by the credit quality of the issuer.

KBRA has rated several SRT transactions, with market conditions suggesting a significant pickup in the use of these structures going forward. The report includes a list of KBRA-rated transactions.

Click here to view the report.

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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