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Transfer restrictions in the age of synthetic credit risk transfer: time for a re-assessment?

7 April 2025 / Author(s): Faizal Khan , Thea Gausel

Issue: April 2025 / Categories: Feature

Key Points

Relatively free lender transferability was historically a key feature of many loan products and a standard lender right in the syndicated loan market. This facilitated the development of a range of asset management and balance sheet optimisation techniques.
In recent years borrowers and sponsors have sought (and obtained) greater restrictions on lender transferability that potentially impair lenders’ ability to manage their balance sheets using synthetic credit risk transfer instruments including significant risk transfer sub-participations (funded and unfunded) credit default swaps and total return swaps and even in some cases the use of credit insurance.
This is difficult to reconcile at a time where capital reforms continue to increase the cost to regulated entities of holding loans on their balance sheets. Will capital reforms along with the rise of the private credit market and new forms of synthetic credit risk...

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