Deutsche Bank is reducing its offering of new repo leverage on SRTs, according to four industry sources. The International Monetary Fund flagged concerns about leverage in SRT markets in its October financial stability report, though without highlighting repo specifically. 9fin understands Deutsche will continue existing contracts.

Significant Risk Transfer (SRT) deals provide credit protection on a portion of a bank’s loan book, and have become one of the hottest portions of the private credit and asset-based finance universe since 2023.

Structures can vary, but one popular format for providing these is a credit-linked note (CLN), in which investors pay cash up front to be held by the bank and used to cover any credit events in the portfolio (which can be complex to determine). At the end, investors get any remaining cash back, along with coupon payments along the way.

This gives a bond-like instrument which can be levered. Many investors active in SRTs invest on an unlevered basis, but plenty also use leverage to increase returns.

For deals from US banks this is especially prevalent, as regulation currently requires banks to hedge thicker tranches of their portfolios to achieve capital relief. Thick tranches mean less structural leverage, and so coupons tend to be lower.