By Esteban Duarte | Updated on Oct 08, 2026 at 03:08 PM
Investors have written down two risk transfer deals with Bank of Ireland Group Plc as the underlying loans deteriorate, a warning of the potential pitfalls involved in the increasingly popular trades.
ArrowMark Financial Corp., a long-standing investor in significant risk transfers, valued the remaining bonds from a 2021 transaction at around 34 cents on the dollar in a report last month, down about 43% since the end of last year. The deal, originally worth $256 million, was done at a time when banks were issuing leveraged buyout loans that performed poorly after interest rates shot up.
Meanwhile, First Trust Alternative Opportunities Fund marked down its outstanding position in a similar SRT issued in 2024 to 91 cents, from over 100 at the end of last year , according to a filing .
The instruments are part of Bank of Ireland’s Mespil program, which it uses to hedge credit risk on acquisition finance. They were written down to reflect the performance of portfolios in the US and Europe, according to a person familiar with the matter, who asked not to be identified because the information is private. Both recently paid coupons of more than 13%.
The opacity of the structures and private nature of the market means it’s often difficult to establish the magnitude and frequency of these writedowns.
Still, SRT issuance has boomed in recent years, enabling mostly European and North American lenders to offload risk tied to $1 trillion in loans and to release capital for new lending or shareholder payouts . Demand this year has remained brisk, with a slew of private credit and hedge funds entering the market or increasing their footprint.
Banks are now hedging a broad range of assets, from corporate and SME loans to lending for real estate, data center projects and fund finance.
The securitizations are working as intended to shield Bank of Ireland from blowups in its loan book, and the losses facing investors on the portions not yet repaid may narrow as the lender pursues recovery efforts. Still, they contrast with the wider SRT portfolios at ArrowMark Financial and the First Trust fund, which are valued around par, and may influence pricing of future transactions.
The Dublin-based lender has gained capital relief roughly equivalent to 45 basis points of common equity tier 1 by issuing SRTs, broadly in line with the average benefit seen at major European banks, according to estimates from research firm CreditSights.
It typically issues one SRT every 12 to 18 months, and may return to the market during the first half of next year, according to the person familiar. Any future Mespil transactions would reference debt originated in Europe only, the person added.
In February, the bank said it would wind down its US leveraged acquisition finance book over three years, and a month later announced a partnership with US-based private credit manager Kennedy Lewis to provide loans for European mid-market buyouts.
A representative for Bank of Ireland declined to comment. First Trust Capital Management did not respond to requests for comment.
ArrowMark Financial also marked down the remaining portion of an SRT issued by Banco Santander SA out of its Nansa program to about 36 cents on the dollar, and a credit-linked note issued by Goldman Sachs Group Inc.’s Absolute program to about 84 cents. Since both have been mostly amortized already, the discounts may not reflect the overall performance of the deals.
An ArrowMark spokesperson declined to comment on individual transactions but said investors remained interested in SRTs because they offer “highly visible cash flows from floating-rate coupons and security paydowns, absolute level of historical performance and resilience during periods of volatility, and ability to complement other commonly held public and private credit exposure.”
Representatives for Goldman Sachs and Santander declined to comment.