Two investor positions tied to Bank of Ireland Group Plc's Mespil program have taken noticeable markdowns as the loans behind them worsened. ArrowMark Financial Corp., a long-time buyer of significant risk transfers, disclosed last month that what is left of its 2021 exposure is now worth around 34 cents per dollar, a slide of about 43% from late 2023. That deal was issued when banks were pumping out leveraged buyout loans that later struggled once rates spiked.
In a separate filing, First Trust Alternative Opportunities Fund cut a similar 2024 Mespil note to 91 cents, after sitting just above par at year end. A person familiar with the situation said the marks tie to how portfolios performed in the US and Europe. Despite the price hits, both positions recently paid coupons exceeding 13%.
These securitizations are doing their job by insulating Bank of Ireland from shocks in its loan book, and investor losses on the pieces that remain could shrink if recoveries materialize. Even so, the markdowns stand out against ArrowMark and First Trust's broader SRT holdings, which hover near par, and could shape how future deals get priced. The market's privacy and the structures' complexity make it hard to know how often and how deeply these write downs happen.
Issuance of significant risk transfers has surged in recent years, helping mainly European and North American lenders shed exposure tied to roughly $1 trillion in loans and freeing up capital for new lending or shareholder distributions. Demand this year remains solid, with private credit firms and hedge funds ramping up. Banks are now hedging a broad mix of assets, including corporate and SME loans, property lending, data center projects and fund finance.
Risk transfer deals move credit exposure off a bank's balance sheet quietly. Market Briefs covers that market free every weekday.
Research firm CreditSights estimates the Dublin-based bank's SRTs have delivered around 45 basis points in common equity tier 1 capital relief, broadly in line with large European peers. The bank typically issues one Mespil deal every 12 to 18 months and could return in the first half of next year, with any new transactions referencing loans originated only in Europe, according to the person familiar.
ArrowMark also reduced values on other positions: the remaining slice of a Banco Santander SA SRT from its Nansa program is valued at roughly 36 cents per dollar, while a credit-linked note from Goldman Sachs Group Inc.'s Absolute program is around 84 cents. Both have largely amortized, so the discounts may not represent the deals' overall performance. An ArrowMark spokesperson declined to discuss specific trades, but said investors still favor SRTs thanks to "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." A Bank of Ireland representative would not comment.
Requests for comment went unanswered by First Trust Capital Management. Spokespeople for Goldman Sachs and Santander did not comment.
This is a reminder that even floating-rate notes with fat coupons can swing when the loans behind them wobble, and that pricing in private markets takes time to surface. The flipside is these trades have helped Bank of Ireland absorb stress while freeing capital, and investor losses could narrow if recoveries improve. With the bank eyeing Europe-only collateral, exiting US leveraged acquisition finance over three years, and teaming up with Kennedy Lewis on European buyouts, expect a cleaner, more regional profile ahead. If you hold private credit funds or structured products, watch how managers talk about risk and how new deals are priced off these marks.
When investors mark these down, they are repricing the underlying loans. Join Market Briefs free and follow the signal.
