A relatively new form of loan in Europe is to enable banks to reduce costs by classifying certain debts as lower risks than before, addressing supply requirements and potentially improving returns. The new financing structure (called “back-leverage”) involves borrowers who get loans from private credit funds, which in turn borrow from banks. According to nearly twelve sources interviewed by the story, the amount of loans issued by banks to credit funds was rated as compared to the risk of the same loan directly issued to borrowers. Lower risk debt means banks must put aside a smaller amount of regulatory capital relative to debt classified at higher risk. “Compared with direct loans compared to direct loans, compared to direct loan facilities, compared to direct loans, compared to direct loan facilities,” said Jessica Qureshi, partner in Knight Frank’s capital consulting division. Backrest leverage generally benefits from more favorable capital handling. “So, banking lenders are able to offer more competitive pricing for back leveraged trading than direct loans.” Return leveraged trading is more common in Europe “Loan loan”. CNBC learned that Wall Street giants Citigroup, Bank of America and JPMorgan Chase, as well as Deutsche Bank in Germany, Standard Lease in the UK, Natworth, Shobrook and Oaknos are banks that offer these loans in the London market. What is a “loan loan”? A loan transaction involves a loan from a borrower that receives a loan from a private credit fund that fundes the transaction in part by borrowing from a bank, called a “loan loan.” These back leverage structures often use dedicated vehicles to facilitate loans and holding underlying assets. For credit funds, these transactions are beneficial because they can use investors’ capital to promote more loans and increase returns. Why loans began to appear in the United States in the form of loans shortly after the 2008 global financial crisis. As regulators around the world begin implementing the Basel III framework sectors that are considered at greater risk under the new regime. In the UK, for example, commercial real estate has been an industry where banks have to reduce their exposure due to regulations and have used private credit funds to help fill the gap. Industry experts told CNBC that the debt fund initially used its investors’ capital to start lending to borrowers who were no longer able to obtain credit from banks because they were considered risky. “Private credit/debt funds have steadily increased the market share of the CRE (commercial real estate) loan market,” said Philip Abbott, partner at the law firm Fieldfisher. “As a general rule, these lenders are more expensive than bank lending, but The risk curve can be improved and it is often promised to execute quickly. “The industry experts say credit funds initially compete with banks to attract borrowers, but they now develop symbiotic relationships by using leverage. Borrowers also value the relationship-driven approach of most credit funds, especially expertise in the alternative real estate sector. In MacFarlanes Laura Bretherton’s financial partners, loan availability through debt funds is also beneficial for borrowers, as the company would otherwise not be able to obtain credit or could pay punitive interest rates to the bank. If there is no loan loan, the borrower must also contact multiple lenders if the loan has a high loan-to-value ratio and negotiates a custom transaction often referred to as a “mezzanine” structure. Laura Bretherton said: “Borrowers are attracted by the entire loan solution offered by the credit fund, according to which they may be able to reach LTV levels similar to … mezzanine structures, but through a single finance Providers’ execution certainty increases.” Financial partner of law firm Macfarlanes, mainly working with credit funds. “Borrowers also value the relationship-driven approach of most credit funds and their expertise, especially in the alternative real estate sector.” Can it improve bank returns? Compared to other borrowers, banks may need to significantly reduce their funds to borrow from debt funds. A pillar of Basel III’s reform changed the way banks risked commercial real estate. For example, in the UK, banks tend to label about 70% to 115% of loans as risk-weighted assets, depending on the loan term, probability of default and other credit risk factors. In theory, the bank takes about 100% of the loan amount as a risk-weighted asset for $100 million to buy a 100 million loan. It then needs to shelve at least 8% of the RWA (in our case) as regulatory capital. Regulatory capital has been established to act as a loss mechanism to prevent bank failures. However, if the bank transfers the loan to a credit fund, the risk-weighted asset appraisal could drop to 20%. This means that using the (simplified) examples above, regulatory capital that needs to be put on hold may be only $1.6 million. If a default occurs, the bank will also be the first to pay to reduce risk. “Simply, this often means (banks) can deploy capital in transactions where they won’t fall under the lower risk attachment point, which can improve their risk-adjusted return on equity,” said Mohith Sondhi, senior director of debt financing in the UK. Oaknorth Bank, which provides financing for debt funds. Banks also benefit from the diversification of loans on loans. Credit funds loans are often mortgaged in multiple basic assets in the credit fund, and the credit funds and borrowers’ performance is also evaluated. Loans can also be securitized, which further reduces the risk to banks. “By lending to private credit funds, the bank reduces its risk by investing in portfolios (rather than a borrower) – Alvin Abraham, CEO of Katalysys, a consulting firm for conservative risk management and regulatory reporting. Barclays’ equity analysts show , it is also possible that banks will lose market share to private credit funds in the current dominant market, such as corporate loans to small and medium-sized enterprises. Working with private credit funds with post-leverage to facilitate these loans may be risk mitigating One approach. “Our analysis concluded that if this happens, EU banks will be engaged in trough business on average (average 21% to 16%), with an impact on SEB, Swedes, Swedes, ING above average Barclays’ equity analyst Namita Samtani said he was referring to Sweden’s SEB Group and Swedish Bank, Dutch Bank ING and ABN AMRO and the UK’s Natwest Group. Samtani added that if the bank does end up getting “competition,” then “never alternatives will be borrowed,” Samtani added. How big is the market? Data on private debt is difficult to obtain. Academics, analysts, and the industry itself, are summarizing images of the industry through surveys. Barclays stock analysts estimate that bank loans to private credit funds in Europe are about 100 billion euros ($100.5 billion), less than 2% of traditional bank loans. Bayes Business School’s Commercial Real Estate Loan Report surveyed about 80 lenders, showing that debt funds now account for one-fifth of the funds lent out of the UK’s commercial real estate industry. Nicole Lux, director of the report and senior researcher at City University of London, speculates that when debt funds use loan structures, it can represent “up to 50-60% of its total capital.” Another recent survey of 100 lenders by global real estate consulting firm Knight Frank shows that more than £100 billion ($126.4 billion) of debt funds can use banks to use £200 billion of back leverage. The report also said that 90% of those surveyed said that if not, back leverage would become the “market standard” for commercial real estate loans. “We firmly believe that the back-leveraged market will continue to amplify and quickly become a core component of liquidity in the CRE debt market,” said Knight Frank Capital Advisory. Barclays analysts said globally , Private Credit Funds have been managed from $138 billion in 2006 to $1.7 trillion in 2023. Private market data broker Preqin predicts the industry will grow to $2.28 trillion in 2028. But Apollo Global Management executive, Apollo Global Management, reportedly one of the world’s largest private asset managers, said the market’s true size is close to $40 trillion in 2023.
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