Davidson Kempner backs £500m Oxbury risk transfer

Davidson Kempner will invest in a junior tranche of a synthetic risk transfer covering as much as £500 million of agricultural loans originated by Oxbury Bank, while the British Business Bank will guarantee the senior portion through its Enable programme. Oxbury will retain part of the underlying credit exposure and will free up regulatory capital that can be used to expand lending to small and medium-sized farming businesses across the UK. The arrangement builds on an Enable guarantee first agreed with Oxbury in 2023.

A synthetic risk transfer lets a lender move the credit risk of a loan portfolio to investors without selling the loans themselves. The structure reduces the amount of capital a bank must hold against those loans. Such transfers are more common for loan books above £1 billion; the Enable programme combines a government-backed guarantee with institutional capital to make the approach available to smaller specialist lenders.

Michael Strevens, managing director for structured financial institution solutions at the British Business Bank, described the structure as one that ‘could potentially be replicated by other agencies in the UK and Europe to help smaller lenders generate additional financing capacity.’ He noted that around 20 investors have expressed interest in transactions through Enable.

The transaction includes provisions intended to encourage sustainable farming practices. Part of the capital relief will support preferential finance for borrowers who meet specified sustainability criteria, including measures to reduce carbon emissions and increase the use of renewable energy on farms.

For Oxbury, the risk transfer increases balance-sheet capacity while preserving some credit exposure to its agricultural loan book. For Davidson Kempner, the junior tranche provides exposure to a defined portfolio of agricultural loans with a return profile linked to the tranche. Davidson Kempner manages more than $40 billion and has increased activity in structured credit and capital-relief investments.

The deal follows an earlier Enable-backed transaction covering up to £350 million of asset-based loans originated by Allica Bank and arranged with Sona Asset Management. The British Business Bank says the structure is intended to support term lending to small and medium-sized businesses in the agricultural sector.