Seer Capital secures $300m insurance-backed facility

Seer Capital is working with Cantor Fitzgerald and insurance broker Lockton on a proposed $300 million insurance-backed financing facility provided by First Abu Dhabi Bank and insured by Nationwide Mutual Insurance. The transaction is expected to close later this year and terms are still being negotiated.

The New York-based hedge fund plans to use the facility to leverage capital committed by investors when acquiring significant risk transfer (SRT) transactions from banks. The structure would increase Seer’s exposure to transferred credit risk while reducing the equity required up front. Under the draft terms, the lending line could represent more than half of the net asset value allocated to those investments.

SRT transactions move the credit risk on a slice of a bank’s loan portfolio-typically about 5% to 15%—while the underlying loans remain on the bank’s balance sheet. Investors have shown interest in SRTs in part because yields on some deals can reach double digits.

Wrapping lending with guarantees from an investment-grade insurer can improve a facility’s credit profile and reduce financing costs compared with traditional borrowing. Based on market estimates, a $300 million facility of this size could support investments tied to loan portfolios with an aggregate value exceeding $4 billion.

Regulators have increased scrutiny of the SRT market and the links between banks and non-bank investors when transferred credit risk is repackaged into new financing vehicles that rely on bank funding. Supervisors have focused on the role of repurchase (repo) financing in SRT deals. Higher capital charges for banks providing repo funding have encouraged market participants to explore alternative funding structures, including insurance-wrapped lending.

Representatives for Seer Capital, Cantor Fitzgerald, Lockton and Nationwide Mutual Insurance declined to comment on the transaction. First Abu Dhabi Bank declined to discuss individual client relationships or transactions and reiterated its commitment to supporting clients in line with applicable governance and regulatory standards.