Valuation of Credit Risk Transfers

Credit risk transfer (CRT) transactions, also known as synthetic risk transfers (SRTs), are transactions where banks, insurance companies, specialty lenders, and other entities (Protection Buyers) pay investors (Protection Sellers) to assume credit risk from Protection Buyers’ portfolios.

CRT transactions involve entities such as banks and insurance companies paying investors to assume the credit risk from their portfolios, reducing the Protection Buyer’s risk of loss without removing the underlying assets from their books. This process applies to various assets, including mortgage loans, consumer or commercial loans, and corporate loans, and it also helps lower the regulatory capital requirements for the Protection Buyer under Basel III standards. Houlihan Lokey has significant experience in valuing CRT transactions and currently values transactions on monthly, quarterly, and yearly intervals for clients. Please download our white paper to learn more.