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Davidson Kempner joins UK synthetic risk transfer for Oxbury Bank loans

The deal uses the British Business Bank’s guarantee on the senior tranche and Davidson Kempner’s investment in a junior tranche to support up to £500m of loans to small and medium-sized farming businesses.

Reported · Written up by our desk · Fund Industry

Hedge fund Davidson Kempner Capital Management is partnering with the UK government on a synthetic risk transfer intended to provide capital relief to agricultural lender Oxbury Bank, according to a report cited by Hedgeweek. The transaction would cover as much as £500m, or about $662m, of loans to small and medium-sized farming businesses. Under the structure, the British Business Bank is set to guarantee the senior portion of the portfolio, while Davidson Kempner will invest in a junior tranche, with Oxbury retaining part of the underlying credit exposure.

The synthetic risk transfer is part of the British Business Bank’s Enable programme, which aims to encourage institutional investors to participate in capital-relief transactions. Hedgeweek says the programme is also designed to make these structures more accessible to smaller specialist lenders that may struggle to use them due to the relatively small size of their loan portfolios.

Oxbury is expected to benefit from additional regulatory capital that can be used to expand lending to the agricultural sector, the article says. The report also frames the effort as a way to broaden the use of synthetic risk transfers beyond larger market players.

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