Davidson Kempner joins UK risk transfer to support Oxbury Bank lending

Hedge fund Davidson Kempner Capital Management has partnered with the UK government to provide capital relief to Oxbury Bank, an agricultural lender, through a synthetic risk transfer covering up to £500 million. The transaction, facilitated by the government-owned British Business Bank, involves Davidson Kempner investing in a junior tranche while the British Business Bank guarantees the senior portion of the loan portfolio.

Oxbury Bank will keep part of the underlying credit exposure but will benefit from additional regulatory capital to expand lending to small and medium-sized farming businesses. The initiative, part of the Enable program, aims to encourage institutional investors to participate in synthetic risk transfers, making capital-relief transactions more accessible to smaller lenders.

Around 20 potential investors have shown interest in participating in transactions through the Enable program. Synthetic risk transfers, typically used for larger portfolios, provide smaller banks with a mechanism to release capital tied up in their lending portfolios. This transaction follows a previous deal with Sona Asset Management for up to £350 million of asset-based loans by Allica Bank.

The new risk transfer supports term lending to small and medium-sized agricultural businesses and encourages preferential financing for borrowers meeting sustainability criteria, such as reducing carbon emissions and increasing renewable energy use. For Oxbury Bank, the transaction adds balance-sheet capacity without fully transferring credit risk.

For Davidson Kempner, the transaction offers exposure to credit portfolios while providing capital to lenders, expanding its growing activity in structured credit and capital-relief investments.