Mitsubishi UFJ Financial Group (MUFG) is in discussions to offload risk linked to around $2bn of loans tied to private credit funds, in a move that highlights how global banks are seeking to manage growing exposure to the sector, according to a report by the Financial Times.
The report cites unnamed people familiar with the matter as highlighting that the Japanese lender is pitching institutional investors on a risk-transfer structure covering roughly $200m, backed by a wider portfolio of credit lines extended to business development companies (BDCs) used by private credit managers.
The proposed transaction would not involve selling the underlying loans, but would instead shift potential credit losses to third-party investors, giving MUFG capital relief and greater flexibility for future lending and shareholder distributions.
The discussions come at a time when banks are tightening lending terms for private credit vehicles, which have faced increased redemptions as investor concerns mount over credit quality and potential stress in sectors such as software, particularly in light of artificial intelligence-related disruption.
In the current structure under negotiation, most of the exposure relates to undrawn revolving credit facilities, with approximately $820m already drawn. Final terms remain subject to change, sources said.
Market participants note that lenders are under pressure to demonstrate reduced exposure to private credit ahead of upcoming earnings disclosures, reflecting growing scrutiny of the sector’s rapid expansion.
S&P Global’s Brendon Browne said such structures are increasingly used by banks to limit concentration risk, ensuring no single borrower category becomes overly dominant within their loan books.
MUFG, Japan’s largest bank, has been a significant backer of Wall Street private credit funds, supported by its large domestic deposit base. It also holds a more than 20% stake in Morgan Stanley, reflecting deep and longstanding ties to global investment banking markets.
The group has expanded its private credit footprint in recent years through partnerships, including the launch of MUFG Morgan Stanley Credit Solutions, which targets growth in Japan’s developing private credit market.
The current deal structure follows earlier precedent in Japan, including a similar risk-transfer transaction executed by Sumitomo Mitsui Banking Corporation, which linked to billions of dollars in credit lines extended to BDCs.
