SCI CRT Awards 2020

SCI CRT Awards 2020

Tuesday 1 December 2020 17:46 London/ 12.46 New York/ 01.46 (+ 1 day) Tokyo

North American Arranger of the Year: BMO Capital Markets

BMO Capital Markets (BMO) has led the way in true risk sharing trades outside of Europe for over four years. Its well-established programmes, combined with strong investor connections enabled it to be the first to close a deal after the declaration of the global Covid-19 pandemic and seal its place as SCI’s North American Arranger of the Year.

BMO completed its first SRT issuance in 2016 and remains the only Canadian bank to have issued SRT transactions. Since expanding the programme in earnest the following year, BMO has now completed nine transactions with a total protected notional of over US$13bn and notes placed with 18 investors totalling approximately US$1.2bn.

The programme and BMO’s arranger capabilities were put to the test with the arrival of the Covid-19 crisis-driven market volatility and widespread lockdown measures. Jean-Francois Leclerc, md & head, risk & capital solutions at BMO, recalls: “We have regular discussions with all of our investor institutions – it’s an opportunity to catch up with what they’re doing and gauge interest in deals we are planning – and we did so as the Covid-19 market stress was beginning to materialise, focusing mainly on our existing book of investors.”

He continues: “That gave us insight into who was looking for opportunities and who was closed for business. So we were able to assess client interest for a deal that we were hoping to do in April.”

BMO considered a range of alternative partners, but ultimately decided a bilateral deal was the best choice in those market conditions. That deal was Muskoka 2020-1, where BMO structured, arranged and placed U$132m in guarantee linked notes referencing a US$1.887bn portfolio of large corporate loan facilities.

“We don’t normally do bilateral deals; our preference is for small club deals,” says Leclerc. “However, it was different in the early days of the pandemic, where multiple investors would have been much harder to manage. A bilateral arrangement, which usually involves a bit of give and take between issuer and investor, is easier to manage and was the best way to get something done at that time.”

Leclerc adds: “Typically we aim to engage a number of investors from the very beginning of the deal, both old and new, and that works best for us. But in most transactions, market conditions are much clearer and we are able to close the deal in that way.”

Indeed, BMO was back in the market in July with Muskoka 2020-2. This time, the US$184m guarantee linked notes referencing a US$2bn portfolio were widely marketed and successfully placed with a number of investors, including two equity buyers who were new to BMO’s SRT programme.

As Leclerc concludes: “Relationships are key in arranging any SRT deal successfully, alongside the credibility of the team and the credibility of the institution. For investors to invest in a transaction, they must have faith in the risk management ability of the institution behind the trade.”

Honourable mention: Goldman Sachs
Goldman Sachs’ entry into the still early stages of the US non-GSE capital relief trades market would in and of itself be noteworthy. But to bring innovation to the structure and arrangement of its first deal in the sector merits an honourable mention from SCI in the North American Arranger of the Year category.

On 25 September 2020, Goldman Sachs Bank USA’s Credit Linked Notes Due 2025 issued US$98.56m senior mezzanine and US$86.24m junior mezzanine tranches, which generated capital relief treatment. The deal synthetically referenced a portfolio of predominantly investment-grade revolver loan facilities under which Goldman Sachs or one of its affiliates is the lender.

On the same day, Goldman Sachs issued the CLNs to Absolute 2021-1, a Cayman-domiciled SPV, which in turn repackaged the mezzanine tranches and issued pass-through class A and B notes. The decision to offer the CLNs in repack form is understood to have been in response to investor needs and facilitated the smooth and efficient placing of the deal.

It is expected that similar structures will be adopted by other arrangers in future as the US CRT market grows and repacks become increasingly popular with investors.

For complete coverage of SCI’s 2020 CRT Awards, click here.


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