Winner: Bank of Montreal

Bank of Montreal (BMO) is both a veteran of the SRT market and a highly frequent issuer. But it is not content to rest on its laurels and has introduced a couple of striking innovations within the last 12 months. For its longevity, its energy and its inventiveness, the Canadian lender is SCI’s North American Issuer of the Year.

BMO unveiled its first SRT platform in 2017 and now has six platforms running, each of which covers a different asset class. It added another platform and asset class during the period of 2022/2023 under consideration.

It is by far the biggest North American bank in the regulatory capital trades market and last year by any measure - whether talking about calendar 2022, fiscal 2022/2023 or by SCI’s awards period - was the most voluminous yet. This exceptional bout of activity was largely the result of BMO’s acquisition of Bank of the West for US$16.3bn in 2021, a move which was finalised in February 2023. At the time of the purchase, California-based Bank of the West had assets of US$105bn. 

BMO is now a top-10 US bank and one of the top-five commercial lenders in North America. The US units contributed around 45% of net income in 2Q23. It is now active across 32 US states and has over 1,000 branches.

Decisions taken by the Canadian regulator, the Office of the Superintendent of Financial Institutions (OSFI), in the last 12 months have made the virtues of the SRT market appear more strikingly abundant. First, the Basel 3 output floor was applied to Canadian lenders from 2Q23; and then, in June, the Domestic Stability Buffer was hiked by an additional 50bp.

“It was a big year for us. The standout was the number of different platforms we issued from. While in the past, we might have issued from Algonquin or Muskoka, this last year was characterised by different platforms and different asset classes,” says Jamie Payne, an md in BMO’s risk and capital solutions group in Toronto.

The debutant was the US$2bn Taiga 1, which closed in November and securitised commercial real estate assets. It appeared on the scene only two months after another debutant – the Killarney 1 trade, which offered exposure to equity subscription line facilities. 

Taiga 1 referenced a US$1.75bn portfolio, with a 12% tranche worth US$210m sold into the market. Like the Killarney transaction, Taiga incorporates an 18-month renewal period, during which BMO can add loans to the reference pool. This structure, which the lender believes is unique to it, was first inaugurated with the debut Sauble deal in 2020.

It sees these types of transactions as more akin to partnerships with a select pool of investors. Buyers have only a limited right of denial, so it is important that the legwork is done when every new deal is initiated to make sure the preferences of both borrower and buyer align.

While attaining regulatory capital relief is important to these types of deals, they also serve another, perhaps more important, purpose: allowing BMO to grow its origination business. “In addition to risk mitigation, the transactions allow us to recycle capital for new opportunities,” says Payne.

In October and November 2022, the lender also priced the biggest deals yet seen on its Muskoka and Algonquin platforms. The 5NC2.5 US$8bn Muskoka 2022-1 - which securitised larger corporate loans - offered four tranches, worth a total of US$617.5m, to the market. The first loss tranche priced at SOFR plus 10.25%, which was considerably within where comparable deals priced, says the bank.

Less than three weeks later, another whopper came to the market. The 5.25NC2.75 Algonquin 2022-4 referenced a US$10bn pool of US and Canadian SME loans. BMO placed the entirety of the class E (0%-6.25%) and very small amounts of the B, C and D classes for total notes sold of US$670m.

Not only did this transaction represent the largest one from the Algonquin platform, but it was also the largest North American dollar deal in 2022 – underlining the primacy in the North American market which BMO holds.

Four of the 10 SRT deals BMO sold in 2022 were bilateral trades and though it has launched a new platform with a new asset in the last year, it tends to work with the same group of tried and trusted investors. “For new asset classes, we tend to work with investors that know BMO well. Our deals are designed as partnerships. They have to be comfortable with our underwriting standards and origination process and we have built trust that leads to support for future opportunities,” explains Payne.

In mid-2023, there is considerable hope that domestic US banks are to issue in the SRT market in increasing numbers. But any new issuer has a long way to go before it can hope to match BMO’s footprint in the North American dollar SRT market. At the moment, it’s BMO, a lot of blue sky, and then everybody else.

Honourable mention: Santander Bank, N.A.
Santander Bank, N.A. issued three US SRT transactions during the awards period, including the US$131.6m SBCLN 2023-MTG1 referencing US$2.5bn of residential mortgage loans – the Group’s first-ever funded US residential mortgage SRT – placing the bank as one of the most active issuers in the jurisdiction. Santander US Capital Markets LLC (SanCap), part of the Santander CIB business in the US, acted as an initial purchaser. Additionally, the bank continues to develop the investor base for SRT trades, with 80 unique investors allocated – including 12 newcomers to Santander CIB SRT programmes.

For the full list of winners and honourable mentions in this year’s SCI Capital Relief Trades Awards, click here.