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(Bloomberg) — Bank of Montreal recently completed two significant risk transfers covering about $5 billion of corporate loans, becoming the latest Canadian lender to tap strong investor demand for the instruments.
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The Montreal-headquartered bank completed an SRT linked to a $2.5 billion portfolio of large corporate loans through its Muskoka issuance program, according to people familiar with the matter. It also transferred risk on a separate $2.5 billion portfolio of mid-market corporate loans through its Algonquin program, the people said, asking not to be identified because the deals are private.
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The bank joins national peers including Toronto-Dominion Bank, Royal Bank of Canada and National Bank of Canada that have discussed or priced such transactions this year. A representative for BMO declined to comment.
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Read: National Bank of Canada Weighs SRT Tied to Project Finance Deals
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The Muskoka SRT consisted of a first-loss piece equivalent to more than 7% of the reference portfolio that priced at less than 700 basis points over a lending benchmark, the people said. The latest Algonquin transaction covered more than 6% of the loan portfolio and priced in the mid-700 basis-point area. Both transactions were completed within the past two months, the people added.
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Investor appetite for SRTs has remained resilient even as broader credit markets have shown signs of strain amid geopolitical tensions, higher energy prices and concerns ranging from the impact of artificial intelligence on sectors such as software to the debt-fueled expansion of data centers.
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European and Canadian banks account for most of the SRT market, which is on track to post record issuance for a sixth consecutive year, according to estimates from Crescent Capital, an investor in the asset class.
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SRTs allow banks to transfer part of the credit risk of a loan portfolio to third-party investors in exchange for a premium, freeing up regulatory capital. Banks have stepped up issuance amid persistent geopolitical and credit risks, while investors have been attracted by coupons that can exceed 10%.
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