Winner: Bank of Montreal

For much of the last 12 months, Bank of Montreal (BMO) has been not only a prominent player in the North American CRT market, but it has also been the only player in the North American CRT market. Additionally, at the time of writing, it is the only Canadian shop to have swum in CRT waters. For its continuous commitment to the market and breadth of assets covered, the bank is SCI’s winner of the award for Contribution to North American CRT.

Indeed, in the waning days of September 2022 - just as the qualification period for this award was due to end - BMO demonstrated its innovativeness and expertise by bringing another asset class to the market. Its new programme, dubbed Killarney Series 1, securitises capital call facilities and it closed a deal worth US$100m that is due to mature in 2027.

This programme was added to the four that BMO already operates. The justly lauded Algonquin platform covers US dollar- and Canadian dollar-denominated SME corporate loans extended to US and Canadian borrowers.

The Muskoka platform securitises larger corporate loans and is the sister platform to Algonquin. Boreal deals with Canadian commercial real estate loans and remains the only Canadian dollar-denominated programme in the market.

Finally, the Sauble platform handles leveraged loans and should be seen as more of an origination partnership as the portfolio grows over time, notes Jean-Francois Leclerc, head of risk and capital solutions at BMO Capital Markets in Toronto.

There are also differences in the purpose of risk transfer as it applies to these four platforms. While the mechanism is chiefly viewed as a classic regulatory capital relief tool for Algonquin and Muskoka, it is seen more from the perspective of limit management for Boreal and Sauble.

The lender made its first visit to the CRT market in 2016, and in 2022 has concluded six transactions for a total of US$18.5bn in notional.

In January 2022, BMO issued Sauble III with a notional of US$2bn, and three months later upsized Sauble II - initially offered in 2021 - with an additional US$500m. This platform remains one of the few successful platforms devoted solely to leveraged lending in the CRT market.

 The lender sold a new Boreal, dubbed 2022-01 with C$2.1bn of notional, in April 2022.

The Algonquin programme is the largest and catches most of the headlines. BMO returned to the market three times with this platform in 2022, securitising no less than US$14.4bn of SME corporate loans. It brought US$10bn in two separate deals in April, and followed this up with another US$4.4bn synthetic securitisation in August 2022.

BMO’s appreciation of the product is clear. “We think this is a useful tool to transfer risk and we get significant benefit from these transactions. The programmes have performed well through the cycle, including during Covid. There is recognition that this is genuine risk transfer,” says Leclerc.

The bank has cultivated investors in the US, Canada, Europe and Asia over the last year. The great majority are asset managers with a liking for the rewards that CRT offers and expertise in being able to value the risk.

Some deals are sold on a bilateral basis, others to two or three investors, while some transactions have attracted up to 10 buyers. In all, BMO deals with a regular pool of investors that is numbered in the mid-teens, many of which are repeat buyers.

“Many repeat investors have seen the value of our transactions, the quality of our origination practice and the good credit quality that we have at BMO. Ultimately, this is what they are attracted to,” explains Leclerc.

In addition to the new asset class brought to the market in September 2022, another is due to see the light of day before the end of the year. The commitment to this market and resourcefulness within it are the hallmarks of BMO, and make it a worthy winner of this award.

Honourable mention: Guy Carpenter
In recognition of the firm’s continued leadership role in a year when the reinsurance market has stepped up to take a much greater share of the mortgage credit risk transfer market – over US$18.5bn of mortgage risk will have been placed in the reinsurance market in 2022, almost doubling what was placed in 2020 – as capital market spreads have gapped wider. Not only has the firm played a key role in the redistribution of risk, it has also been a thought-leader and staunch advocate of the industry, consistently stressing the strengths and virtues of the CRT market and the increasingly important role that reinsurance brings to it.

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

*For more on the outlook for global risk transfer activity, join our complimentary webinaron 2 November at 2pm GMT. Leading CRT practitioners from Arch MI, ArrowMark Partners, Credit Benchmark and Guy Carpenter will discuss current trends in light of today’s macroeconomic headwinds. Click hereto register.*