Bank of Montreal has transferred credit risk tied to about $5 billion of corporate lending, completing two separate synthetic risk transfers (SRTs) through its Muskoka and Algonquin issuance channels, according to people familiar with the matter.
One transaction moved risk on a $2.5 billion portfolio of large corporate loans via the Muskoka programme. That SRT included a first-loss piece equivalent to more than 7% of the referenced portfolio and it priced at less than 700 basis points over a lending benchmark, the people said.
The second transfer covered another $2.5 billion portfolio, this one composed of mid-market corporate loans and executed under the Algonquin programme. That deal transferred a tranche representing more than 6% of the loan portfolio and priced in the mid-700 basis-point range.
Both transactions were completed within the past two months, the people added. The moves mark Bank of Montreal as the latest among Canadian lenders to make use of SRTs this year; other national peers have also either discussed or brought such transactions to market, including Toronto-Dominion Bank, Royal Bank of Canada and National Bank of Canada.
Market participants cited by the people said investor demand for SRTs has remained resilient. That appetite has endured even as broader credit conditions display signs of stress, driven by a mix of geopolitical tensions, higher energy prices and sector-specific concerns. Examples of those sector pressures include questions about how artificial intelligence could affect software companies and worries tied to the debt-fuelled expansion of data centers.
The two deals used the bank's established issuance programmes to carve out first-loss positions and sell them to outside investors, effectively hedging a portion of BMO's corporate loan exposure. Pricing in both transactions settled in the high-yield credit range, reflecting the subordinated nature of the risk transferred.
While the people who discussed the transactions declined to disclose additional commercial terms or the identities of the investor buyers, the structure and pricing detail provided indicate continued investor interest in SRT instruments despite pockets of strain in credit markets.
Context note: Information in this report is drawn from people familiar with the transactions as described above. No additional terms, timelines or counterparty identities were provided.