- Trusts placed on a stable footing through additional funding.
- Restructuring aimed at preserving value for all investors in the
- Credit quality of assets in Trusts is high and risk of credit losses
in the Trusts' positions is considered low.
TORONTO, March 19 /CNW/ - BMO Financial Group (TSX, NYSE: BMO) today
reported that all four swap counterparties in Apex/Sitka Trusts and certain
investors in the Trusts have signed agreements to restructure the Trusts.
"We are very pleased with the agreement to restructure. This was a
complex deal that was achieved through the efforts of both the investors and
the swap counterparties. It is beneficial to these stakeholders and supports
the smooth functioning of Canadian capital markets," said Tom Milroy, Chief
Executive Officer of BMO Capital Markets. "The restructuring will avoid
unnecessary losses and will preserve the Trusts' underlying positions, the
quality of which are AAA. Based on BMO's own evaluation of the credit quality
of the approximately 450 obligations and after incorporating the benefit of
the substantial first-loss protection, we consider the risk of credit loss to
BMO to be low."
The principal terms and results of the restructuring are:
- The term of the notes will be extended to maturities ranging from
approximately 5 to 8 years to better match the term of the positions
in the Trusts.
- An additional senior funding facility in the amount of approximately
$1.15 billion will be provided to satisfy collateral calls. BMO will
provide approximately $850 million of this additional senior funding
facility. BMO has advanced $200 million of its $850 million portion of
the senior funding facility in connection with these agreements.
- BMO does not expect to take further write downs on the approximately
$495 million remaining net investment it had in the Trusts as at
January 31, 2008.
- BMO will have exposure to the swap counterparties for realized credit
losses on the notional credit positions held by the Trusts if those
credit losses exceed the first-loss protection and the posted
collateral. The existing collateral plus the additional senior
funding, which are available to absorb credit losses above the first-
loss protection levels, total approximately $3.3 billion and represent
approximately 16 per cent of the net notional credit positions held by
- BMO will not be providing any protection from the risk of actual
realized credit losses to subordinated note holders.
- The restructuring includes resolution of the two commercial disputes
related to the Trusts previously disclosed by BMO.
RISK OF CREDIT LOSS TO BMO IS CONSIDERED LOW
The terms of the restructuring are aimed at preserving value for all
investors in the Trusts and BMO considers the risk of credit losses to be low.
The Trusts have provided credit default swap protection on approximately 450
corporate credits which are predominantly investment-grade-rated and are well
diversified by geography and industry. The positions in the Trusts have the
benefit of substantial first-loss protection, therefore, the Trusts will only
experience losses if realized losses on the underlying portfolio exceed
certain first-loss thresholds which vary by tranches. Each of the underlying
tranches in the Trusts has been rated AAA from a credit perspective by DBRS.
This rating does not consider collateral call or funding risks.
After the restructuring, BMO's total investment in the subordinated notes
of the Trusts will be approximately $815 million and approximately
$850 million in the senior funding facility. The effect on BMO's Tier 1
capital ratio is modest at approximately 25 basis points. BMO's Tier 1 capital
ratio remains strong and was 9.48 per cent at January 31, 2008.
BMO believes that the agreements, which are subject to definitive
documentation and certain conditions, including investor approval, provide a
constructive resolution for all parties involved.
Caution Regarding Forward-Looking Statements
Bank of Montreal's public communications often include written or oral
forward-looking statements. Statements of this type are included in this
document, and may be included in other filings with Canadian securities
regulators or the U.S. Securities and Exchange Commission, or in other
communications. All such statements are made pursuant to the 'safe harbor'
provisions of, and are intended to be forward-looking statements under, the
United States Private Securities Litigation Reform Act of 1995 and any
applicable Canadian securities legislation. Forward-looking statements may
involve, but are not limited to, comments with respect to our objectives and
priorities for 2008 and beyond, our strategies or future actions, our targets,
expectations for our financial condition or share price, and the results of or
outlook for our operations or for the Canadian and U.S. economies.
By their nature, forward-looking statements require us to make
assumptions and are subject to inherent risks and uncertainties. There is
significant risk that predictions, forecasts, conclusions or projections will
not prove to be accurate, that our assumptions may not be correct and that
actual results may differ materially from such predictions, forecasts,
conclusions or projections. We caution readers of this document not to place
undue reliance on our forward-looking statements as a number of factors could
cause actual future results, conditions, actions or events to differ
materially from the targets, expectations, estimates or intentions expressed
in the forward-looking statements.
The future outcomes that relate to forward-looking statements may be
influenced by many factors, including but not limited to: general economic and
market conditions in the countries in which we operate; interest rate and
currency value fluctuations; changes in monetary policy; the degree of
competition in the geographic and business areas in which we operate; changes
in laws; judicial or regulatory proceedings; the accuracy and completeness of
the information we obtain with respect to our customers and counterparties;
our ability to execute our strategic plans and to complete and integrate
acquisitions; critical accounting estimates; operational and infrastructure
risks; general political conditions; global capital market activities; the
possible effects on our business of war or terrorist activities; disease or
illness that impacts on local, national or international economies;
disruptions to public infrastructure, such as transportation, communications,
power or water supply; and technological changes.
We caution that the foregoing list is not exhaustive of all possible
factors. Other factors could adversely affect our results. For more
information, please see the discussion on pages 28 and 29 of BMO's 2007 Annual
Report, which outlines in detail certain key factors that may affect BMO's
future results. When relying on forward-looking statements to make decisions
with respect to Bank of Montreal, investors and others should carefully
consider these factors, as well as other uncertainties and potential events,
and the inherent uncertainty of forward-looking statements. Bank of Montreal
does not undertake to update any forward-looking statement, whether written or
oral, that may be made, from time to time, by the organization or on its
behalf. The forward-looking information contained in this document is
presented for the purpose of assisting our shareholders in understanding our
financial position as at and for the periods ended on the dates presented and
our strategic priorities and objectives, and may not be appropriate for other
Material factors which were taken into account when establishing our
expectation of the future risk of credit losses in Apex and Sitka Trusts as
discussed in this release included industry diversification in the portfolio,
initial credit quality by portfolio and the first-loss protection incorporated
into the structure discussed in this release.
In establishing our expectation that we would not be required to take
further write downs on our remaining $495 million net investment in the Trusts
as discussed in the release, we assumed that the restructuring would be
successfully completed and that any credit losses in the Trust's underlying
positions would be low.
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