In focus: Private Debt US Mid-Market Loans Fund

US mid-market companies are an important driver of the US economy

Share
Subscribe to our Insights

Risk Disclaimer

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Changes in interest rates can affect the value of fixed interest holdings and may adversely affect the value of your investment.

Investments in non-investment grade middle market loans may result in a greater risk of issuer default and hence the risk of negative impact on both income and capital value.

US mid-market companies are an important driver of the US economy and represent approximately one-third of the country’s GDP. By providing capital to mid-market companies, BMO Financial Group helps support the growth of the US middle market.

BMO’s US Mid-Market Loans Fund provides the opportunity to invest in loans that are sourced and have undergone due diligence by BMO Sponsor Finance (BSF), one of the leading private equity-backed middle lending businesses in the US today. The Fund, managed by a unit within BMO Global Asset Management, has a dedicated portfolio management function to ensure that client investment guidelines are complied with and portfolios are managed in the best interest of clients. Nearly $3 billion of midmarket loans have been purchased by BMO Global Asset Management client accounts over about seven years. Both BMO Global Asset Management and BSF are wholly owned by BMO Financial Group.

Risk Disclaimer

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Changes in interest rates can affect the value of fixed interest holdings and may adversely affect the value of your investment.

Investments in non-investment grade middle market loans may result in a greater risk of issuer default and hence the risk of negative impact on both income and capital value.

BMO - Key figures

Related capability

Fixed Income

An opportunity to participate in loans sourced and diligence by BMO Sponsor Finance

BMO Sponsor Finance is based in Chicago and resides within the Personal and Commercial Banking operating unit within a wholly owned subsidiary of the BMO Financial Group. BMO Sponsor Finance is one of the largest lenders in the sponsored US Mid-Market Loans market.

The team provides services and can underwrite and hold capital across the capital structure, including mezzanine and unitranche financing. The activities provide capital which is used to finance leveraged buyouts, refinancing, recapitalisations, dividends and growth capital.

 

BMO Harris Bank Sponsored Finance is the market leader in the mid-market space
  • One of the largest mid-market sponsor finance teams in the US, with more than 60 investment professionals.
  • The senior members of the team have worked together for more than 20 years, focusing exclusively on private equity-backed
    transactions.
  • BMO Sponsor Finance reviews approximately 1000 deals on an annual basis and selectively closes on about 10% of those opportunities.
  • BMO Sponsor Finance serves as titled agent or joint lead arranger on over 90% of closed deals.
  • The current BMO Sponsor Finance portfolio is comprised ofover 200 borrowers and around 5bn of US mid-market loans.
Use our handy glossary to look up any technical jargon you are unfamiliar with.
Investment characteristics of mid-market loans

Investment characteristics of mid-market loans

Attractive risk-adjusted return
  • Mid-market loan yields are typically greater than yields from larger syndicated loan yields.
  • Held-to-maturity focus, lack of secondary market liquidity.

 

Syndicated loans vs US mid-market loans

Generally, when syndicated loans and US mid-market loans are compared, the latter:

  • Offer lower leverage;
  • Include at least one financial maintenance covenant;
  • Have higher recovery rates;
  • Have higher equity contributions; and
  • Have higher risk-adjusted returns.

These investments may be difficult to sell or buy at a suitable time or at a reasonable price which may adversely affect the value of your investment.

Origination focus on quality loans in the middle market

BMO Sponsor Finance investment philosophy and strategy

Over time, the BMO Sponsor Finance team has demonstrated its ability to fully execute its investment strategy. The team’s focus on portfolio theory, rigorous underwriting standards and an over-origination strategy has allowed prudent portfolio growth. An integrated functional platform coupled with industry segmentation is a noteworthy structure that has, in our view, created a competitive advantage. Furthermore, the team benefits from the existing infrastructure across BMO broadly, including capital markets, credit and workout functions. These broader relationships also help supplement deal flow.
 

Participating in loans sourced by BMO Sponsor Finance through the BMO US Mid-Market Loans Fund.

Unlike many of the private debt investment opportunities, the alignment between investor and BMO Global Asset Management is seamless as every asset placed in these managed private debt investor programmes is held on BMO Sponsor Finance’s balance sheet.

In every loan that BMO Global Asset Management offers to investors through the fund, the bank holds a material amount, generally expected to be at least as much as held by the fund.

Investment flow

Investment flow - Private Debt US Mid-Market Loans Fund

BMO US Mid-Market Loans Fund

Fund Structure: Luxembourg RAIF sub-fund

Fixed Life Fund: with capacity at $750m

Life of Fund: The fund will have about 8 years of life. Approx. 1 to 2 years of ramp-up (calling capital), 1-year re-investment period and 6 years of capital repayment, with the option to extend by 1 year.

Minimum Investment: $5m

Yield: Libor + 4.75%

Income Paid: Quarterly

Management Fees: 0.5%pa up to $300m fund size, 0.75%pa $300m+ fund size

NAV Pricing: Quarterly

Quarterly dealing and interest payment cycle

Quarterly calling of capital and repayment of capital during their corresponding phases of the fund’s life

Redemptions: At the managers discretion only.

Legal Advisors: Elvinger Hoss Prussen

Tax Advisors: Winston & Strawn LLP

For professional investors in Germany and qualified investors in Switzerland only.

This financial promotion is issued for marketing and information purposes only by BMO Global Asset Management in Germany and Switzerland. In Germany reserved for professional clients as defined by the European Directive 2014/65/EU (“MiFID II”) and is not for retail distribution.

The fund is not a regulated investment vehicle and is not subject to the supervision of the Luxembourg supervisory commission of the financial sector (CSSF) or any other regulator.

The information provided in the marketing material does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell or otherwise transact in the Funds. These materials do not contain all information that may be required to evaluate, and do not constitute a recommendation with respect to, any transaction or matter. Any recipient of these materials should conduct its own independent analysis of the matters referred to herein.

BMO Sponsor Finance is a brand name used by BMO Financial Corp and its affiliates. BMO Sponsor Finance is part of BMO Harris Bank N.A. Banking deposit and loan products and services are provided by BMO Harris Bank N.A. Member FDIC. All credit products are subject to bank and credit approval.

Please read the Confidential Offering Document before taking any investment decision.

Subscribe to our Insights