BMO and Canal Road Group Form Strategic Partnership Aimed at Providing Direct Lending to Upper Middle-Market Companies

Rhea-AI Summary

BMO (NYSE: BMO) and Canal Road Group (CRG) announced a strategic partnership where BMO will enable CRG to invest up to $1 billion in capital for direct lending operations. The partnership combines BMO's banking relationships and capital markets expertise with CRG's investment management capabilities in senior secured corporate debt investments.

As part of the arrangement, BMO will acquire a non-voting minority stake in CRG's management company. The collaboration aims to expand access to private lending capital for sponsor and corporate clients, leveraging BMO's extensive banking network and CRG's growing capital base. BMO will provide credit facilities to support CRG's strategy long-term, while benefiting from access to CRG's network of borrowers, lenders, sponsors, and management teams.

Positive

• Strategic partnership enables deployment of up to $1 billion in lending capital
• BMO acquires minority stake in CRG's management company
• Expansion of lending capabilities through combined network access
• New revenue stream through credit facilities provision to CRG

Negative

• None.

Insights

Investment Banking Analyst

This strategic partnership marks a significant expansion into the lucrative private credit market, with BMO committing up to $1 billion in capital to CRG's direct lending operations. The private credit sector has seen explosive growth, filling the void left by traditional banks facing increased regulatory constraints.

The deal structure is particularly clever - BMO gains exposure to higher-yielding private credit returns while maintaining arms-length risk through a non-voting minority stake. This allows them to benefit from fee income and investment returns without consolidating the loans on their balance sheet. For context, private credit typically generates returns of 8-12%, significantly higher than traditional corporate lending.

The timing aligns with broader market dynamics where middle-market companies increasingly seek alternative funding sources. This partnership positions BMO to capture market share in the $1.5 trillion private credit market while diversifying revenue streams beyond traditional banking.

Corporate Strategy Expert

The strategic value proposition here is compelling. By partnering with CRG, BMO gains immediate scale in direct lending without building the capability from scratch - a process that would typically take 5-7 years and significant resources. The arrangement creates a powerful flywheel effect: BMO's extensive client network feeds deals to CRG, while CRG's expertise in private credit enhances BMO's product offering.

Think of this as BMO adding a specialized tool to their toolbox - they can now offer clients a full spectrum of financing solutions from traditional bank loans to private credit. This flexibility is important in today's market where companies need diverse funding options. For scale reference, the average middle-market deal size ranges from $50 million to $200 million, perfectly matching CRG's sweet spot.

NEW YORK, Jan. 10, 2025 /PRNewswire/ - BMO (NYSE: BMO) and Canal Road Group ("CRG") today announced they are entering into a strategic partnership. As part of the arrangement, BMO's commitment to CRG will enable CRG to invest up to $1 billion in capital in support of their direct lending strategy. 

CRG is an alternative asset manager specializing in originating, underwriting, and managing portfolios of senior secured corporate debt investments for companies in North America sourced largely from sponsors. CRG will benefit from BMO's network of banking relationships, facilitating a strategic origination source.

The strategic partnership aims to broaden sponsor and corporate clients' access to the private lending capital pool with scale and capacity to provide funding for critical transactions. The partnership will combine BMO's extensive banking client reach, origination, and capital markets expertise with CRG's growing capital base and proven track record of investment management. BMO will also benefit from access to CRG's network of borrowers, lenders, sponsors, and management teams and anticipates providing credit facilities to CRG's strategy over the long-term.  As part of the arrangement, BMO will hold a non-voting minority stake in CRG's management company.

"This exciting project brings BMO together with CRG to offer a full suite of innovative, private financing solutions to our clients," said Alan Tannenbaum, CEO & Group Head, BMO Capital Markets. "By leveraging BMO's robust banking, capital markets and sponsor finance platforms alongside CRG's expanding capital resources, clients will have access to the full array of financing solutions tailored to support their evolving needs and strategic objectives."

CRG commented, "We are excited to collaborate with BMO, a leading banking partner and authority in capital markets and advisory, to establish a distinctive direct lending platform. Through our partnership, CRG will benefit from increased capital, deal flow and access to BMO's vast network of client relationships. As financial markets and client needs continue to develop, we are confident that this partnership maximizes our complementary strengths and resources, enabling us to deliver solutions that better serve our clients."

About BMO Financial Group

BMO Financial Group is the eighth largest bank in North America by assets, with total assets of $1.41 trillion as of October 31, 2024. Serving customers for 200 years and counting, BMO is a diverse team of highly engaged employees providing a broad range of personal and commercial banking, wealth management, global markets and investment banking products and services to 13 million customers across Canada, the United States, and in select markets globally. Driven by a single purpose, to Boldly Grow the Good in business and life, BMO is committed to driving positive change in the world, and making progress for a thriving economy, sustainable future, and inclusive society.

About Canal Road Group

Canal Road Group originates, underwrites, and manages portfolios of senior secured corporate debt. Canal Road Group's founders Don Young and Mike Damaso previously led CBAM Partners ("CBAM"), a $15 billion credit platform founded in 2016 and sold to Carlyle in Spring 2022. Mr. Young and Mr. Damaso are joined at Canal Road by a team of 14 CBAM alums. The firm is headquartered in Miami, Florida.

For more information, please visit www.canalroadgroup.com.

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SOURCE BMO Financial Group

FAQ

What is the value of BMO's lending commitment to Canal Road Group?

BMO's commitment will enable CRG to invest up to $1 billion in capital for their direct lending strategy.

What type of stake is BMO acquiring in Canal Road Group?

BMO will hold a non-voting minority stake in CRG's management company.

What is the purpose of BMO's partnership with Canal Road Group?

The partnership aims to broaden sponsor and corporate clients' access to private lending capital pool and combine BMO's banking expertise with CRG's investment management capabilities.

How will BMO benefit from the Canal Road Group partnership?

BMO will gain access to CRG's network of borrowers, lenders, sponsors, and management teams, and anticipates providing credit facilities to CRG's strategy over the long-term.

What markets will the BMO-CRG partnership serve?

The partnership will serve upper middle-market companies in North America, primarily focusing on senior secured corporate debt investments sourced from sponsors.