Bank of Montreal 2010 Annual Report Download - page 144

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes
142 BMO Financial Group 193rd Annual Report 2010
Note 17: Subordinated Debt
The term to maturity and repayments of our subordinated debt are as follows:
(Canadian $ in millions, Interest Redeemable at our option 2010 2009
except as noted) Face value Maturity date rate (%) beginning in Total (8) Total
Debentures Series 16 100 February 2017 10.00 February 2012 (1) 100 100
Debentures Series 20 150 December 2025 to 2040 8.25 Not redeemable 150 150
Series C Medium-Term Notes
Tranche 1 500 January 2015 4.00 Redeemed – 500
Tranche 2 500 April 2020 4.87 April 2015 (2) 500 500
Series D Medium-Term Notes
Tranche 1 700 April 2021 5.10 April 2016 (3) 700 700
Tranche 2 1,200 June 2017 5.20 June 2012 (4) 1,200 1,200
Series F Medium-Term Notes
Tranche 1 900 March 2023 6.17 March 2018 (5) 900 900
3,550 (7) 4,050 (7)
BMO Trust Subordinated Notes – Series A 800 September 2022 5.75 September 2017 (6) 800 800
Total 4,350 4,850
(1) Redeemable at the greater of par and the Canada Yield Price after their redemption date
of February 20, 2012 until their maturity date of February 20, 2017.
(2) Redeemable at the greater of par and the Canada Yield Price prior to April 22, 2015,
and redeemable at par commencing April 22, 2015.
(3) Redeemable at the greater of par and the Canada Yield Price prior to April 21, 2016,
and redeemable at par commencing April 21, 2016.
(4) Redeemable at the greater of par and the Canada Yield Price prior to June 21, 2012,
and redeemable at par commencing June 21, 2012.
(5) Redeemable at the greater of par and the Canada Yield Price prior to March 28, 2018,
and redeemable at par commencing March 28, 2018.
Note 18: Capital Trust Securities
We issue BMO Capital Trust Securities (“BMO BOaTS”) through our
consolidated subsidiary BMO Capital Trust (the “Trust”). The proceeds
of the BMO BOaTS are used to purchase mortgages. We consolidate
the Trust, and the BMO BOaTS are reported in our Consolidated Balance
Sheet either as non-controlling interest in subsidiaries or as capital
trust securities, depending on the terms of the BMO BOaTS.
During the year ended October 31, 2009, we issued $450 million of
BMO Tier 1 Notes – Series A (“BMO T1Ns – Series A”) through BMO Capital
Trust II (“Trust II”). Trust II is a variable interest entity which we are not
required to consolidate (see Note 9); therefore, the BMO T1Ns – Series A
issued by Trust II are not reported in our Consolidated Balance Sheet.
Trust II used the proceeds of the issuance to purchase a senior deposit
note from us which is reported as a business and government deposit
liability in our Consolidated Balance Sheet. The BMO T1Ns – Series A
are redeemable, at the option of Trust II, subject to certain conditions
on or after December 31, 2013. In certain circumstances, the BMO T1Ns –
Series A may be automatically exchanged for, or interest payable
thereon may be paid by, the issuance of Class B non-cumulative preferred
shares of Bank of Montreal. The senior deposit note we issued to Trust II
bears interest at an annual rate of 10.421%, which will be reset on
December 31, 2018 and on every fifth anniversary of that date thereafter
until December 31, 2103. BMO T1Ns – Series A and the senior deposit
note will mature on December 31, 2107.
Holders of the BMO BOaTS and BMO T1Ns – Series A are entitled
to receive semi-annual fixed cash distributions as long as we declare
dividends on our preferred shares or, if no such shares are outstanding,
on our common shares in accordance with our ordinary dividend practice.
Subordinated debt represents our direct unsecured obligations, in the
form of notes and debentures, to our debt holders and forms part of our
regulatory capital. The rights of the holders of our notes and debentures
are subordinate to the claims of depositors and certain other creditors.
We require approval from OSFI before we can redeem any part of our
subordinated debt. Where appropriate, we enter into fair value hedges
to hedge the risks caused by changes in interest rates (see Note 10).
During the year ended October 31, 2010, we redeemed all of
our 4.00% Series C Medium-Term Notes, Tranche 1, due 2015, totalling
$500 million. The notes were redeemed at a redemption price of
100% of the principal amount plus unpaid accrued interest to the
redemption date.
During the year ended October 31, 2009, our $140 million 10.85%
Debentures, Series 12 matured.
During the year ended October 31, 2008, we issued Series F
Medium-Term Notes, Tranche 1, totalling $900 million. We redeemed all
of our 5.75% Series A Medium-Term Notes, Tranche 2, due 2013, totalling
$150 million. The notes were redeemed at a redemption price of 100% of
the principal amount plus unpaid accrued interest to the redemption date.
We have issued $800 million of innovative subordinated debentures,
BMO Trust Subordinated Notes (“BMO TSNs – Series A”) through BMO
Subordinated Notes Trust (“SN Trust”). SN Trust is a variable interest
entity which we are not required to consolidate (see Note 9); therefore,
the BMO TSNs – Series A issued by SN Trust are not reported in our
Consolidated Balance Sheet. SN Trust used the proceeds of the issuance
to purchase a senior deposit note from us which is reported as a business
and government deposit liability in our Consolidated Balance Sheet.
All of the BMO TSNs – Series A will be exchanged automatically, without
the consent of the holders, into our Series E Subordinated Notes upon
the occurrence of specific events, such as a wind-up of Bank of Montreal,
a regulatory requirement to increase capital, violations of regulatory
capital requirements or changes to tax legislation.
We have guaranteed the payments of principal, interest and
redemption price, if any, and any other amounts on the BMO TSNs –
Series A when they become due and payable. This guarantee is
subordinate to our deposit liabilities and all other liabilities, except for
other guarantees, obligations or liabilities that are designated as ranking
either equally with or subordinate to the subordinated indebtedness.
The senior deposit note we issued to SN Trust bears interest at an
annual rate of 5.90% and will mature on September 26, 2022.
(6) Redeemable at the greater of par and the Canada Yield Price prior to September 26, 2017,
and redeemable at par commencing September 26, 2017.
(7) Certain subordinated debt recorded amounts include quasi fair value adjustments that
increase their carrying value by $226 million ($186 million in 2009) as they are part of
fair value hedges (see Note 10).
(8) All of our subordinated debt has a term to maturity of over five years.
Please refer to the offering circular related to each of the issues above for further details
on Canada Yield Price calculations and definitions of Government of Canada Yield.