SKN | BMO Prices $1 Billion AT1 Capital Notes at 7.375% as Bank Strengthens Capital Base

Key Takeaways:

• Bank of Montreal has priced US$1 billion of NVCC Additional Tier 1 (AT1) Limited Recourse Capital Notes, Series 7, with an initial annual interest rate of 7.375%.
• The notes are expected to close on September 16, 2026, mature in 2086 and reset every five years after November 2036 at the prevailing five-year U.S. Treasury rate plus 2.579%.
• The transaction is expected to qualify as Additional Tier 1 regulatory capital, strengthening BMO’s capital structure while providing funding flexibility for general banking purposes.

Bank of Montreal (TSX: BMO; NYSE: BMO) is reinforcing its regulatory capital position with a US$1 billion issuance of non-viability contingent capital Additional Tier 1 Limited Recourse Capital Notes.

The Series 7 LRCNs will carry an initial annual interest rate of 7.375%, with payments made quarterly through the initial period ending before November 26, 2036. After that date, the interest rate will reset every five years based on the prevailing five-year U.S. Treasury rate plus a spread of 2.579%.

The expected closing date is September 16, 2026, subject to the transaction’s offering terms.

AT1 Structure Provides Long-Dated Capital Flexibility

The securities are structured as NVCC AT1 Limited Recourse Capital Notes, designed to qualify as Additional Tier 1 capital for regulatory purposes.

In connection with the issuance, BMO will issue NVCC Non-Cumulative 5-Year Fixed Rate Reset Class B Preferred Shares, Series 56, to Computershare Trust Company of Canada as trustee for BMO LRCN Trust.

The structure limits recourse for LRCN holders in specified circumstances. If BMO fails to make required interest, principal or redemption payments, or an event of default occurs, each holder’s recourse is generally limited to its proportionate share of the Limited Recourse Trust’s assets, which will primarily consist of the Series 56 preferred shares.

For investors assessing bank capital structures, this mechanism distinguishes the securities from conventional senior debt and reflects their intended role within the regulatory capital framework.

7.375% Initial Coupon Highlights the Cost of Capital

The 7.375% initial annual rate provides a substantial income component, but it also represents a meaningful cost of capital for BMO.

Following the initial fixed-rate period, the securities will reset every five years at the five-year U.S. Treasury rate plus 2.579%. This introduces an important interest-rate sensitivity for investors holding the notes beyond the initial period.

The securities mature on November 26, 2086, although their contractual maturity is accompanied by an earlier potential redemption mechanism.

BMO Retains a Redemption Option After 2036

BMO may redeem the LRCNs in whole or in part, subject to prior written approval from Canada’s Superintendent of Financial Institutions. Redemption can occur on interest-payment dates beginning November 26, 2036, with between 10 and 60 days’ prior notice.

The regulatory approval requirement is important because it underscores the capital instrument’s role within BMO’s broader regulatory capital structure.

The net proceeds will be contributed to BMO’s general funds and may be used for general banking purposes, including potentially redeeming outstanding capital securities or repaying other liabilities.

Scale of BMO Provides Broader Capital Context

BMO Financial Group reported total assets of approximately $1.5 trillion as of July 31, 2026, making it the eighth-largest bank in North America by assets according to the company’s announcement.

The group operates across Canada, the United States and selected international markets, with businesses spanning personal and commercial banking, wealth management, global markets and investment banking.

The capital issuance therefore sits within a substantially diversified banking platform rather than representing a funding transaction isolated to a single business line.

Strategic Outlook: Capital Strength Supports Long-Term Banking Flexibility

For HNWIs and investors in financial institutions, BMO’s AT1 issuance is relevant because regulatory capital provides the foundation for balance-sheet expansion, risk absorption and strategic flexibility.

The US$1 billion transaction should increase the bank’s pool of qualifying AT1 capital, while the proceeds provide flexibility for general corporate purposes and potential refinancing of existing obligations.

The key consideration for investors is the balance between the relatively high initial coupon and the strategic benefit to BMO’s capital structure. For the bank, the transaction adds a long-dated capital instrument; for investors, it provides exposure to BMO’s credit and regulatory-capital profile with a floating-reset feature after 2036.

Closing Insights

BMO’s US$1 billion Series 7 LRCN issuance demonstrates continued access to the institutional capital markets while strengthening the bank’s regulatory capital structure. The 7.375% initial coupon, five-year Treasury-linked resets and 2086 maturity create a distinctive risk-and-income profile for investors, while the proceeds give BMO additional flexibility across its banking operations. For global wealth portfolios, the transaction illustrates the importance of looking beyond common equity when assessing large-bank capital strength and the range of instruments available to investors seeking financial-sector income.

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