Spotlight on Jon Landis, Managing Director, BMO Sponsor Finance
Global Thought Leader Spotlight
Jon Landis, Managing Director, BMO Sponsor Finance
In my role as Head of Investor Business Development for BMO Sponsor Finance (SF), I focus on identifying overlap between clients looking for high quality private debt exposure, and our in-house direct private debt origination.
BMO SF offers private credit solutions in the U.S. and Canada, under our parent, BMO Financial Group. Our team focuses on identifying attractive risk/return opportunities in core middle market senior private debt, then invest BMO balance sheet capital alongside our investment partners.
I have over 27 years of experience in the public and private debt markets, am a founding member of the SF investor team, and have a prior background in institutional fixed income, focused on structured products.
Key themes driving risk and opportunity
There are a number of key considerations for investors to keep in mind when assessing the risks and opportunities associated with investing in direct private debt:
Smaller deals with tighter underwriting, tend to have lower defaults and higher recoveries.
Larger companies are not always better equipped to support themselves in a downturn.
Co-Investment is a popular approach, but can lead to a less granular, adversely selected portfolio.
Implications for institutional investors
The core North American private debt market has held up well in the face of economic headwinds, including global trade uncertainty, early signs of inflation and less than robust employment and GDP figures. Core market deal volumes in YTD ‘25 have remained quite stable - and are trending at, or near, 2024 levels. This is in stark contrast to the larger market, which has seen a large decline in deal flow. Underwriting quality is stable, while the pace of spread compression seems to have slowed. New issue auction activity is running at around one-third of the deals we review, with the balance driven by existing portfolio companies with incremental, add-on and refinancing transactions.
Relative value in core North America senior private debt is still compelling, with spread pickups of 70-150 basis points from broadly syndicated loans and 200+ basis points above high yield. Additionally, credit quality is arguably stronger in core-middle market private debt transactions, with lower leverage, tighter covenants and lower LTV. Although, this may not be fully reflected in public ratings, where deals still tend to be B3/B- rated in the States and BB or higher in Canada. This despite performance data which has shown that default rates are closer to 1% for deals under US $50 million of EBITDA and US $250 million facility size, compared with closer to 5% for large-middle market, or BSL deals.
Recovery rates also tend to be higher for smaller deals, with S&P publishing a report early this year saying that deals under US $350 million facility size had recoveries up to 15% better than larger facilities. The differential went from the mid to high 60 percent range to the low 80s. And in addition to tighter underwriting, senior lenders in PE sponsor backed deals also benefit from the PE sponsor funds themselves, who continue to inject additional equity if needed, as well as support from any junior capital provider, willing to be flexible to avoid shutting off their coupon payments.
On the investment side, middle market exposure for investors is offered in a variety of forms, from co-mingled funds to SMA/JV, or fund of One’s, to CLO’s and co-investments.
There has been a lot of focus in the market on co-investment recently, with the goal of reducing fees, and using in-house credit teams to maintain some discretion. And in theory, to create more diverse exposures. In practice however, adverse selection can be an issue, as the large market/BSL deals tend to be the ones with excess balances available for overflow/ co-invest allocations, and this can create more concentrated exposure to holdings in deals with looser underwriting and less covenant protection.
A more sustainable approach could be to partner with a manager who can offer balanced exposure, with a bespoke structure and a diverse portfolio, through a larger number of deals across a range of industries in the market.
Jon will be presenting at Global Investment Institute’s upcoming Fixed Income & Alternative Credit Investment Forum, taking place on Thursday, 11 September 2025 at the Grand Hyatt Melbourne, Victoria. To register your interest in attending, click here or for more information email zlatan@globalii.com.au.
Jon Landis, Managing Director, BMO Sponsor Finance
Joined BMO Sponsor Finance in 2017 and leads its Investor Business Development efforts.
Prior to joining BMO, acted in a similar capacity at Deerpath Capital Management, and prior to Deerpath, spent 16 years in the Institutional Fixed Income market at Bear Stearns, J.P. Morgan, UBS and others, focused on structured products sales, trading, research, portfolio analytics and strategy, to financial institutions.
Earned a bachelor’s degree in economics from Cornell University and an MBA in finance, from Boston University. Holds Series 7 and 63 licenses.
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