SEC Division of Corporation Finance no-action letter: Bank of Montreal

Securities Act of 1933 Form F-3

July 3, 2013

Response of the Office of Capital Markets Trends Division of Corporation Finance

Re:

Bank of Montreal Incoming letter dated July 3, 2013

Based on the facts and representations presented, the Division’s views are as follows. Capitalized terms have the same meanings as defined in your letter.

The Division will not recommend enforcement action to the Commission if the Bank of Montreal and BMO Covered Bond Guarantor Limited Partnership register the offer and sale of Covered Bonds and the related Guarantee under the Securities Act of 1933, as amended, using Form F-3, all on the terms and subject to the conditions set forth in your letter.

This position is based on the representations made to the Division in your letter. Any different facts or conditions might require the Division to reach a different conclusion. Further, this response expresses the Division’s position on enforcement action only and does not express any legal conclusion on the question presented.

Sincerely,

Raquel Fox Attorney Fellow

Incoming Letter:

The Incoming Letter is in Acrobat format.

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ALLEN & OVERY

Allen & Overy LLP
1221 Avenue of the Americas
Am) Starr New York NY 10020 hi ~ Office of Capita l Markets Tre nds Tel 212 610 6300 Division of Co rporati o n Finance Fax 212 610 6399 Un ited States Securities and Exc hange Commiss ion Di rec t line 212 610 6309 I 00 F Street, N.E. Washington, D.C. 20549 Our ref 00 I 393 5-0000044 NY: I 60 I I 08 I. I 6 Ju ly3.2013 Rc: Bank of Montreal Dea r Ms. Starr:
On beha lf of our client, the Bank o f Montreal (the Issuer or the Bank), we are writing to request the advice of the staff of the Div is ion o f Co rp oration Finance (the Division) o f the Securities and Exchange Commi ss ion (t he Commiss ion) with rega rd to the Bank's plan s to o ffer and sell covered bonds in the United States purs uant to a reg istration sta teme nt fil ed with the Commi ssion.

1. Request
   On be half o f the Bank, we request co nfirm ation that the staff of the Div ision will not recommend that the Co mm ission take enforce me nt acti on und er the Securities Act of 1933 , as amended (the Sec urities Ac t ), if the Ba nk o ffers and sells co vered bonds (the Covered Bonds) and the related Guarantee (as defi ned be low) on a reg is tered bas is und er the Sec uriti es Act , pursuant to a sheIf reg istrati on statement on Form F-3 (the Registration Statement), as described in thi s letter.
2. Background
   The Bank proposes to file the Registrati on State ment with the Comm iss ion for the o ffer and sale of the Covered Bonds under the Bank's Global Registered Covered Bo nd Program (the Program). Under its exis ting Global Publi c Secto r Co vered Bond Prog ramm e, the Bank has offered and sold covered bond s outside of th e Unit ed States in Europe and Ca nada , und er Regu lat ion S of th e Securities Act, and in the United States o nly in re liance on Rule 144A of the Securiti es Act. The Bank believes that cove red bonds wo uld prov ide a n attracti ve inve stment alternative in the United States, and therefore be lieves that conducti ng a covered bond o ffering on a registered basis under the Prog ram would greatly fac ilitat e the avai labil ity o f the product in the United States. Allen & 0v81)' LLP IS a hmtted habthty partnerstltp regiS tered •n England and Wales wtth regiStered number OC306763 It ts authonzed and regulated b y the Sohe~tors Regulation Aulhonty of England and Wales Allen & Overy LLP IS a multt1Urtsdtcttonal law ftrm with lawyers admttled to practtse tn a vanety of JUrtsdtCitons A hst of the members of Allen & Overy LLP and thetr professoonal qualofocetoons ts open to tnspectoon altts regtstered offioe. One Btshops Square London. E 1 6AO and at the above address The term partner ts used to refer to a member of Allen & Overy LLP or an employee or consullant wtth equiValent standtng and quahftcahons Allen & Ovary LLP or an affthated undertaking has an offtce tn eactl o f Abu Dhabt Amsterdam. Antwerp. Athens. Bangkok, Bet)tng, Belfast, Brat tslava, Brussels, Bucharest (assoctated offoce). Budapest Casablanca Doha Oubao Dusseldorf Frankfurt, Hamburg. Hanot. Ho Cht Mtnh Ctty, Hong Kong, Istanbul, Jakarta (assOCiated offioe), London, Luxembourg, Madnd. Mannhe1m M1lan. Moscow Mun1Ch. New York, Pans. Perth. Prague. Rtyadh (asSOCiated offtce). Rome, SAo Paulo, Shanghat, Stngapore, Sydney, Tokyo, Warsaw and Washtngton. DC

2.1 Description of the Bank
As of January 3 I, 2013, the Bank is one of Canada's larges t banks , as measured by assets and market capitalization, and is among the forty largest banks in the world,] based on market capita lization. The Bank's common shares are listed for trading on the Toronto Stock Exchange and the New York Stock Exchange. The Bank is a "foreign private issuer" as such term is defined in Rule 3 b-4 under the Securities Exchange Act of 1934, as amended (the Exchange Act) and Rule 405 under the Securities Act, with its common shares registered pursuant to Exchange Act Section 12(b). The Bank file s per iodic reports and furnishes current reports with the Commission, and, as discussed below , is cu rrently e ligible to register primary offerings ofthe Bank's securitie s on Form F-3. 1
2.2 Covered Bonds Generally
fhe term "covered bonds" is generally used to refer to debt instrument s that have recourse either to the issuing entity or to an affiliated group to which the issuing entity belongs , or both, and, upon an issuer default also have recourse to a pool of collateral, called the cover pool, which is se parate from the issuer's other assets. The cover poo l usually co ns ists of high quality assets, such as mortgages, mortgage-backed sec urities, or public debt, and is typically owned by a specia l purpose, bankruptcy remote vehicle (a guarantor). Covered bonds are issued by depositary institutions that are subject to superv ision by banking authorities. Covered bond investors typically include central banks, pensio n funds, insurance companies, asset managers and bank treas uries. Investors in cove red bonds are us ually see king low risk, yie ld-b eari ng products with lo ng maturities. The covered bond market has grown rapidly in recent years. Since Ju ly 2012, covered bond offe rings iss ued by Canadian issuers are subject to Canad ian feder a l covered bond legi s lation administered by the Ca nada Mortgage and Housing Co rporation (CMHC) (see Section 2.3 below).
2.3 Canadian Registered Cove red Bond Program s
On July 6, 20 12, amendmen ts were made to the National I lousing Act (Ca nada) (NHA) de signa ting the CMHC with the authority to implement and administer a legal framework for covered bonds. On December 17, 2 012, CMHC published the Canad ian Regi stered Covered Bond Progra ms Guide wh ich implements amendments to the NHA and sets out certain conditions and restriction s for covered bond offerings issued by Ca nadi an issuers. A final form of the Ca nadian Registered Covered Bonds Program Guide was issued on June 27, 2013 (the Guide). Only el igibl e issuers, including regulated Ca nadian depositary institutions, certain cooperative credit societies, insurance companies and fraternal benefit soc ieties meeting the requirements ofthe Guide, are permitted to issue covered bond s.

• Investor Protectio n. One of the stated objec tive s of the NHA is to provide increased inve stor
  protection by providing for the continuity of payment (and ult imate repayment) of issued cove red bonds. Accordingly, the Guide (i) creates standard disclosure on the cover pool, ( ii) prov ides certainty regarding the sta tus of the cover pool and the guarantor upon an issuer in solvency, and (i ii) imposes various protective measures relating to the cove r pool, including limitations on cure periods for pa) ment defaults, ratings triggers for the replacement of the account bank at which the guarantor's accounts are held , certain events which must be included as events of default, and certain actions that must be taken following the occurrence and continuance of any such event ofdefault.
• Regis tration and the Covered Bonds Regislly. Pursuant to the NHA and the Guide, eligible issuers
  are required to apply to the CMHC for (i) registration as a covered bond issuer, and ( ii) registration The Bani.. has on lilc w1th the Comm1ss1on an c!Tectivc shelf reg1strnuon statement on Form F-3 (Registration No. 333 -173924). 2

of a covered bond program . The issuer is required to prov ide the CMHC with ce rtain information prescribed by the Guide. Registered covered bond programs are listed on a publicly-accessib le covered bond registry, which is established and maintained by the CMHC.

• Registered Program Requirements. Registration of a covered bond program requires the program
  to meet certa in cr iteria, including the following: (a) el igibi lity requirements for entities that may serve as guarantors; (b) requirem e nts for entitie s serv ing as counterpat1ies (inc ludin g collate ral hedge cou nterpart ies); (c) required ratings trigge rs for certain events; (d) a requirement to transfer the legal title of the covered bond collateral from the issuer to the gua rantor entity following certai n events, and (e) a requirement to engage a custodian to hold certa in data and documents in respect of the cover pool.
• Cover Pool Assets Requirements. Pursuant to the NHA and the Guide, the guarantor may only hold
  as covered bond collateral: (a) certain loans secured by Canadian residential property; and (b) a limited amount of substitute assets consisting of Canad ian government-issued secu riti es. Further, the guarantor may not: (a) hold cash in excess of the amount necessary to meet the guara ntor's obligatio ns for the next six months, subject to certain exceptions: (b) includ e in its asse t pool a residential loan insured by the CM IIC or ce rtain other specified instituti ons; and (c) include in its asset pool any loan with a loan-to-value ratio exceeding 80%. Registrants must also estab lish a minimum and maximum level of overcollateralization and disclose such levels in their offe ring documents and the covered bonds regi stry.
• Risk-Monitoring and Risk-Mitigation Requirements. The guarantor is required to comply with
  certa in risk-monitoring and risk-miti gatio n requirements, including: (a) performing a valuat ion calcu lation measuring the present value of the collateral held by it relative to the value of the guaranteed and outstanding covered bonds; (b) entering into hedges that comp ly with certain requirements to mitigate its risk of financial loss or exposure from fluctuation s in interest rates or curre ncy exchange rates; and (c) performing an asset cove rage test (as described be low) mon thly to ensure a specified leve l of overcollateralization. Every registered issuer is required under the Guide to engage a qualified cover pool monitor who must follow specific procedures set out in the Guide.
• Disclosure and Reporting. In addition to requirin g compl iance with Canad ian secu rities laws,
  registrants must also comp ly with minimum specific d isclosure req uirements set forth under the Guide, which may in some cases exceed the level of disclosure found in public offering documents of exist ing un-registered Canadian covered bond programs. Addit ional ly, reg istrants must maintain a website where investors can access, among other items, public offe ring documents, materia l transaction documents, monthly reports, and static pool data. Registrants must also comp ly with any additional reporting obligations enacted by the CMIIC.
• Enforcement. As administrator of the legal framework, the CM IIC also has the authority to reject
  applicat ions, to suspend the right of a registrant to issue further registered covered bonds, and to deregister programs and issuers (provided in each case that no covered bonds are outstanding under such program or issued by such issuer).
  2.4 Structure of the Bank's Covered Bonds
  The Covered Bonds will be the direct, unsecu red, and uncondit iona l obligatio ns of the Bank issued pursuant to a tru st deed (the Trust Deed) to be entered into on the date of establishment of the Program (the Program Date) between the Bank, as issue r, BMO Cove red Bond Guarantor Limited Partnership 3

(the Guarantor), as guarantor, and Computersharc Tru st Compa ny of Canada, as bond trustee (the Bond Trustee) and custodian (the Custodian). In accordanc e with the NHA and the Guide, the bondholde rs will ra nk pari passu with the ordinary depositors of the Bank and at least pari passu with the unsecured unsubordinated creditors of the Bank. Every Covered Bond iss ued under the Program wi ll be unconditionally and irrevocably guaranteed as to payments of interest and principal (the Guarantee) by the Gua rantor pursuant to the terms of the Trust Deed . The obligat ions of the Guarantor under the Guarantee wi ll be sec ured by a sec urity interest in all of the as sets (the Cove r Pool) of the Gua rantor gran ted in favor of the Bond Trustee, for and on behalf of the Covered Bond holders and certain othe r specified creditors of the Guaranto r.2 The Guarantor will be a limited partnership formed under the laws of the Province of Ontario pursuant to the terms of a limited partnership agreement entered into on or prior to the Program Date (the Guarantor Agreement) between BMO Covered Bond GP Inc., as managing ge neral partner (the Managing GP), a newly incorporated Canadian corporation , as liquidation ge neral partner (the Liquidation GP) , and the Bank, as the limited partner. As described mo re fully below, the Bank will be the sole limited partner of the Guarantor and will hold substantially all of the interests in the Guarantor.3 The Managing GP is a wholly ow ned subsidia ry of the Bank and will ho ld a de minimis interest in the Guarantor. The remaining de minimis portion of the Gua rantor will be owned by the Liquidation GP, a special purpose entity that is partly owned by the Bank and otherwise held by the BMO Covered Bond LGP Tru st (the LGP Trust) which has as its trustee Comp uter share Trust Company of Canada. Subject to the exceptions described below , any distributions from the Guarantor to the Liquidation GP will further be limited to a maximum of $30,000 annually by the Guarantor Agree ment. To date, the covered bond s that have been issued under the Bank's previous covered bond program have bee n rated in the highest long-term category by eac h of Moody's Investo rs Service Inc., Fitch, Inc. and DBRS Limited (co llectively, the Rating Agencies). It is anticipated that Covered Bonds offered on a registered basis under the Program wil l be similarly rated by the Ratin g Agencies or their affiliates in the Un ited States. Payments of principal and interest under the Cove red Bonds will be made by the Issuer prior to a default under the Cove red Bonds. A default under the Covered Bond s or the Program would include: (a) a failure of the Iss uer to pay prin cipal and interes t within a s pecified period followin g the date on which such payments are due , (b) a failure of the Iss uer to compl y with any ot her obligation o f the Iss uer (other than the asset coverage te st), (c) the inso lvency of the Iss uer , (d) a failure to remedy
a breach of the pre￾maturity test in respect of hard bullet covered bond s, (c) a failure to meet the asset cove rage test (ca lcul ated as described below) within a spec ified period or (f) the breach of certain ratings triggers and , for ce rtain of such triggers, a failure to take remed ia l actio n within the speci fi ed time period (each, an Event of Default). Upon the occurrence of a n Event of Default, the Bond Trustee may,4 or upon the passing of a resol ution by a specified minority percentage of all of the Covered Bond holders s hall, 5 deliver a not ice of acceleration to the Issuer and a notice to pay to the Guarantor, which would result in the Cove red Bo nds acce lerating and becoming immediately due and payable by the Bank (a Covered Bond Guarantee Activation Event) and, concurrently, the Guarantor being requi red to make sc heduled paymen ts on the Covered Bonds. rhe other cred1tors are excl usively the swap counrerpanies and service providers to th e Program, as desc ribed bdow in footnote II. l"he partnersh ip agree ment pcmu ts the add111o n of a limited partner 1f 11 sells mortgage loans to the Guaranto r. The Bank shall admil only afli llates of the Bank as addiuonallimited partners of the Guaramor. nus discrerion on the pan of the Trustee is cons isrent with Section 6 02 of the Revtsed Model Sunpltfied lndemure published in 55 Bus. Law. 111 5 (2000) Prov1ded that 111 circums tances other than a failure to pay, subjec t to the pro visions of the Trust Indenture Act of 1939, as amended (the Trus t Indenture Act), the Bond Trustee has determined that such even I is materially preJUdicial to the interests of the holders of Covered Bonds of any sencs 4

The occurrence of certain eve nts wi ll constitute an event of default under the Guarantee, inc ludin g: (a) a failure of the Guarantor to pay prin cipal and interest within a s pecified period following the date on which such payments are due , (b) the insolvency of the Guara ntor, (c) a failure to meet the ammtization test (ca lculated as desc ribed below) within a speci fied period, (d) the Guaran tee is not in full force and effect, or (e) the breach of certain ratings tri ggers and, for certain of such triggers, a failure to take remedial action within the spec ified time period (each, a Guarantor Event of Default). Upon the occ urrence of a Guarantor Event of Default, the Bo nd Trustee may, or upon the passing of a resolut ion by a s pecified minority percentage of all of the Covered Bond holders s hall , 6 deliver notice to the Guarantor and the Iss uer, which would result in the Cove red Bonds accelerating and becoming immediately due and payab le by the Guarantor (the Guarantee Accelerat ion Event), and the Bond Trustee wil l be entitled to exerci se its right s to the Cover Poo l under its secu rity interest and make payments to Covered Bond holders and certain other creditors under the Pro gram , all in accorda nce with pre-established priorities of payment. The Cover Pool of the Guaran tor wil l consi st of res identi a l mottgage loans origi nated by the Bank and may from time to time include other permitted assets under the Guide. 7 The Guarantor will use the proceed s of an interco mpany loan (the Intercompany Loan)8 from the Bank, or capital contributions by the limited partner, to purchase the reside ntial mortgage loans in the Cover Pool. In addition to the residential mortga ge loans and the other permitted assets, the Guarantor's assets will include an interest rate swa p agreement, a covered bond swap agreement for eac h se ries of Covered Bonds and the GOA and Standby GOA (as defined below). Prior to a Covered Bond Guarantee Activation Event, interest cash nows are exc hanged under the interest rate swap agreeme nt to pay interest on the Intercompa ny Loa n. 9 Pursuant to the term s o f a n agreement (the GDA) w ith the Bank, funds of the Guarantor deposited in an account with the Bank (the GDA Account) wi ll benefit from a guara nteed rate of interest. 10 The Guaranto r will also have in place arrangements with a stan dby bank (the Standby Bank) to which its funds would be transferred in the event of a downgrade in the ratings of the Bank below certain thres holds. In such circ umstances , under an agreement (the Standby GDA) with the Sta ndby Bank , the funds deposited in an account (the Sta ndby GDA Account) with the Standby Bank are entitled to the same guaranteed rate of interest as under the GOA. The as se t coverage test is calcu lated monthly in accordance with the met hodo logy prescribed in the Guide to measure the Cover Poo l and is designed to ensure that at all times the Gua rantor ow ns an outstanding principal
amount of non-defaulted eligible residentia l mortgage loans or other permitted assets exceed ing the aggregate principal amount of outstand ing Covered Bonds by a spec ified percentage of ovcr-collatcralization. The over-collateralization requirement built into the asset coverage See supra note 5. Unde r the Guide, the Guarancor may hold (i) eligible residential mortgage loans; (i1) all sums derived from such loans (whether on accoun t of principal. interest or otherwise and ll'hethcr received from the borrower or a guarantor thcrcol); and (iii) secu rities issued by the Government of Canada. repos of Govern ment of Canada securitie s having certain tem1s. and sums derived therefrom , provided thai the value of all such government securities and repos docs not exceed I 0 percent of the total value of all covered bond collateral. The lmercompany Loan cons1sts of a guaran tee loan (Guarantee Loau ) and a demand loan (Demand Lonn ). The Guaramee Loan is in ru1 amount equal to the outstandmg amount of Covered Bonds plus the overcollatcralization amount rcqu•rcd in the Cove r Pool to satisfy the asset coverage test. I'he amounl ofthe Demand Loan is equal to the amount of the Intercompany Loan less the amount of the Guarantee Loan. rhe obligation of the Guarantor 10 make payments under the interest rate swap agreemen t is conditional upon the in terest rate swap provider not havmg been subJect to an event of dcfaull or potential event of default that is continuing. As a rcsull, "here such circu mstances exist, the Guaran tor is not required to make payment~ to the mtcrcst rate s wap provider and can use Cover Pool collections to make payments on the Covered Bonds when due 111 accordance "'1th the rclc' ant pnont}' of payments or to enter 11110 allcmati ve arrangements to provide for such paymems . •• rhe guaranteed Interest rate under the GOA and Standby GOA is a variable rate of mtcrcst agreed by the Guarantor and the provider of the GOA or lhe Slandl>} GDA lhal IS not Jess than 0. I0% below lhc average of the rates per annum for Canadian Dollar bankers' acceptances having a term of 30 da>s 5

test is intended to e nsure the Cover Pool is sufficient to make sc heduled payments of principal and interest on the Covered Bonds in the event of a Cove red Bond Guarantee Activation Event and to repay the Covered Bonds at their maturity , notwith standing the inso lven cy of the Bank at any time. Arithmetic testing will be conducted from time to time on the asset cove rage test and amortization te st calcu lations by KPMG LLP, as co ver pool mo nitor (the Cover Pool Mo nit or ) under the Program at such times specified by the Guide. Following a Cove red Bond Guarantee Activation Event , an amortization test will also be performed in accordance with the methodology prescribed in the Guide will be appl ied to determine whether the Cove r Pool is sufficient to sat isfy the sc heduled payment ob ligations on the outstanding Covered Bond s. The amortiza tion test does not incorporat e any requirement for over-col lateralization, but rather tests whether the principal balance of the Cover Poo l, reduced by a negative carry factor, exceeds the principa l amo unt of the outs tandin g Covered Bonds. A fai lure of the amortization test is a Gua rantor Event of Default, which results in the outstanding Cove red Bonds accelerating and becoming immediately due and payable by the Guarantor. In the even t that a residentia l mo rtga ge loa n in the Cover Pool defaults, it wi ll no longer be included in determining whether the asset coverage test or amo rtization test is met. If the asset coverage test is not met, as a res ult of residentia l mortgage loans defau lti ng, being paid down or oth erwise, the Iss uer and the Guarantor mus t facilitate the transfer of add itional el igibl e residential mortgage loans or ot her permitted assets to the Guarantor in order to keep the Cover Pool in compliance with the asset coverage test and avoid an Event of Default. If, after the occurrence of a Covered Bond Guarantee Activation Event, the amort izatio n test is not met, the Covered Bond s wil l acce lerate and become immediately due and payable by the Guarantor. The Cover Pool will secure the guarantee by the Guarantor of all outstand ing series of Covered Bonds issued under the Program. If an Event o f Default occurs for one ser ies of Covered Bonds, an Event of Default occ urs for a ll ot her outs tandin g series of Co vered Bonds immediately without any further action of the Bond Trustee or the Co vered Bond holders. T he G uara ntor will have no assets other than residential mort gage loan s and other perm itted investments, cash, swa p agreements, commitments in res pect of the GDA and Standby GDA and other rights relating to the Pro gra m. The Guarantor wi ll have no liab ilities or c laims outstanding aga inst it other than those relating to the Program , which will consis t of its Guarantee o f outstanding series of Covered Bonds, its obligations under the Intercompany Loan, the swap agreements, and in respect of its obliga tion s to service providers to
the Program. 11 The abi lity of the Guarantor to perform on the Gua ran tee following a Covered Bond Guarantee Activation Event will essen tiall y be e ntire ly dependent on collections or proceeds received from the residential mortga ge loans and other permitted investments that it ow ns in the Cove r Poo l or the sa le th ereo f and its ent itle men ts under the swap agreements and the GDA and Standby GDA. The Guarantor' s other asset s, the swa p agreements, the GDA and Standby GDA, will not be a substantial portion of the assets of the Guarantor and are des igned (a) to convert the interest received on the residentia l mortgage loans to th e cas h now requi red to make interest payments on the Intercompany Loa n prior to a Covered Bond Guara ntee Activation Event, (b) in the event of a Cove red Bond Guarantee Activa tion Event to convert the cash nows from the interest rate swap into the Ihe scrv 1ce prov1dcrs arc the 13ond Tru stee, the Cover Pool Momtor, the Custodian , Computersharc Trust Company of Canada in respect of corporate services provided for the Liquidation GP, the providers of the GOA and Standby GOA, ''ho also provide a bank account and a commitment to provide a standby bank account, respectively, '~ithout guaranteed mterest rates. the Cash Manager, the Scrv1cer and the issumg, pay1ng, transfer and exchange agents and reg1s trar m respect of the Covered Bonds. The 13ank "Ill not be patd fees as Cash Manager or Serviccr (the mon gage loans hav 1ng been sold to the Guarantor on a fully serviced basts) under the relevant agreements for so long as the Bank or any of its affiliates is the Cash Manager or Scr.1cer. rcspcctivcl) 6 II

currency and rate of interest payable on the Covered Bonds, and (c) when applicable, to provide a temporary inve stment for principa l collections on the residential mortgage loans following a Covered Bond Activation Event and for proceeds of the residential mortgage loans in the event they are req ui red to be sold prior to the maturity of the Covered Bonds, respect ively. The exchange of cash flows under the covered bond swaps (being currency and/or interest sw aps) will only occur follow ing a Covered Bond Guarantee Activation Event. Interest collection s on the mortgage loan s in the Cover Pool , prior to a Covered Bond Guarantee Activation Event, are applied to: (a) amounts due to third part ies, (b) interest due on the Demand Loa n, (c) fees to service providers, (d) amounts due to the interest rate swap provider, (e) interest due on the Guarantee Loan, (f) the Reserve Fund Required Amount 12 held in the GOA Acco unt, (g) swap termination payments, (h) indemnities and (i) distribution to the pattners as profit. The principal collections on the mottgage loan s in the Cove r Pool, prior to a Covered Bond Guarantee Activation Event, are applied by the Cash Manager from time to time to (a) pay principal due on the Demand Loan, (b) acquire additiona l mortgage loans from the Bank as needed to satisfy the asset coverage test, (c) fund the Reserve Fund Required Amo unt, and (d) thereafter in the discretion of the Guarantor or the Cash Manager to acquire Substitute Asse ts 13 up to the prescribed limit. The remaining balance of principal collections is deposited in the GOA Account or Standby GOA Accou nt, as app lica ble, as necessary to satisfy the asset coverage test and then app lied to make any payments due or to become due on the Guarantee Loan. If any amount remains, it may be used to make capita l distributions to the pattners of the Guarantor. After a Covered Bond Guarantee Activation Event, the interest collections and the principal collections on the mortgage loan s are deposited in the GOA Account or Standby GOA Account, as applicable, unti l needed to make payments under the priority o f payments under the Guara ntee , including interest due on the Cove red Bo nds and principal payments on the Covered Bonds or the conversion of the collections under the currency swaps to the currency and intere st rate requi red to make interest and principal payments on the Covered Bonds when due. " FoliO\ mg a downgrade of the 13anl.. b.:IO\ a specified ratmg, an amount equal to three months of interest on the outstanding Covered 13onds plus three months' expenses; othcrw1sc, zero Inc Guide defines "secunucs issued by the Government of Canada, rcpos of Government of Canada secur ities havin g terms acceptable to CM IIC and sums dcmcd from the Governmen t of Canada secu rities or repos of Government of Canada securities" as Substitute Assets. Under the Guide, a guarantor entit) rna) hold Subsutute Assets provided the value of all Subst itute Assets
does not exceed I 0 percent of the total value or all covered bond collateral (as determined 111 accordance with the Guide). 7 11

The structure and operatio n of the Cove red Bonds is depicted in the foll owing diagram:
Loans and
Related Secunty

• : Interest Rate Swap Prov1ders J
  Bank as Seller Guarantor LP
  Covered Bond Swap Providers I Constdetat1on
  T ruSI Oeed (tncludlllO
  ' Repayment of Coverod Bond ' Intercompany ' Intercompany Guarantee) and loan ' ' Loan Secunly Agreement + Bank as Issuer Trustee COYered Bond Proceeds Covered Bonds Covered Bondholders
  2.5 Ownership Structure of the G uarantor
  The Bank will be the so le limited partner of the Gua rantor and wi ll ho ld 99 .95 percent of the interests in the Guarantor. The Manag ing GP (a wholly owned s ubsidiary o f the Bank) and the Liquidati on GP will own 99 percent and one percent, res pecti vely, as ge nera l part ners o f the re ma ining .05 percent inte rest in the Guara ntor. Accordingly, the Bank directly a nd indirec tly will ow n 99.9995 percent o f the interest s in the Guarantor. In additi on, prior to th e Liquidati on GP ass umin g the role of the Managing GP as a res ult of a Covered Bond Guarantee Activation Event or inso lve ncy o f the Managing GP, any dist ributions from the Gua rantor to the Liquidation GP will be limited to the lesser of $30,000 annually and the Liquidation GP's pro rata porti on of any such distribution with any excess a llocated to the Bank as sole limited partner, and fo llowing s uch event , such distributi ons wi ll be pro rata based on the Liquidation GP's interest. A new limited partner may be admitted to the Gua rantor provided it is an affi liate of the Iss uer, s ubject to meet ing certai n co nd itions precedent, inc ludin g (except in the case of a subs idiary of a current limited partner) but not limited to, rece ipt of confirm ation o f the then current rat ings of the Covered Bond s from the Rating Agenc ies, provided they are then rating the Cove red Bonds. The Managing GP will be a wholly ow ned subs idiary o f the Bank. The directors and officers of the Managing GP will be officers and employees o f the Bank. N inety-one percent o f the iss ued and outstanding shares in the cap ital of the Liquidation GP will be held by Computershare Trust Company of Canada, as trustee of the LG P T rust, 14 and nine percent o f the iss ued and outstanding s hare s in the capital of the Liquidation GP will be he ld by the Bank. A majo rity ofthe direc tors o f the Liquidation GP will be appointed by Computershare Trust Compa ny of Canada , as trustee o f the LGP Trust, a nd will be independent of the Bank. T he Bank is entitled to have one nominee on the board of the Liquidation GP who is an office r or employee of th e Bank. 14 The bcnclicJOr) of the LGP Trust IS one or more charities registered under the Income Tax Ac t (Canada). 8

Other than in respect of t hose de cisions rese rve d to the pa11 ners in certain limited circumstances described below, the Manag ing GP will manage and conduct the bus iness of the Guarantor and will have all of the rights, power, and authority to act at all times for and on be half of the Guaranto r (provided tha t a voluntary liquidation of the Guarantor would requ ire the consent o f the Liquidation GP). Under certain circumstances, including a Cove red Bond Guaran tee Activa ti on Event or insolve ncy or winding-up o f the Managing GP, the Liqu idat io n G P will assume the management responsib il ities of the Managing GP.
3. Registration of the Cove red Bo nd and Guarantee Offering on Fo r·m F -3
In anticipation of establishing a reg istered Cove red Bond o ffering program in the United States, the Bank would file the Registration Statement in orde r to regis ter, pursuant to Section 5 of th e Securities Act, the offer and sa le of the Covered Bond s a nd th e Guarantee on a de layed or "shelf" basis as contemplated by Securities Act Rule 415(a)( I )(x). The Bank and the Guarantor wou ld be co -reg istra nts on the Registration Statement. For the policy reasons that we ou tl ine in this lette r, we bel ieve that the Guaranto r should be permitted to use the Regist rat ion Stateme nt filed by the Bank to register the Guarantee, so that the Covered Bonds and the related Guara ntee could be offered and so ld on a delayed basis pursuan t to the Registration Statcment. 15 The Bank, whic h is a "foreign private issuer" as that term is defined in Rule 405 under the Securities Act, meets the registrant requirements set forth in Instru ctio n I.A. of Fo rm F-3, as follows:

• The Ba nk has a class of secu rit ies (its common shares) regis tered pursuant to Sect ion 12(b) of
  the Exchange Act and has filed at least one annual report on Form 40-F.
• The Bank (a) has bee n subjec t to the requirem ents o f Section 12 o f the Exchange Act and has
  fi led all the material required to be filed pursuant to Sections 13, 14 or 15(d) of the Exchange Act for a period of at least twelve cale ndar months im media tely preceding the filing of the Registration Statement, and (b) at the time the Registration Statement is filed, will have fi led in a timely manner all reports required to be fil ed during the twe lve ca lenda r months and any portion of a mont h immediately preceding the filing of the Registrati on Statement.
• Neither the Bank nor any of its consol idated or unconsol idated subsidiaries have, since the end
  of the ir last fiscal year for wh ich cen ified financia l sta teme nts o f the Bank and its co nso lidated subsidiaries were included in a repot1 filed pursuan t to Section 13(a) o r 15(d) of the Exchange Act: (a) failed to pay any dividend or sinking fund install ment on preferred stock; or (b) defau lted ( i) on any installm ent or installments on indebtedness for borrowed money , or (i i) o n any rental on one or more long term leases, which defaul ts in the aggregate are mater ial to the financia l positio n of the Bank and its co nsolidated and unconso lidated subs idiaries, taken as a who le. The Bank sat isfies the transaction cri ter ia as set fonh in Instru ctio n 1.8.1 of Form F-3, as the aggrega te worldwide market value of the Bank's outstanding voting a nd non-voting common equity he ld by non￾affiliates is over $75 million. It is also contemplated that the Guarantor will be a co-reg ist ra nt wit h the Bank with respect to the Covered Bonds, give n that the Guara ntor is providin g the Gua rantee wi th respect to th e Bank's Cove red 1 ~ The Covered Bonds oiTcred and sold pursuant to 1hc RcgiSJrat10n Statement ''ill be governed by the Trust Deed, which ''ill be 1n compliance with the Trust Indenture Act, and \Ill be qualified under the Trust Indenture Act \hen the Registration Stateme nt is declared eiTective. The Trustee under the Trust Deed w1ll be ehg1blc to serve as a trustee under the Trust Indenture Act and \Ill be so qualified. 9

Bond obligat ions, as desc ribed above. Th e Gua ra ntor does not have a cla ss of secu rities regi stered under
Section 12(b) or Sect io n 12(g) of the Exchange Act, and doe s not file current and periodi c repOits
pursuant to Section 13 and 15(d) of the Exchange Act. Howev er, given the particular structural elements of the Covered Bonds a nd the Guarantee that serve to enhance the protect ion of inve stors in the Covered Bonds, as well as the disc los ure that will be provided with regard to the Guarant or and the Cove r Pool (discussed below), the Bank and the Guarantor should be permitted to regi ster the offe r and sa le, on a delayed basis , of the Cove red Bond s and the Guarantee, respective ly, on a Form F-3 , eve n though the Form F-3 e ligibi lity requirements are not satisfi ed with respect to the Guarantor and the Guarantee. 3 .I Characteristics of the Guarantee The Guarantee is unconditional and irrevocable as to payments of interest and principal under the Covered Bonds when suc h a mount s become due for payment where such amounts wo uld otherw ise be unpaid by the Bank. 16 The Guarantor will be required to pay the amount on the Gua rantee if an Even t o f Default has occ urred and not ice to pay has been delivered to th e Guarantor by the Bond T rustee in its discretion or as directed by a specified minority percentage of all of the Covered Bond hold crs. 17 The purpose of the Guarantee, and the security gran ted in respect o f the Guarantor's ob liga tion s under the Guarantee, is to provide full security for the Bank's obligations unde r the Covered Bond s in the event that the Bank is unable to mee t tho se obligations. The Guara ntee is de signed to be available, funded and secured , and to pay the full amo unt of the Bank's ob ligat ions on the sa me payment sc hedule under the Covered Bonds in the event the Bank defa ults. Moreove r, the reaso n for the Guara ntee and monthly asset coverage test calc ul ations, overcollateralization requi rement and amortizati on te st (each described above) is to ens ure that the Guarantor has su ffic ient assets to be able to pay the Covered Bonds to thei r maturity in accorda nce with the ir term s in the eve nt that the Bank default s. If at any time a not ice to pay is delivered to the Guarantor, the Gua rantor wou ld ho ld a pool of nondefaulted mortgage loans with overcolla tera li zation that is des igned to be suffi c ient to pay sc heduled principal and interest on the Covered Bonds through the ir maturity. And if, after delivery of a noti ce to pay, the performance of the mortgage loans in the Cove r Poo l deteri orates to the po int that the amottizatio n test fai ls to be met, 18 all Covered Bonds a rc acce le rated and du e immed iatel y and wi ll be paid on a pro rata basis. The Gua rantee, as supported by the Cover Pool, provides an added level of secu rity for the payment of the Cove red Bonds.
3.2 Disc losure Considerations
As discussed above, the Bank is primarily liab le for the Co vered Bond s, with the Guarantee and the security of the Cover Pool servin g as a sec urity device for the remote contin gency of the Bank's insolvency. We believe that the pre sence of the Cover Pool co nsist ing of residential mortgage loan s owned by the Guaran tor for the purpose of funding payments of interest and principal under the Cove red Bonds when s uch amoun ts become due for payment, where s uch amounts wou ld otherwi se be unpaid by the Bank, makes information about the Cove r Poo l itself of s ign ificant importance to investors in the Covered Bonds . The purpose of the Guara ntee and ulti mate ly the assets in the Cover Poo l is to provide a readily avai lable, funded a nd sec ured means by wh ic h to pay the full amount o f the Bank's ob ligation s on the same payment sched ul e under the Covered Bonds in the event that the Bank defa ult s. For that rea son, we be lieve that , at a minimum , an asset di sclosu re templ ate s imilar to those used for revolving ma ster trusts wou ld be the appropriate disc los ure regime for de sc ribin g the Guara ntee and the Gua rantor 16 We ackn owled ge that , wh1le the Guarantee provides full security for the 13ank's obligations under the Covered Bond, the Guaranlee wou ld not be co 1dercd a " full and unconditiOnal " guarantee as defined m Rule 3-10 ofRcgulauon S-X. 11 See supra note 5. "ld 10

which holds the Cove r Pool. While we do not believe that the Cove red Bonds are asset-backed secu riti es, nonethel ess Regulation AB and other app licable discl osu res spec ified in this letter appear to provide the appropriate guida nce for disclosure of the Cover Poo l in the Registrati on Statement and, as applicable, in subsequent peri odic reports filed under the Exchange Act, and wi ll, we believe, provide investo rs with all materia l information regarding the Covered Bonds, the Gua rantee and t he Guara ntor. Accordingly, we believe the sepa rate finan c ial statements of the Guarantor are not material to an investment dec is ion and therefore do not need to be included in the Registration Statement or in any subsequent periodic or current reports. For all of the se reasons, the Bank and the Guarantor will , at a minim um, provide disclosu re of material information with respect to the Cover Pool, co nsistent with the applicable disclosure requiremen ts specified in Regulati on AB. The disclosure that will be prov ided in the Regis tration Statement, and as applicable in su bseque nt reports ( in addition to all required informat ion that will be provided with respect to th e Bank) is, at a minimum and not limited to, the fo llowi ng:

• Information regarding repurchases and rep lacem ents in the Cover Poo l, in accordance with Item
  II 04(e) of Regulation AB;

• Static poo l information regard ing assets in the Cove r Poo l, in acco rdance w ith Hem II 05(b) of
  Regulation AB;

• Information regarding the servicing of the assets in the Cove r Poo l by the Bank, in accorda nce
  with Item 1108 of Regulation AB (inc luding filin g the se rvici ng agreement as an exhibit);

• Informati on rega rdin g the originator of the assets in the Cove r Poo l, in accordance with
  Item Ill 0 of Regulation AB;

• Informati on regarding the assets in the Cover Pool, in accordance with Item 1111 of
  Regulation AB;

• Information regarding significant obl igo rs of asse ts in the Cove r Pool , in accordance w ith
  Item 111 2 ofRegu lat ion AB;

• Informati on rega rding certain derivative instrum ents in the Cover Poo l, 111 accordance w ith
  Item 1115 o fRegulation AB;

• Informati on regarding rep01ts and additio nal informati on in acco rdance with Item 1118 of
  Regulation AB; 19

• Distribution and pool performance information for the Cover Pool, in accordance with
  Item 1121 of Reg ulat ion AB, including any additiona l information that is provided in monthly investor repor1s provided regarding the Co ver Poo l (to be included in reports filed on Form I0 D, as disc ussed below);

• Information regardi ng comp liance with app licabl e servicing criteria in acco rdan ce with Item
  1122 of Regulation AB (to be included in an annual report on Form I 0-K , as described below); and '" Consistent with lhe contemplated monthly reporting to investors under the Program, the Guarantor will undertake to file \li th the Commission a copy of 1ts monthI; repon to investors by the 15th ofeach ca lendar month. 11

• A servicer compliance statement in acco rdance with Ite m 1123 o f Regulation AB (to be
  included in an annual repo rt on Form I 0-K, as descri bed be low).
  The Bank \ill con tinue to file peri od ic reports and furn ish current re por1 s with the Commiss ion under the Exchange Act. The Guaran tor will provide ongoing d isc los ure regard ing the Gua rantee and the Cover Pool in reports on Form I 0-D, Form 8-K a nd Form I 0-K. The ce rtifi cations specified in Item 60 I (b)(31 )(ii) of Regu lation S-K wil l be prov ided wit h the Form I 0-K. Based on the foregoing, we believe that the Bank and t he Guara ntor should be eli gible to reg ister the offer and sale of the Covered Bond s and the related Gua rantee on the Reg istration Stateme nt. -t. Concl usion On the basis of the facts and represe ntations set fort h above, we res pectfull y req uest that the staff of the Division concur with the views exp ressed herei n and provi de to the Bank an interpretive o r no-ac tion ktter response addressing the matters discussed herein at the staffs ear lies t conveni ence.

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Seven additional copies of th is le tter are e nclosed pursuant to Sec uriti es Act Re lease No . 33 -6269. Please feel free to contact the unde rsigned at Lawton M. Camp with a ny q uestions that yo u may have rega rding the foregoing . Very trul} yours, ~~Lawton M. Camp ~~ cc: Raqucl Fox

Office of Cap ital Markets Trends

Division of Corporation Finance

United States Secu rit ies and Exchange Commiss ion

I00 F Street, N.E.

Washington, D.C. 20549

Catherine Cra nsto n, Se ni or Vice President, Finance and Treas urer Brad Chapman, Senior Lega l Counse l Muhammad Amir, Corporate Treasury 12