Press Release

DBRS Morningstar Assigns Provisional Ratings to Certain Tranche Amounts of Kawartha CAD Ltd., Boreal 2022-2

Structured Credit
November 11, 2022

DBRS, Inc. (DBRS Morningstar) assigned the following provisional ratings to the Senior Tranche, Tranche B, Tranche C, Tranche D, and Tranche E (collectively, the Tranche Amounts) of two unexecuted, unfunded financial guarantees (the Financial Guarantees) of Kawartha CAD Ltd., Boreal 2022-2 with respect to a portfolio of Canadian commercial real estate (CRE) secured loans originated or managed by the Bank of Montreal (BMO; rated AA with a Stable trend by DBRS Morningstar):

-- Senior Tranche at AAA (sf)
-- Tranche B at AA (low) (sf)
-- Tranche C at A (sf)
-- Tranche D at BBB (low) (sf)
-- Tranche E at BB (high) (sf)

The provisional ratings on the Tranche Amounts address the likelihood of a reduction to the respective tranche notional amounts resulting from obligor defaults within the guaranteed portfolio during the period from the Effective Date until the Scheduled Termination Date. For obligors within the guaranteed portfolio, default events are limited to payment default, insolvency, and restructuring events.

The ratings take into consideration only the creditworthiness of the reference portfolio. The ratings do not address counterparty risk nor the likelihood of any event of default or termination events under the agreement occurring. BMO bought protection under a similar executed financial guarantee for certain issued notes but has not executed contracts related to the tranche notional amounts.

DBRS Morningstar expects its ratings to remain provisional until the underlying agreements are executed. BMO may have no intention of executing the Financial Guarantees. DBRS Morningstar will maintain and monitor the provisional ratings throughout the life of the transaction or while it continues to receive performance information.

To assess portfolio credit quality, DBRS Morningstar may provide a credit estimate, internal assessment, or ratings mapping of BMO’s internal ratings model. Credit estimates, internal assessments, and ratings mappings are not ratings; rather, they represent an abbreviated analysis, including model-driven or statistical components of default probability for each obligor that is used in assigning a rating to a facility sufficient to assess portfolio credit quality.

The provisional ratings are the result of DBRS Morningstar’s review of the transaction structure and draft Financial Guarantees of Kawartha CAD Ltd., a corporation established under the Canada Business Corporations Act. Kawartha CAD Ltd., Boreal 2022-2 is a synthetic risk transfer transaction with BMO as the Beneficiary.

The ratings reflect the following:

(1) The draft Financial Guarantees.
(2) The integrity of the transaction structure.
(3) DBRS Morningstar’s assessment of the portfolio quality.
(4) Adequate credit enhancement to withstand projected collateral loss rates.

DBRS Morningstar analyzed the transaction using its CMBS Insight Model and CLO Asset Model, based on certain reference portfolio characteristics, including Eligibility Criteria and Replenishment Criteria, as defined per the draft Financial Guarantees. The initial reference portfolio consists of well-diversified CRE secured loans across various obligors. The analysis produced satisfactory results, which supported the provisional ratings on the Tranche Amounts.

For more information regarding DBRS Morningstar’s additional adjustment for select industries related to the pandemic, please see its May 18, 2020, commentary “CLO Risk Exposure to the Coronavirus Disease (COVID-19)” at

The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: September 2022 Update,” published on September 19, 2022 ( These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.


Environmental Factors
A portion of the portfolio is backed by properties that have been flagged for environmental issues. This Environmental factor has a relevant effect on the credit analysis of the transaction because DBRS Morningstar includes a penalty for the loss given default (LGD) estimate for loans flagged with environmental issues, which increases the estimated required credit enhancement at each rating level.

There were no Social or Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at (May 17, 2022).

The principal methodologies are North American CMBS Multi-Borrower Rating Methodology (November 4, 2022), Rating CLOs and CDOs of Large Corporate Credit (January 26, 2022), Mapping Financial Institution Internal Ratings to DBRS Morningstar Ratings for Global Structured Credit Transactions (February 24, 2022), and Legal Criteria for U.S. Structured Finance (June 15, 2022), which can be found on under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report:

DBRS Morningstar materially deviated from its principal methodologies when determining the ratings assigned to the Tranche Amounts. The LGD assumptions for the CRE Builder Developer portion of the guaranteed portfolio were derived via BMO’s historical realized LGDs, rather than as part of any primary or related methodologies. The material deviation is warranted given that no primary or related methodology governs the application of LGD assumptions for CRE Builder Developer loans.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit or contact us at [email protected].

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