Press Release

DBRS Morningstar Confirms Provisional Ratings on Certain Tranche Amounts of Kawartha CAD Ltd., Boreal 2021-1

Structured Credit
June 14, 2023

DBRS, Inc. (DBRS Morningstar) confirmed the following provisional ratings on the Tranche A Amount, Tranche B Amount, Tranche C Amount, and Tranche D Amount (collectively, the Tranche Amounts) of two unexecuted, unfunded financial guarantees (the Financial Guarantees) of Kawartha CAD Ltd., Boreal 2021-1 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):

-- Tranche A Amount at AAA (sf)
-- Tranche B Amount at AA (sf)
-- Tranche C Amount at A (sf)
-- Tranche D Amount at BBB (low) (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 rating confirmations are a result of the annual surveillance of the transaction as well as the current performance of the transaction being within DBRS Morningstar’s expectations. Kawartha CAD Ltd., Boreal 2021-1 is a synthetic risk transfer transaction with BMO as Beneficiary.

In its analysis, DBRS Morningstar considered the following:
(1) The Financial Guarantee dated as of June 15, 2021.
(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 Financial Guarantee. The initial reference portfolio consists of well-diversified CRE secured loans across various obligors. The analysis produced satisfactory results, which supported the ratings on the Tranche Amounts.

The provisional ratings take into consideration only the creditworthiness of the reference portfolio. The provisional 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.

The provisional ratings assigned by DBRS Morningstar are expected 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 transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign
economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: April 2023 Update”
(, published on April 28, 2023. 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 (E) Factors
The portfolio of 367 exposures includes 11 loans, representing 4.3% of the total guaranteed obligation amount, backed by properties that have been flagged for environmental issues. This E 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. At transaction close, this E factor affected 12 out of 314 loans (3.6% of the total guaranteed obligation amount).

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 applicable to the ratings are North American CMBS Multi-Borrower Rating Methodology and North American CMBS Insight Model (March 16, 2023;, Rating CLOs and CDOs of Large Corporate Credit and DBRS Morningstar CLO Asset Model Version 2.3.1 (February 7, 2023;, and Mapping Financial Institution Internal Ratings to DBRS Morningstar Ratings for Global Structured Credit Transactions (February 17, 2023;
Other methodologies referenced in this transaction are listed at the end of this press release.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

DBRS, Inc.
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New York, NY 10005 USA
Tel. +1 212 806-3277

The rating methodologies used in the analysis of this transaction can be found at:

-- North American CMBS Multi-Borrower Rating Methodology and North American CMBS Insight Model 1.0.0 (March 16, 2023)

-- Rating CLOs and CDOs of Large Corporate Credit and DBRS Morningstar CLO Asset Model Version 2.3.1 (February 7, 2023)

-- Mapping Financial Institution Internal Ratings to DBRS Morningstar Ratings for Global Structured Credit Transactions (February 17, 2023)

-- Cash Flow Assumptions for Corporate Credit Securitizations (February 7, 2023)

-- Legal Criteria for U.S. Structured Finance (December 7, 2022)

-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023)

-- Operational Risk Assessment for Collateralized Loan Obligation (CLO) and Collateralized Debt Obligation (CDO) Managers of Large Corporate Credits (September 23, 2022)

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