Morningstar DBRS Assigns Provisional Credit Rating of (P) BBB (low) With a Stable Trend to MCAP Commercial LP's Senior Unsecured Notes

DBRS Limited (Morningstar DBRS) assigned a provisional credit rating of (P) BBB (low) with a Stable trend to MCAP Commercial LP's (MCAP or the Partnership) Senior Unsecured Debt. This one-notch differential from MCAP's Long-Term Issuer Rating of BBB with a Stable trend reflects the Partnership's substantial balance sheet encumbrance.

MCAP intends to issue Senior Unsecured Notes (the Notes) of $200 million to $300 million with an expected maturity of March 2030 by way of private placement. A portion of the proceeds will be used to fund warehouse eligible mortgages until August 2025, at which point MCAP will repay all of its outstanding 2025 Senior Secured Notes at maturity. The remaining proceeds will be used to fund growth initiatives and for general corporate purposes. The Notes will be direct senior unsecured obligations of MCAP and will rank equally and rateably with all other present and future senior unsecured obligations of the Partnership and each Guarantor.

CREDIT RATING DRIVERS
The credit rating of the Notes will move in tandem with MCAP's Long-Term Issuer Rating. A sustained improvement in financial performance resulting in stronger capital levels and further diversification in funding sources would lead to an upgrade of MCAP's credit ratings.

Substantially higher delinquency rates caused by deficiencies in risk management or underwriting that could significantly reduce the amount of business the Partnership conducts with key institutional investors would lead to a downgrade of MCAP's credit ratings. Furthermore, sustained deterioration in financial performance, any changes in government-backed securitization programs that could constrain MCAP's ability to fund mortgage originations, or a significant slowdown in capital retention would also result in a downgrade of the Partnership's credit ratings.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Non-Bank Financial Institutions (November 19, 2024) https://dbrs.morningstar.com/research/443208. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024; https://dbrs.morningstar.com/research/437781) in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at dbrs.morningstar.com.

A provisional credit rating is not a final credit rating with respect to the above-mentioned Notes and may change or be different than the final credit rating assigned or may be discontinued. The assignment of a final credit rating on the above-mentioned Notes is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit rating.

The credit rating was initiated at the request of the rated entity.

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

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

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS's trends and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit dbrs.morningstar.com.

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