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

DBRS Limited (Morningstar DBRS) finalized its provisional credit rating of BBB (low) with a Stable trend on MCAP Commercial LP's (MCAP or the Partnership) Senior Unsecured Notes. This is one notch below MCAP's Long-Term Issuer Rating, reflecting the Partnership's substantial balance sheet encumbrance.

On February 26, MCAP issued $300 million of 4.816% Senior Unsecured Notes (the Notes) that mature on March 4, 2030. 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. The Partnership intends to use $150 million of the net proceeds to repay all of the principal amount of the 3.743% Senior Secured Notes due August 25, 2025, at maturity. The remaining proceeds will be used to fund growth initiatives and for general corporate purposes.

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.

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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