Morningstar DBRS Confirms Credit Ratings on Certain Guarantee Linked Notes and Tranche Amounts of Manitoulin USD Ltd., Muskoka 2019-1

DBRS, Inc. (Morningstar DBRS) confirmed its provisional credit ratings on the Tranche A Amount, Tranche B Amount and the Tranche C Amount (collectively, the Tranche Amounts) of two unexecuted, unfunded financial guarantees (the Financial Guarantees) of Manitoulin USD Ltd., Muskoka 2019-1 (the Issuer) with respect to a portfolio of primarily U.S. and Canadian senior secured and senior unsecured loans originated or managed by the Bank of Montreal (BMO; rated AA with a Stable trend by Morningstar DBRS).

The provisional credit ratings on the Tranche Amounts address the likelihood of a reduction to the respective Tranche Amounts caused by a Tranche Loss Balance on each respective tranche resulting from defaults and losses within the guaranteed portfolio during the period from the Effective Date until the Scheduled Termination Date (as defined in the Financial Guarantees).

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

The credit ratings on the Tranche Amounts take into consideration the creditworthiness of the reference portfolio only. The credit 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.

Morningstar DBRS also confirmed its credit ratings on the Muskoka Series 2019-1 Class B Guarantee Linked Notes (the Class B Notes), the Muskoka Series 2019-1 Class C Guarantee Linked Notes (the Class C Notes), and the Muskoka Series Class D Guarantee Linked Notes (the Class D Notes) (collectively, the Notes). Manitoulin USD Limited (Manitoulin) issued the Notes referencing the executed Junior Loan Portfolio Financial Guarantee (the Junior Financial Guarantee) dated as of January 30, 2019, between Manitoulin as the Guarantor and BMO as the Beneficiary with respect to a portfolio of primarily U.S. and Canadian senior secured and senior unsecured loans.

The credit ratings on the Notes address the timely payment of interest and ultimate payment of principal on or before the Scheduled Termination Date (as defined in the Junior Financial Guarantee). The payment of the interest due to the Notes is subject to the beneficiary's ability to pay the Guarantee Fee Amount (as defined in the Junior Financial Guarantee).

To assess portfolio credit quality, Morningstar DBRS 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.

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating actions are a result of Morningstar DBRS' annual review of the transaction performance and application of the "Global Methodology for Rating CLOs and Corporate CDOs" (the CLO Methodology; November 19, 2024). The Scheduled Termination Date is December 10, 2025. The Replenishment Cut-Off Date was June 10, 2022.

To account for the static pool, Morningstar DBRS analyzed the reference obligations in the reference pool as reported in the portfolio report on February 28, 2025. As of February 28, 2025, the transaction is failing certain Replenishment Criteria. Morningstar DBRS considered these failures in the static pool analysis. Further, Morningstar DBRS analyzed each loan in the reference portfolio separately by inputting its credit rating, seniority, country of origin, and industry, among others, into the Morningstar DBRS CLO Insight Model. Model-based analysis produced satisfactory results. Considering the transaction performance, as well as its legal aspects and structure, Morningstar DBRS confirmed its credit ratings on the Tranche Amounts and Notes.

In its analysis, Morningstar DBRS considered the following aspects of the transaction:
(1) The transaction's capital structure and the form and sufficiency of available credit enhancement.
(2) Morningstar DBRS' assessment of the origination, servicing, and management capabilities of BMO.
(3) The credit quality of the underlying collateral
(4) The ability of the Notes and Tranche Amounts to withstand projected collateral loss rates under various stress scenarios.
(5) The legal structure as well as legal opinions addressing certain matters of the Issuer and the consistency with the Morningstar DBRS "Legal Criteria for U.S. Structured Finance" methodology.
(6) The Financial Guarantees of Manitoulin USD Ltd., a corporation established under the Canada Business Corporations Act. Manitoulin USD Ltd. is a synthetic risk transfer transaction with BMO as the Beneficiary.

On the Effective Date (as defined in the Financial Guarantees referenced above), the Issuer used the proceeds from the issuance of the Notes to make a deposit into the Cash Deposit Accounts with the Cash Deposit Bank. Morningstar DBRS may review the credit ratings on the Notes in the event of a downgrade of the Cash Deposit Bank below certain thresholds, as defined in the transaction documents.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transaction's respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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 Risk Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies applicable to the credit ratings are Global Methodology for Rating CLOs and Corporate CDOs, including its Appendix II: Mapping Financial Institution Internal Ratings to Morningstar DBRS Credit Ratings for Global Structured Credit Transactions, and the CLO Insight Model version 1.0.1.4 (November 19, 2024 https://dbrs.morningstar.com/research/443207).

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit ratings on the Class C Notes and the Class C Tranche Amounts materially deviate from the credit ratings implied by the predictive model. Morningstar DBRS typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit ratings would consider a three-notch or more deviation from the credit rating stress(es) implied by the predictive model to be a significant factor in evaluating the credit ratings. The rationale for the material deviations is that the predictive model results do not fully capture the risk of the above-mentioned rated instruments due to the exposure to the counterparty risk of BMO, such as the ability to pay the Guarantee Fee Amount and principal on the Notes. This warranted additional analysis, which led to the above rating actions.

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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to our Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of our website.

Please, see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed credit ratings:

Each of the principal asset class methodologies employed in the analysis addressed one or more particular risks or aspects of the credit rating and were factored into the credit rating decision, Specifically, for the recovery rate, Morningstar DBRS applied the senior secured and senior unsecured recovery rates defined in its Global Methodology for Rating CLOs and Corporate CDOs (November 19, 2024). Morningstar DBRS applies different recovery rates depending on the recovery tier and seniority.

Morningstar DBRS used its CLO Insight Model to determine expected default rates for the portfolio at each rating level. To determine the credit risk of each underlying reference obligation, Morningstar DBRS relied on either public ratings or a ratings mapping to Morningstar DBRS ratings of BMO's internal ratings models.

The ratings mapping was completed in accordance with the Global Methodology for Rating CLOs and Corporate CDOs - Appendix II: Mapping Financial Institution Internal Ratings to Morningstar DBRS Credit Ratings for Global Structured Credit Transactions (November 19, 2024).

The last credit rating action on this issuer took place on April 22, 2024, when Morningstar DBRS confirmed and upgraded its credit ratings on the Tranche Amounts and on the Notes.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: Oxana Rhybak, Vice President, U.S. Structured Credit
Rating Committee Chair: Glen Leppert, Associate Managing Director, U.S. Structured Credit
Initial Rating Date: January 24, 2019

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

Operational Risk Assessment for Collateralized Loan Obligations (CLOs) and Corporate Collateralized Debt Obligations (CDOs) (August 23, 2024)
https://dbrs.morningstar.com/research/438315

Legal Criteria for U.S. Structured Finance (December 3, 2024)
https://dbrs.morningstar.com/research/444064

Interest Rate Stresses for U.S. Structured Finance Transactions (March 27, 2025)
https://dbrs.morningstar.com/research/450750

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.