Morningstar DBRS Confirms Credit Ratings on Certain Tranche Amounts and Class E Notes of Kawartha CAD Ltd., Boreal 2024-1

DBRS, Inc. (Morningstar DBRS) confirmed the following provisional credit ratings on the Senior Tranche, the Tranche B, the Tranche C, the Trance D, and the Tranche E (collectively, the Tranche Amounts) of Kawartha CAD Ltd. (the Issuer) pursuant to Schedule 1 of the executed Junior Loan Portfolio Financial Guarantee (the Financial Guarantee) dated April 15, 2024, between the Issuer as Guarantor and the Bank of Montreal (BMO) as Beneficiary with respect to a portfolio of Canadian commercial real estate (CRE) secured loans originated or managed by BMO (rated AA with a Stable trend by Morningstar DBRS):

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

The provisional credit 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 provisional credit ratings on the Tranche Amounts take into consideration only the creditworthiness of the reference portfolio. The provisional credit ratings neither address counterparty risk nor the likelihood of any event of default or termination event under the agreement occurring. BMO bought protection under the Financial Guarantee for certain issued notes in respect of such Protected Tranche (as defined in the Financial Guarantee).

Morningstar DBRS' provisional credit ratings on the Tranche Amounts are expected to remain provisional until there is an executed Financial Guarantee agreement covering the payment obligations and exchange of risk in respect of such Tranche Amounts. BMO may have no intention of executing such a Financial Guarantee. Morningstar DBRS will maintain and monitor the provisional credit ratings throughout the life of the transaction or while it continues to receive performance information.

Morningstar DBRS also confirmed the following credit rating on the Boreal 2024-1 Class E Notes (the Class E Notes) issued by Kawartha CAD Ltd. referencing the Financial Guarantee dated April 15, 2024, between the Issuer with respect to a portfolio of Canadian commercial real estate (CRE) secured loans originated or managed by BMO:

-- Class E Notes at BB (high) (sf)

Morningstar DBRS' credit rating on the Class E Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the timely payment of interest (the Guarantee Fee Amount) and ultimate payment of principal on or before the Scheduled Termination Date.

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). Morningstar DBRS confirmed the credit ratings on the Tranche Amounts and on the Class E Notes as a result of the transaction's current performance. Kawartha CAD Ltd., Boreal 2024-1 is a synthetic risk transfer transaction with BMO as the Beneficiary. The Scheduled Termination Date is May 20, 2029. The Replenishment Period End Date is November 20, 2026.

Morningstar DBRS analyzed the reference obligations in the reference pool as reported in the portfolio report on May 30, 2025. As of May 30, 2025, certain Replenishment Criteria were not met. Morningstar DBRS considered these failures in its analysis. Morningstar DBRS analyzed the transaction using its CMBS Insight Model and CLO Insight Model, based on certain reference portfolio characteristics, including Eligibility Criteria and Replenishment Criteria, as defined in the Financial Guarantee. The reference portfolio consists of well-diversified CRE secured loans across various obligors. The 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 Financial Guarantee, dated as of April 15, 2024.
(2) The integrity of the transaction structure and the form and sufficiency of available credit enhancement.
(3) The credit quality of the underlying collateral, subject to the Replenishment Criteria.
(4) The ability of the 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) Morningstar DBRS' assessment of the origination, servicing, and management capabilities of BMO.

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 transactions' 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.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
ESG Considerations had a relevant effect on the credit analysis.

Environmental (E) Factors
The following Environmental factor(s) had a relevant effect on the credit analysis: Environmental (E) Factors
The following E factor had a relevant effect on the credit analysis: The portfolio of 503 exposures includes 10 loans, representing 4.4% 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 Morningstar DBRS 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/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 Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196.

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 and the North American CMBS Multi-Borrower Rating Methodology and North American CMBS Insight Model version 1.3.0.0 (April 9, 2025) https://dbrs.morningstar.com/research/451739.

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

Morningstar DBRS materially deviated from its principal methodologies when determining the credit ratings assigned to the Tranche Amounts and the Class E Notes. The LGD assumptions for the CRE Builder Developer portion of the guaranteed portfolio were derived via BMO's LGD estimates and 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 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 the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

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

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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.