DBRS Morningstar Assigns Provisional Ratings to Certain Tranche Amounts of Manitoulin USD Ltd., Algonquin 2020-1

DBRS, Inc. (DBRS Morningstar) assigned the following provisional ratings to 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 Manitoulin USD Ltd., Algonquin 2020-1 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 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 Amounts due to 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 referenced above).

The 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, for each corporate obligor in the portfolio, DBRS Morningstar may provide a credit estimate, internal assessment, or ratings mapping of the Beneficiary’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 ratings reflect the following:

(1) The draft Financial Guarantees.
(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 notes that the above press release was amended on April 9, 2020, to remove a disclosure that was not applicable and to update the initial rating date. The amendment was minor and would not impact the understanding of the reader.

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

The principal methodologies are Rating CLOs and CDOs of Large Corporate Credit and Mapping Financial Institution Internal Ratings to DBRS Ratings for Global Structured Credit Transactions, which can be found on dbrs.com under Methodologies & Criteria.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar did have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union. The following additional regulatory disclosures apply to endorsed ratings:

Each of the principal asset class methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision, specifically, for the recovery rate, DBRS Morningstar applied the senior secured and senior unsecured recovery rates defined in its “Rating CLOs and CDOs of Large Corporate Credit” methodology. DBRS Morningstar applies different recovery rates depending on the recovery tier and seniority.

DBRS Morningstar used its CLO Asset Model to determine expected default rates for the portfolio at each rating level. To determine the credit risk of each underlying reference obligation, DBRS Morningstar relied on either public ratings or a ratings mapping to DBRS Morningstar ratings of BMO’s internal ratings models. The mapping was completed in accordance with DBRS Morningstar’s “Mapping Financial Institution Internal Ratings to DBRS Ratings for Global Structured Credit Transactions” methodology.

This rating concerns a newly issued financial instrument. This is the first DBRS Morningstar rating on this financial instrument.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Lead Analyst: Joseph Priolo, Senior Vice President, U.S. Structured Credit
Rating Committee Chair: Jerry van Koolbergen, Managing Director, U.S. Structured Credit
Initial Rating Date: January 28, 2020

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

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