MCAP Corporation $275 million • Common Shares

Transcription

A copy of this amended and restated preliminary prospectus has been filed with the securities regulatory authorities in each of the provinces and territories
of Canada but has not yet become final for the purpose of the sale of securities. Information contained in this amended and restated preliminary prospectus
may not be complete and may have to be amended. The securities may not be sold until a receipt for the prospectus is obtained from the securities regulatory
authorities.
No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. This prospectus constitutes a
public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such
securities.
These securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state
securities laws and may not be offered or sold in the United States or to, or for the account or benefit of, a U.S. person (within the meaning of Regulation S
under the U.S. Securities Act) except pursuant to an exemption from the registration requirements of the U.S. Securities Act and any applicable state
securities laws. See “Plan of Distribution”. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities in the
United States.
AMENDED AND RESTATED PRELIMINARY PROSPECTUS
(amending and restating the preliminary prospectus dated May 25, 2016)
Initial Public Offering and Secondary Offering
June 10, 2016
MCAP Corporation
$275 million
 Common Shares
This prospectus qualifies the distribution (the “Offering”) of  common shares (the “Common Shares”) of MCAP
Corporation (the “Issuer”) at a price of $  per Common Share (the “Offering Price”). It is anticipated that the Offering
Price will be between $18.00 and $21.00 per Common Share. Unless otherwise indicated, this prospectus assumes an
Offering Price of $19.50, being the midpoint of the anticipated range set forth above.
The Offering consists of an initial public offering of  Common Shares by the Issuer (the “Treasury Offering”) and
a secondary offering of  Common Shares (the “Secondary Offering”) by Otéra Capital CADCAP Inc. (“Otéra”) and
MCAN Mortgage Corporation (“MCAN”, and together with Otéra, the “Selling Shareholders”). See “Principal and Selling
Shareholders”. The Issuer will not receive any proceeds from the Secondary Offering. If the Over-Allotment Option (as
defined in the notes below) is exercised in full,  additional Common Shares will be offered by Otéra.
The Issuer will use the net proceeds from the Treasury Offering as described in this prospectus. See “Use of
Proceeds”. The Offering is being underwritten by RBC Dominion Securities Inc. and BMO Nesbitt Burns Inc. (together, the
“Joint Bookrunners”) and TD Securities Inc., CIBC World Markets Inc., National Bank Financial Inc., Scotia Capital Inc.
and Laurentian Bank Securities Inc. (collectively with the Joint Bookrunners, the “Underwriters”).
There is currently no market through which the Common Shares may be sold, and purchasers may not be
able to resell the Common Shares purchased under this prospectus. This may affect the pricing of the Common
Shares in the secondary market, the transparency and availability of trading prices, the liquidity of the Common
Shares and the extent of issuer regulation. See “Risk Factors”. An investment in the Common Shares is subject to a
number of risks that should be considered by a prospective purchaser. Investors should carefully consider the risk
factors described under “Risk Factors” before purchasing the Common Shares.
In connection with the Offering, the Underwriters may over-allot or effect transactions that stabilize or maintain the
trading price of the Common Shares at levels other than those which might otherwise prevail on the open market. Such
transactions, if commenced, may be discontinued at any time. See “Plan of Distribution”.
Price: $  per Common Share
Per Common Share ....................................................
Total Offering(3) .........................................................
Price to the
Public
$
$
Underwriters’
Commission
$
$
Net Proceeds
to the Issuer(1)
$
$
Net Proceeds to
the Selling
Shareholders(2)
$
$
__________
Notes:
(1) After deducting the Underwriters’ commission with respect to the Treasury Offering, which is payable by the Issuer, but before deducting the expenses
of the Offering. The expenses of the Offering (excluding the expenses of the Selling Shareholders, which will be borne by the Selling Shareholders) are
estimated to be approximately $  and will be paid by the Issuer out of the proceeds of the Treasury Offering.
(2) After deducting the Underwriters’ commission with respect to the Secondary Offering, which is payable by the Selling Shareholders, but before
deducting the expenses of the Selling Shareholders, which will be borne by the Selling Shareholders.
(3)
Otéra has granted to the Underwriters an over-allotment option (the “Over-Allotment Option”), exercisable in whole or in part, at the sole discretion
of the Underwriters, until the date that is 30 days after the closing of the Offering (the “Closing”), to purchase up to an additional aggregate  Common
Shares (the “Over-Allotment Shares”), representing 15% of the Common Shares offered under this prospectus. The Over-Allotment Shares will be
sold on the same terms as set out above solely to cover over-allotments, if any, and for market stabilization purposes. If the Over-Allotment Option is
exercised in full, the total “Price to the Public”, “Underwriters’ Commission”, “Net Proceeds to the Issuer” and “Net Proceeds to the Selling
Shareholders” will be $  , $ , $  and $ , respectively. This prospectus qualifies the distribution of the Over-Allotment Shares. A purchaser who
acquires Common Shares forming part of the Underwriters’ over-allocation position acquires those securities under this prospectus, regardless of
whether the over-allocation position is ultimately filled through the exercise of the Over-Allotment Option or secondary market purchases. See “Plan of
Distribution”.
The following table sets out the number of Common Shares that may be sold by Otéra to the Underwriters pursuant to the
Over-Allotment Option.
Over-Allotment Option ..........................................................
Maximum Number of
Common Shares
Available
Exercise Period
Exercise Price

Up to 30 days
following Closing
$  per
Common Share
The Underwriters, as principals, conditionally offer the Common Shares, subject to prior sale, if, as and when issued
and delivered by the Issuer and sold and delivered by the Selling Shareholders and accepted by the Underwriters in
accordance with the conditions contained in the underwriting agreement dated •, 2016 among the Issuer, the Selling
Shareholders and the Underwriters (the “Underwriting Agreement”) referred to under “Plan of Distribution” and subject to
the approval of certain legal matters on behalf of the Issuer by Blake, Cassels & Graydon LLP and on behalf of the
Underwriters by Osler, Hoskin & Harcourt LLP. The Underwriters may offer the Common Shares at a lower price than
stated above. See “Plan of Distribution”.
RBC Dominion Securities Inc., BMO Nesbitt Burns Inc., TD Securities Inc., CIBC World Markets Inc., National
Bank Financial Inc., Scotia Capital Inc. and Laurentian Bank Securities Inc. are affiliates of banks which are lenders to
MCAP under one or more credit facilities described under “Description of Material Indebtedness” (the “Facilities”).
Consequently, the Issuer may be considered to be a “connected issuer” of each of these Underwriters under Canadian
securities laws. As at •, approximately $• million was outstanding under the Facilities. MCAP is in compliance with the terms
of, and the lenders have not waived any breach of, the agreements governing the Facilities since their respective dates of
execution. The decision to distribute the Common Shares, including the determination of the terms of the Offering, has been
made through negotiations between the Issuer, the Selling Shareholders and the Underwriters. The affiliated lenders of the
Underwriters did not have any involvement in that decision or determination. MCAP’s financial position has not changed
substantially or adversely since the indebtedness under the Facilities was incurred. The proceeds of the Offering will not be
applied for the benefit of the Underwriters or their affiliates, other than its respective portion of the Underwriters’ fee payable
by the Issuer.
Subscriptions will be received subject to rejection or allotment in whole or in part, and the Underwriters reserve the
right to close the subscription books at any time without notice. It is expected that the Closing will occur on or about , 2016
(the “Closing Date”), or such later date as the Issuer and the Underwriters may agree, but in any event not later than , 2016.
Registration of interests in and transfers of the Common Shares held through CDS Clearing and Depository Services Inc.
(“CDS”), or to its nominee, will be made electronically through the non-certificated (“NCI”) inventory system of CDS.
Common Shares registered to CDS, or its nominee, will be deposited electronically with CDS on an NCI basis on the Closing
of the Offering. A purchaser of Common Shares will receive only a customer confirmation from the registered dealer from or
through which the Common Shares are purchased. See “Plan of Distribution”.
The Issuer has applied to have the Common Shares listed on the Toronto Stock Exchange (the “TSX”). Listing of
the Common Shares on the TSX is subject to approval by the TSX of the Issuer’s listing application and fulfillment by the
Issuer of all the initial requirements and conditions of the TSX. The TSX has not conditionally approved the listing of the
Common Shares and there is no assurance that the TSX will approve the Issuer’s application.
TABLE OF CONTENTS
GENERAL MATTERS ............................................................ iv
CONSOLIDATED CAPITALIZATION ................................. 91
PRESENTATION OF FINANCIAL INFORMATION
AND OTHER INFORMATION ............................................... iv
CREDIT RATINGS ................................................................. 92
FORWARD-LOOKING INFORMATION .............................. iv
MARKET DATA AND INDUSTRY DATA .......................... vii
TRADE-MARKS AND TRADE NAMES .............................. vii
MARKETING MATERIALS ................................................. viii
ELIGIBILITY FOR INVESTMENT ...................................... viii
PROSPECTUS SUMMARY ..................................................... 1
THE OFFERING ....................................................................... 9
SUMMARY CONSOLIDATED FINANCIAL
INFORMATION ......................................................................11
INDUSTRY OVERVIEW ........................................................13
BUSINESS ...............................................................................21
CORPORATE STRUCTURE AND
REORGANIZATION ...............................................................53
USE OF PROCEEDS ...............................................................55
SELECTED CONSOLIDATED FINANCIAL
INFORMATION ......................................................................56
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..........................................................................58
DIVIDEND POLICY................................................................80
PRIOR ISSUANCES................................................................ 93
DIRECTORS AND MANAGEMENT OF THE ISSUER ....... 94
CORPORATE GOVERNANCE ............................................ 101
EXECUTIVE OFFICER AND DIRECTOR
COMPENSATION ................................................................. 107
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE
OFFICERS ............................................................................. 117
PLAN OF DISTRIBUTION................................................... 119
CERTAIN CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS ............................................................. 122
RISK FACTORS .................................................................... 124
LEGAL PROCEEDINGS ...................................................... 138
EXPERTS AND INTERESTS OF EXPERTS ....................... 139
INTERESTS OF MANAGEMENT AND OTHERS IN
MATERIAL TRANSACTIONS ............................................ 140
AUDITOR, TRANSFER AGENT AND REGISTRAR ......... 141
MATERIAL CONTRACTS ................................................... 142
PURCHASERS’ STATUTORY RIGHTS ............................. 143
GLOSSARY OF TERMS ....................................................... 144
INDEX TO FINANCIAL STATEMENTS ............................ F-1
DESCRIPTION OF SHARE CAPITAL ...................................81
APPENDIX “A” MANDATE OF THE BOARD OF
DIRECTORS .......................................................................... A-1
PRINCIPAL AND SELLING SHAREHOLDERS ..................83
APPENDIX “B” AUDIT COMMITTEE MANDATE .......... B-1
SECURITYHOLDERS’ AGREEMENTS................................84
DESCRIPTION OF MATERIAL INDEBTEDNESS ..............87
CERTIFICATE OF MCAP CORPORATION ....................... C-1
CERTIFICATE OF THE UNDERWRITERS ........................ C-2
GENERAL MATTERS
Unless otherwise noted or the context indicates otherwise, “MCLP” refers to MCAP Commercial LP and
“MCAP”, “we”, “us” and “our” refer to the Issuer and its subsidiaries, collectively (or prior to the closing of the
Reorganization (as defined below), to MCLP and its subsidiaries, collectively). See “Corporate Structure and
Reorganization” below.
Certain capitalized terms and phrases used in this prospectus are defined in the “Glossary of Terms” beginning on
page 144.
Concurrently with Closing, the Issuer will undergo a reorganization (the “Reorganization”) pursuant to which the
Issuer will acquire, directly and indirectly, all of the partnership interests of MCLP, such that MCLP will become a whollyowned subsidiary of the Issuer. Unless otherwise noted, all information in this prospectus gives effect to the
Reorganization, but does not give effect to the exercise of the Over-Allotment Option.
Prospective purchasers should rely only on the information contained in this prospectus. We have not, and the
Underwriters have not, authorized any other person to provide prospective purchasers with additional or different
information. If anyone provides prospective purchasers with additional or different or inconsistent information, including
information or statements in media articles about the Issuer, prospective purchasers should not rely on it. The Issuer is not,
and the Underwriters are not, making an offer to sell or seeking offers to buy Common Shares in any jurisdiction where the
offer or sale is not permitted. Prospective purchasers should assume that the information appearing in this prospectus is
accurate only as at its date, regardless of its time of delivery or of any sale of Common Shares. The Issuer’s business,
financial conditions, results of operations and prospects may have changed since that date.
All references in this prospectus to “management” are to the persons who are identified in this prospectus as the
executive officers of the Issuer. See “Directors and Management of the Issuer” below. All statements in this prospectus
made by or on behalf of management are made in such persons’ capacities as executive officers of the Issuer and not in
their personal capacities.
PRESENTATION OF FINANCIAL INFORMATION AND OTHER INFORMATION
The annual consolidated financial statements of MCAP have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and are stated in
Canadian dollars. In this prospectus, all references to “$” or “dollars” are to Canadian dollars. Amounts are stated in
Canadian dollars unless otherwise indicated.
Unless otherwise indicated, this prospectus assumes an Offering Price of $19.50, being the midpoint of the
anticipated range set forth on the cover page of this prospectus.
FORWARD-LOOKING INFORMATION
This prospectus contains forward-looking statements that relate to MCAP’s current expectations and views of
future events.
In some cases, these forward-looking statements can be identified by words or phrases such as “may”, “might”,
“will”, “could”, “expect”, “anticipate”, “estimate”, “intend”, “plan”, “indicate”, “seek”, “believe”, “predict” or “likely”, or
the negative of these terms, or other similar expressions intended to identify forward-looking statements.
MCAP has based these forward-looking statements on its current expectations and projections about future events
and financial trends that it believes might affect its financial condition, results of operations, business strategy and financial
needs. These forward-looking statements include, among other things, statements relating to:

the use of proceeds of the Offering;

the net proceeds, expenses, timing and completion of the Offering;
iv

the exercise of the Over-Allotment Option;

the completion of the Reorganization;

MCAP’s expectations regarding its revenue, expenses and operations;

MCAP’s anticipated cash needs;

the timing and size of the Issuer’s first quarterly dividend and the terms of MCAP’s dividend policy;

changes to laws and regulations affecting MCAP’s business and MCAP’s ability to respond to such changes;

outlook for operations, including growth in operating segments and the harmonization of corporate operations
for successful market positioning;

the statements regarding MCAP’s growth opportunities set out under the heading “Business – MCAP’s
Opportunities for Growth”;

outlook for the mortgage and housing markets and the effect of interest rates and other economic factors, such
as unemployment rates, on such markets;

outlook for the investment market in commercial mortgages and commercial loans secured by real property
used for commercial purposes, including retail, industrial, office or multi-unit residential of greater than four
units, including multi-family mortgages insured by Canada Mortgage Housing Corporation (“CMHC”);

MCAP’s ability to benefit from the combination of growth opportunities described herein and its ability to
grow through the capital markets;

MCAP’s ability to retain, develop and grow sources of business and develop and introduce new products;

MCAP’s anticipated geographical expansion;

MCAP’s ability to implement, leverage and realize on its competitive strategies;

future debt levels, financial capacity, liquidity, capital expenditures and capital resources;

future contractual commitments;

expected new business opportunities;

potential for growth via acquisitions of mortgage company operations and third-party mortgage portfolios;

expected benefits of certain transactions and capital investments;

the perception of MCAP by market participants, including investors, mortgage brokers, mortgage default
insurers, construction and commercial borrowers and bankers;

MCAP’s ability to monitor, evaluate and mitigate risk;

the ability of MCAP’s information technology systems to function effectively and without interruption;

MCAP’s forecasted results for 2016 across all business lines;

the share capital of the Issuer; and

the design of the Issuer’s compensation policy for its Board of Directors and executive officers.
Forward-looking statements are based on certain assumptions and analyses made by MCAP in light of the
experience and perception of historical trends, current conditions and expected future developments and other factors it
believes are appropriate, and are subject to certain risks and uncertainties. Although we believe that the assumptions
underlying these statements are reasonable, they may prove to be incorrect, and we cannot assure that actual results will be
consistent with these forward-looking statements. Given these risks, uncertainties and assumptions, prospective purchasers
of Common Shares should not place undue reliance on these forward-looking statements. Whether actual results,
performance or achievements will conform to the Issuer’s expectations and predictions is subject to a number of
uncertainties, assumptions, known and unknown risks and other factors, which include:
v

risks related to funding and liquidity including MCAP’s timely payment guarantee obligations on mortgages
sold into CMHC-sponsored securitization programs;

limited, unfavourable, or a lack of access to capital markets and/or other sources of funding;

assumptions in connection with national and global economic and financial conditions and their impact on the
supply of available funding;

MCAP’s ability to maintain MCAP’s origination and servicing platform;

representation and warranty risk and MCAP’s obligation to repurchase mortgages securitized or sold to
investors under certain circumstances;

risks relating to MCAP’s mortgage underwriting and origination practices and mortgage fraud;

uninsured and underinsured losses;

MCAP’s ability to develop and maintain MCAP’s reputation and MCAP’s brands;

MCAP’s dependence on the successful and uninterrupted operation of its existing information technology
systems;

the risk of cyber security breaches;

risks related to movements in interest rates, including basis risks;

risks related to hedging activities;

potential changes to applicable legislation, regulations and other standards;

MCAP’s reliance on mortgage brokers;

MCAP’s reliance on mortgage default insurers, mortgage default insurance policy limitations and MCAP’s
ability to obtain mortgage default insurance;

MCAP’s reliance on certain key personnel and its ability to retain and attract qualified management and staff
in the markets in which MCAP operates and the cost of labour;

effects of competition and pricing pressures;

risks relating to the termination of MCAP’s origination and servicing agreements;

risks related to indebtedness and liquidity, including MCAP’s leverage, restrictive covenants in MCAP’s debt
instruments, including change of control provisions, and MCAP’s capital requirements;

MCAP’s Institutional Investor concentration;

risks relating to credit, including the ability or willingness of a counterparty to fulfill its payment obligations;

changes in general economic, market and business conditions in the markets in which MCAP operates;

risks associated with the Canadian real estate market, the mortgage finance industry, loss of markets,
consumer and business spending and borrowing trends;

the results of litigation or regulatory proceedings that may be brought against MCAP;

MCAP’s ability to maintain MCAP’s ratings as a residential mortgage servicer by Standard & Poor’s Rating
Services (“S&P”) and as a commercial mortgage servicer by S&P and Fitch Ratings (“Fitch”);

risks related to a downgrade of MCAP’s DBRS Limited (“DBRS”) ratings;

MCAP’s ability to sustain growth and to implement MCAP’s business model and engage in future
acquisitions;

MCAP’s limited experience operating as a public company;
vi

risks related to adverse events beyond the control of MCAP, including natural disasters, extreme weather
conditions, war and terrorism;

risks relating to environmental matters;

the seasonality of MCAP’s mortgage originations;

MCAP’s status as a non-OSFI-regulated entity;

the absence of a prior public market for the Common Shares and volatile trading prices for the Common
Shares;

the significant proportion of voting power that will be controlled by the Selling Shareholders upon completion
of the Offering;

certain rights granted to Otéra pursuant to securityholder agreements between the Issuer and Otéra;

MCAP’s expected dividend policy, the funding of such dividends, the amounts expected to be paid initially
and in the future and the anticipated timing of payment of such dividends;

the risk of future sales of Common Shares by the Issuer or the Selling Shareholders or issuance of additional
Common Shares by the Issuer which may adversely affect the trading prices of the Common Shares;

the Issuer’s broad discretion in applying the proceeds raised in the Offering;

the added costs MCAP expects to incur as a public company;

the Issuer’s status as a holding company; and

those risks and contingencies described under the heading “Risk Factors” in this prospectus.
If any of these risks or uncertainties materialize, or if assumptions underlying the forward-looking statements
prove incorrect, actual results might vary materially from those anticipated in those forward-looking statements.
Information contained in forward-looking statements in this prospectus is provided as of the date of this
prospectus, and we disclaim any obligation to update any forward-looking statements, whether as a result of new
information or future events or results, except to the extent required by applicable securities laws. Accordingly, potential
investors should not place undue reliance on forward-looking statements or the information contained in those statements.
MARKET DATA AND INDUSTRY DATA
We have obtained the market and industry data presented in this prospectus from third-party information,
including independent industry publications, and from MCAP’s internal research and management estimates. While we
believe the third-party information is reliable, we have not verified it, nor has it been verified by independent sources.
Management estimates are derived from publicly available information released by independent industry analysts and other
third-party sources, as well as data from our internal research, and are based on assumptions made by us based on such data
and our knowledge of our industry and markets, which we believe to be reasonable. While we are not aware of any
misstatements regarding the market and industry data presented in this prospectus, such data involve risks and uncertainties
and are subject to change based on various factors, including those factors discussed under “Forward-Looking Information”
and “Risk Factors”.
TRADE-MARKS AND TRADE NAMES
This prospectus includes trade-marks, such as “MCAP” and MCAP’s diamond logo, “RMG Mortgages” and
“Eclipse”, which are protected under applicable intellectual property laws and are the property of MCAP. Solely for
convenience, our trade-marks and trade names referred to in this prospectus may appear without the ® symbol, but such
references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our
rights to these trade-marks and trade names. All other trade-marks used in this prospectus are the property of their
respective owners.
vii
MARKETING MATERIALS
A “template version” of each of: (i) the road show presentation dated , 2016; and (i) the term sheet dated , 2016,
(each of which constitutes “marketing material” as defined in National Instrument 41-101 - General Prospectus
Requirements) have been filed with the securities regulatory authorities in each of the provinces and territories of Canada in
connection with the Offering and are incorporated by reference into this prospectus (the “Marketing Materials”).
The Marketing Materials are available on SEDAR, at www.sedar.com, under the Issuer’s profile. The Marketing
Materials are not part of this prospectus to the extent that the content of the Marketing Materials have been modified or
superseded by a statement contained in this prospectus.
In addition, any template version of any other marketing materials filed in connection with the Offering after the
date hereof but prior to the termination of the distribution of the securities under this prospectus is deemed to be
incorporated by reference into this prospectus.
ELIGIBILITY FOR INVESTMENT
In the opinion of Blake, Cassels & Graydon LLP, counsel to the Issuer, and Osler, Hoskin & Harcourt LLP,
counsel to the Underwriters, based on the current provisions of the Income Tax Act (Canada) (the “Tax Act”), the
regulations thereunder and the proposals to amend the Tax Act and the regulations publicly announced by or on behalf of
the Minister of Finance (Canada) prior to the date hereof, on the Closing Date, provided that the Common Shares are listed
at that time on a “designated stock exchange” for purposes of the Tax Act (which currently includes the Toronto Stock
Exchange (the “TSX”)), the Common Shares offered hereby will be qualified investments under the Tax Act and the
regulations thereunder for trusts governed by registered retirement savings plans (“RRSP”), registered retirement income
funds (“RRIF”), deferred profit sharing plans, registered education savings plans, registered disability savings plans,
registered education savings plans and tax-free savings accounts (“TFSA”), each as defined in the Tax Act.
Notwithstanding that the Common Shares will be a qualified investment for an RRSP, RRIF or TFSA, the
annuitant under an RRSP or RRIF or the holder of a TFSA, as the case may be, will be subject to a penalty tax if the
Common Shares are a “prohibited investment” for such RRSP, RRIF or TFSA. The Common Shares will generally not be a
“prohibited investment” provided that the annuitant or holder, as the case may be, deals at arm’s length with the Issuer for
the purposes of the Tax Act and does not have a “significant interest” (within the meaning of the prohibited investment
rules in the Tax Act) in the Issuer. In addition, the Common Shares will not be a prohibited investment if they are
“excluded property” (as defined in the Tax Act) for trusts governed by an RRSP, RRIF or TFSA.
Prospective investors who intend to hold the Common Shares in an RRSP, RRIF or TFSA should consult
their own tax advisors regarding their particular circumstances.
viii
PROSPECTUS SUMMARY
The following is a summary of the principal features of the Offering and should be read together with the more detailed
information and financial data and statements contained elsewhere in this prospectus. Certain capitalized terms and phrases used
in this prospectus are defined in the “Glossary of Terms” beginning on page 144.
INDUSTRY OVERVIEW
MCAP operates in the Canadian mortgage finance industry, which provides mortgages for residential and commercial
properties, and for construction purposes. According to Statistics Canada, the total balance of mortgages outstanding in Canada
was approximately $1.5 trillion as at December 31, 2015, making it one of the largest finance markets in Canada.
The mortgage finance industry is primarily driven by the residential sector, which, according to the Bank of Canada,
represented an amount of approximately $1.4 trillion of mortgages outstanding as at December 31, 2015, consisting of both singlefamily and multi-unit residential mortgages. Since 1990, the amount of Canadian residential mortgages outstanding has expanded
significantly and has been highly resilient through long-term economic cycles, growing at a compound annual growth rate of 6.9%,
with an average annual increase of $65.4 billion over the last five calendar years, as shown in the chart below.
Management of MCAP estimates that as at December 31, 2015, non-residential mortgages outstanding in Canada
amounted to approximately $130 billion.
Single-Family and Multi-Unit Residential Mortgages Outstanding in Canada ($ billion)
Source: Statistics Canada
2015 data as at May 2016
1
BUSINESS
MCAP is the second largest mortgage finance company in Canada based on both 2015 origination volumes and
mortgages under administration (“MUA”). MCAP focuses on prime, insured mortgage products across the country. As of May 31,
2016, MCAP’s MUA was approximately $56 billion, and in its 2015 fiscal year MCAP had $14.3 billion of mortgage originations
plus $4 billion of mortgage renewals. MCAP’s business model is to originate and underwrite mortgages, fund them by selling
them to Canadian banks, trust and loan companies, credit unions, life insurers and pension funds (collectively, “Institutional
Investors”) or a securitization vehicle, and then provide ongoing mortgage servicing back to that Institutional Investor or
securitization vehicle. MCAP is exposed to the direct credit risk of most of its originated mortgages only temporarily (typically
immediately after funding), before that risk is transferred to an Institutional Investor or securitization vehicle. MCAP’s exposure is
thereafter limited to certain retained obligations, such as the obligation to service the mortgages and timely payment guarantees
under CMHC-sponsored programs. MCAP had direct credit exposure to mortgages representing only 0.04% of MCAP’s MUA
(excluding warehouse loans) as of its 2015 fiscal year end. MCAP operates under two operating segments: (i) single-family
mortgages (92% of MUA), of which 98% are prime mortgages that are insured or insurable by Mortgage Insurance Companies;
and (ii) commercial mortgages and construction loans (8% of MUA).
Key drivers of MCAP’s historical growth were the acquisition in 2012 of the Canadian mortgage operations of ResMor
Trust Company (“ResMor”) and the 80% of MCAP Service Corporation (“MSC”) that MCAP did not previously own and the
successful integration of these operations. Secondly, the injection of additional equity in MCAP of approximately $100 million in
2013 and the raising of $200 million of long-term debt in 2014 and 2015 enabled MSC to increase its participation levels in NHAMBS and CMB programs. As a result of MCAP’s larger platform and additional funding capabilities, MCAP has experienced
significant organic growth over the past three years. MUA increased from $36 billion at the end of 2012 to $53 billion at the end of
2015, representing a compound annual growth rate of 13% over that period. Similarly, origination volume increased from $9.7
billion in 2012 to $14.3 billion in 2015. These growth figures are reflected in MCAP’s operating results with net income
increasing from $27 million in 2013 to $69 million in 2015.
MCAP’s Competitive Strengths
MCAP’s competitive strengths are its:

Leading market position with mortgage brokers and borrowers;

Proven underwriting practices with conservative risk management;

Diverse and established sources of funding;

Stable, predictable and recurring sources of revenue through servicing and securitization activities;

Robust and scalable information technology platforms; and

Experienced senior management team with residential, commercial and construction mortgage experience.
MCAP’s Opportunities for Growth
The following table highlights key performance targets with respect to 2020 mortgage originations and mortgage
renewals and the resulting impact to MUA based on MCAP's long-term strategic plan.
2
MCAP’s most significant growth opportunities are:

Embedded growth from renewals;

Increasing the size of MCAP’s sub-servicing portfolio;

New and enhanced funding programs;

Expanding MCAP’s mortgage platform through the addition of new brokers, geographic expansion and new sources
of revenue;

Expanding MCAP’s existing commercial mortgage platform;

Continuing the rollout of new innovative products; and

Potential future acquisitions of mortgage company operations and third-party mortgage portfolios.
MCAP’s Business Model
MCAP’s business model is to earn revenues by originating and underwriting mortgages, funding mortgages by selling
them to a chosen Institutional Investor or securitization vehicle, and providing ongoing mortgage servicing to the Institutional
Investor or securitization vehicle. MCAP’s proven underwriting practices, conservative risk management, diverse and established
funding relationships and robust and scalable operating and IT systems create a low-risk business model designed to seamlessly
fulfil all aspects of the mortgage product life cycle. This set of capabilities, which MCAP has built over a long period of time,
creates a barrier to entry for new entrants. The following diagram depicts this business model.
3
Lines of Business (Origination Segments)
(2015 MUA of $52.7 billion)
Single Family Residential
(92% of 2015 MUA)
Commercial and Construction
Residential (8% of 2015 MUA)
• Prime insured or insurable (98% of Single Family Residential MUA)
• Alt-A (2% of Single Family Residential MUA)




• CMHC-insured multi-unit residential
• Conventional commercial
• Construction
Origination
Underwriting
Funding (and pooling loans for sale)
Servicing
Primary Funding Sources
Institutional Investors
CMHC-Sponsored Programs
Bank-Sponsored Programs
Origination Channels and Brand Strategy
“Origination” broadly refers to the process of: (i) sourcing mortgage applications from prospective borrowers; (ii)
underwriting mortgage loan applications; and (iii) funding mortgages. MCAP’s origination practices differ depending on whether
the loan is a single-family mortgage or a commercial mortgage or a construction loan. MCAP has robust origination platforms for
each of these loan types. Approximately 79% of MCAP’s origination volume in 2015 was from single-family mortgages, and
approximately 21% of MCAP’s origination volume in 2015 was from commercial mortgages and construction loans.
Single-Family Mortgages. MCAP’s single-family MUA increased from $22.0 billion at the end of 2010 to $48.4 billion
at the end of 2015, representing a compound annual growth rate of approximately 17% over that period.
MCAP’s strategy is to continue its focus on originating high-quality single-family mortgages from the Canadian
independent mortgage broker market. MCAP focuses on originating prime single-family mortgages due to the inherent quality of
these loans and the significant funding available for this asset class. While MCAP also originates Alt-A mortgages, funding of AltA mortgages accounted for less than 5% of MCAP’s single-family mortgage originations in 2015.
Single-family mortgages are predominately sourced from a network of approximately 4,500 selected mortgage brokers
and agents located across Canada. MCAP, including mortgages originated under its “RMG Mortgages” brand (“RMG”) was the
second largest originator of mortgages originated in the Canadian mortgage broker channel in the first quarter of 2016 according to
the 2016 D+H Corporation market share report for the first quarter of 2016. Prior to a mortgage broker being approved as a source
of new mortgage originations, MCAP conducts a thorough review of the broker, including reference checks, interviews and
confirmation that the broker holds a valid brokerage license and has membership in a professional mortgage broker organization.
In addition to obtaining approval as an authorized mortgage broker for MCAP, MCAP carries out continuous monitoring of broker
applications and originations to confirm that mortgages submitted by a particular mortgage broker and his/her agents are
performing at an expected level with respect to pre-funding underwriting quality and post-funding arrears levels.
MCAP plans to maintain its existing broker relationships and to continue to develop new relationships with mortgage
brokers going forward. MCAP plans to develop and support emerging technology in the broker channel to access new marketing
opportunities and relationships. Through its MCAP, RMG and Eclipse Mortgages (“Eclipse”) brands, MCAP employs a multibrand strategy and offers a wide range of single-family mortgage products. MCAP’s diversified strategy permits MCAP to take
advantage of cross-referral opportunities between the various mortgage markets and also provides Institutional Investors with a
single provider of a variety of mortgage products to meet a variety of investment requirements. MCAP’s multi-brand strategy can
be customized for different origination channels as brands can be differentiated based on products offered, borrower profile and
4
broker compensation structure. The offering of multiple brands helps to diversify MCAP’s product-offerings, thereby reducing the
risk of being overly concentrated in one area of the single-family mortgage market.
Commercial Mortgages and Construction Loans. MCAP’s commercial and construction MUA increased from $1.3
billion at the end of 2010 to $4.3 billion at the end of 2015 representing a compound annual growth rate of approximately 27%
over that period.
Commercial Mortgages. Approximately 7% of MCAP’s origination volume in 2015 was from commercial mortgages.
Within the commercial mortgage market, MCAP focuses on CMHC-insured multi-unit mortgages across Canada. Of MCAP’s
commercial MUA, over 84% is represented by insured multi-unit mortgages. MCAP offers term mortgage loans for office,
industrial, retail and multi-unit properties. The majority of mortgages are sourced via third-party mortgage brokers, but MCAP also
has strong direct relationships with a number of large property owners. These strategies are complementary, as larger organizations
have the infrastructure to develop direct lending relationships, while smaller borrowers see value in having mortgage brokers
canvas the market for the best product or rate.
MCAP does not broker commercial mortgage transactions and views its mortgage brokers as partners in the business,
respecting their relationships. MCAP plans to continue expanding its relationships with brokers and borrowers and its funding
capacity in order to broaden its market presence. Having multiple funding sources allows MCAP to offer a diversified product line
to commercial borrowers and mortgage brokers.
Construction Loans. Approximately 14% of MCAP’s origination volume in 2015 was from construction loans, 98% of
which was residential construction loans. Unlike single-family and commercial mortgages, construction originations are measured
using the total amount committed when a loan is accepted by a borrower. The advancement of the actual funds is done over the life
of the construction project (typically 18 to 30 months) and the aggregate amount advanced is reflected in MUA.
MCAP offers land development loans, low-rise and high-rise condominium construction loans, and revolving freehold
construction loans in the major urban centres across Canada. Virtually all construction loans are secured by mortgages. The
majority of construction loans originated by MCAP are sourced through direct relationships with developers that MCAP has
established over many years. MCAP places these mortgages with its Institutional Investors whenever possible, in order to generate
servicing fee revenue in addition to origination fee revenue.
MCAP aims to strengthen its existing borrower relationships while continuing to target new relationships that can be
grown into valued clients. MCAP is also developing new Institutional Investor relationships across Canada that are expected to
enhance and expand upon MCAP’s current product offerings for its developer clients. From time to time and in partnership with
major Institutional Investors, MCAP may invest a small amount of its capital in construction loans on a pari passu basis.
Underwriting
“Underwriting” is the process of reviewing a mortgage application, assessing the credit-worthiness of the borrower and
the value of the property to be mortgaged and making a determination regarding whether or not to commit funding to the relevant
borrower based on whether the loan terms comply with MCAP’s and MCAP’s funders’ mortgage underwriting policies.
MCAP is not a financial institution that is directly subject to regulation by the Office of the Superintendent of Financial
Institutions (“OSFI”). Management believes that its underwriting procedures are comparable with those of most OSFI-regulated
entities and that adhering to these practices, as well as regular evaluations by MCAP’s OSFI-regulated funding partners, has
strengthened MCAP’s relationships with its Institutional Investors, Mortgage Insurance Companies and rating agencies.
Part of the underwriting process involves the setting of conditions upon which a mortgage application would be approved.
MCAP employs various risk management and analytical techniques when underwriting mortgages and is committed to originating
high-quality, low-risk mortgages. MCAP’s disciplined and efficient underwriting practices and systems allow it to efficiently and
prudently originate and underwrite a high volume of mortgage loans that historically have had low arrears rates. Over the last three
full fiscal years, the delinquency ratio for prime single-family mortgages originated and underwritten by MCAP, using its
residential mortgage underwriting policy, has averaged 0.22% compared to an industry average of 0.29% as reported by the
Canadian Bankers Association over the same period. As of May 31, 2016, MCAP has not experienced any loss of principal on any
of the commercial mortgages or construction loans it has underwritten since 2009.
5
Funding Sources
“Funding” a mortgage is the process of confirming that all of the underwriting conditions have been met and disbursing
the mortgage funds to the borrower and registering the mortgage on title against the mortgaged property. MCAP does not provide
its own capital as the long-term source of funding for the large majority of the mortgages it underwrites, but instead focuses on
Institutional Investors and securitization vehicles to meet its funding requirements. MCAP’s business model is structured such that,
except for the short periods of time during which mortgages are funded using its own capital or borrowings under its warehouse
loan and other short-term financing facilities (collectively, “warehouse loan facilities”), the mortgages underwritten by MCAP
are ultimately owned by the funding sources. MCAP is exposed to the direct credit risk of most of its originated mortgages only
temporarily (typically immediately after funding), before that risk is transferred to an Institutional Investor or securitization
vehicle. MCAP’s exposure is thereafter limited to certain retained obligations, such as the obligation to service the mortgages and
timely payment guarantees under CMHC-sponsored programs. MCAP co-invests a small amount in construction loans jointly with
certain of its major Institutional Investors (totaling approximately $15.4 million as at February 29, 2016).
“Warehousing” is the process of acquiring a number of individual funded mortgages, typically financed by warehouse
loan facilities. The individual mortgage loans are held for a short time on MCAP’s balance sheet and financed by borrowings
under MCAP’s warehouse loan facilities or by its own capital, until a sufficient number of funded mortgage loans are acquired
such that the mortgages may be combined to form pools or portfolios that may be subsequently sold or securitized.
The short periods of time during which MCAP holds mortgages funded using its own capital or borrowings under its
warehouse loan facilities are typically immediately following the initial funding of those mortgages, while such mortgages are
being accumulated in pools or portfolios to be sold or securitized. MCAP is exposed to the direct credit risk of most of its
originated mortgages only temporarily (typically immediately after funding), before that risk is transferred to an Institutional
Investor or securitization vehicle. MCAP’s exposure is thereafter limited to certain retained obligations, such as the obligation to
service the mortgages and timely payment guarantees under CMHC-sponsored programs.
MCAP endeavours to minimize its funding costs by employing its capital and warehouse loan facilities to strategically
time when it will place mortgages in the most cost-effective funding channel. MCAP has access to both regulated and nonregulated funding sources and is often able to combine regulated and non-regulated funding sources together to be able to offer
competitive mortgage products to the marketplace.
Servicing
“Servicing” is the process of managing the mortgage throughout its term (i.e. after funding), including collecting all
payments due from the borrower, remitting the corresponding payments to the appropriate Institutional Investor or securitization
vehicle, and maintaining correspondence with the borrower throughout the term of the mortgage as may be required or requested.
Servicing commercial and residential mortgages also includes activities such as tracking property taxes and property insurance,
tracking contractual obligations of borrowers, performing default management where necessary, carrying out activities related to
refinancing a mortgage before its maturity date, renewing a mortgage as it comes to the end of its term and discharging a mortgage
upon it being fully repaid. Servicing construction loans involves reviewing professional reports and on-site inspections to ensure
that the conditions for ongoing funding of the project are fulfilled.
MCAP’s business model is to originate and underwrite mortgages, fund them by selling them to an Institutional Investor
or securitization vehicle, and then provide ongoing mortgage servicing back to that Institutional Investor or securitization vehicle,
as servicing fees provide MCAP with predictable long-term recurring revenue. As a result, MCAP’s existing portfolio of MUA
represents a significant asset for MCAP. MCAP services virtually all of the mortgages generated through its mortgage origination
activities and seeks to renew mortgages in its portfolio when they mature.
MCAP also services mortgages originated by third-party mortgage lenders (“sub-servicing”) and, in some cases, also
underwrites mortgages for such third-party mortgage lenders using the relevant lender’s underwriting policy. Management
believes that MCAP is one of the largest third-party sub-servicers of residential mortgages in Canada. Many Institutional Investors
and securitization vehicles do not have the capability or the systems in place to underwrite and administer mortgage loans
efficiently or cost effectively. As MUA grows, MCAP’s scalable servicing platform and servicing expertise provides it with an
opportunity to increase profit margins, as MCAP can service incremental mortgages at a lower marginal cost.
MCAP’s single-family residential and commercial mortgage servicing platforms were the first in Canada to be publicly
rated by a rating agency and have been consistently rated “above average” by S&P since 2002. MCAP’s commercial primary
6
servicing platform is also rated CPS3+ by Fitch (indicating a level of overall servicing ability between “proficient” and “high
performance”). MCAP has single-family servicing offices in Calgary, Edmonton, Regina, Kitchener, and at its head office in
Toronto. Commercial mortgages are serviced out of Regina and Toronto and construction loans are serviced out of Vancouver,
Calgary and Toronto. MCAP is able to scale its servicing platforms, processes and call centres to effectively and efficiently
manage its clients’ mortgage-related needs.
Renewal Profile of Existing Portfolio
A predictable portion of MCAP’s single-family MUA comes up for renewal annually, and in MCAP’s 2015 fiscal year
MCAP renewed $4 billion of single-family mortgages. On average, MCAP has renewed 76% per year of the single-family
mortgages in its portfolio that have come up for renewal over the last three fiscal years. Renewals are an attractive source of
originations for MCAP, given that origination costs associated with renewals are significantly lower compared to new originations.
Continuing to successfully renew its existing portfolio will contribute to MCAP’s profitability and allow MCAP to earn consistent
revenue through re-sales of renewed mortgages and ongoing mortgage servicing fee income.
Business of Scale
MCAP’s business is designed to minimize the risks of market fluctuations by relying on its size and scale, its flexibility to
re-allocate internal resources and its competency in acting opportunistically to acquire assets when market opportunities arise.
MCAP’s access to large and diverse sources of funding is designed to provide the flexibility to place mortgages effectively into the
lowest cost funding source. Additionally, the costs associated with MCAP’s origination and underwriting activities are largely
variable, providing MCAP with the flexibility to adjust its origination and underwriting activities to meet changing short-term
market conditions, which is intended to reduce the overall impact of such short-term market conditions on profitability. If
origination demand weakens, internal resources can be partially re-allocated in the short-term towards other revenue-generating
initiatives such as default management and onboarding sub-servicing portfolios.
History of Successful Acquisitions
Management has a proven track record of successfully acquiring and integrating other mortgage company operations and
third-party mortgage portfolios in varying market conditions that have historically added to MCAP’s market share, operational
capabilities and earnings. The acquisition of the Canadian mortgage operations of ResMor in 2012 was MCAP’s most recent
acquisition of a business.
How MCAP Generates Profits Across its Diversified Platform
Revenue
MCAP’s revenue is well diversified across multiple lines of business and services and is primarily driven by the revenue
items described below. For further discussion, see “Management’s Discussion and Analysis – Revenue” below.

Net interest income on securitized mortgages: represents the net interest spread on mortgages that have been
securitized by MCAP.

Mortgage origination fees: represents fees generated when (i) residential mortgages are sold to Institutional
Investors and (ii) commitment fees are paid by commercial and construction borrowers.

Servicing and administration income: represents revenue from servicing MCAP’s MUA. Revenue is earned from
Institutional Investors and securitization vehicles based on the value of MUA as well as from mortgagor fees.

Investment income and leasing fees: represents the (i) mortgage interest earned on mortgages that are owned by
MCAP, (ii) income earned on funds held in trust, and (iii) income related to MCAP’s remaining portfolio of
equipment leases.

Securitization and other financial instrument gains: includes gain on sale of certain securitized mortgages, fair
value adjustments of financial instruments and hedge gains or losses.
7
FY2015 Revenue by Type
Expenses
In addition to salaries, benefits, overhead, and other operating expenses, MCAP incurs variable expenses, primarily
comprised of origination expense and interest expense (described below). For further discussion, see “Management’s Discussion
and Analysis – Expenses” below.

Origination expense: includes commissions paid to mortgage brokers, electronic processing fees relating to broker
originations, appraisal costs, title insurance costs and mortgage default insurance costs.

Interest expense: consists primarily of costs related to the usage of MCAP’s warehouse loan facilities and interest
expense related to MCAP’s senior secured notes.
8
THE OFFERING
Issuer:
MCAP Corporation
Selling Shareholders:
Otéra Capital CADCAP Inc. and MCAN Mortgage Corporation
Treasury Offering:
$100 million ( Common Shares)
Secondary Offering:
$175 million ( Common Shares)
Immediately prior to the Closing of the Offering, the Selling Shareholders will own
or control, directly or indirectly, approximately 93% of the issued and outstanding
Common Shares. After giving effect to the Offering, the Selling Shareholders will
own or control, directly or indirectly, approximately  % ( % if the Over-Allotment
Option is exercised in full) of the outstanding Common Shares.
Offering Price per Common Share:
It is anticipated that the Offering Price will be between $18.00 and $21.00 per
Common Share.
Aggregate Number of Common
Shares Offered:
 Common Shares
Common Shares held by MCAP’s
Management:
Immediately prior to the Closing of the Offering, certain members of management
of the Issuer will own or control, directly or indirectly, approximately 7% of the
issued and outstanding Common Shares. Such members of the Issuer’s management
are not offering any of their Common Shares pursuant to the Offering. After giving
effect to the Offering, such members of the Issuer’s management will own or
control, directly or indirectly, approximately  % of the outstanding Common
Shares.
Common Shares Outstanding:
36,475,532 Common Shares will be issued and outstanding immediately prior to
Closing of the Offering, assuming the completion of the Reorganization, and 
Common Shares will be issued and outstanding immediately after Closing. See
“Description of Share Capital”.
Over-Allotment Option:
Otéra has granted to the Underwriters an Over-Allotment Option exercisable until
the date that is 30 days after the Closing Date to purchase up to an additional 
Common Shares (representing 15% of the Common Shares offered under this
prospectus) at the Offering Price to cover over-allocations, if any, and for market
stabilization purposes. See “Plan of Distribution”.
Use of Proceeds:
The Issuer expects to receive net proceeds of $94.75 million from the Treasury
Offering, after deducting fees payable by MCAP to the Underwriters in connection
with the Treasury Offering but before deducting the estimated expenses of the
Offering (excluding the expenses of the Selling Shareholders, which will be borne
by the Selling Shareholders).
The Issuer expects to invest the net proceeds of the Treasury Offering to support the
growth of its mortgage funding channels, including but not limited to CMHCsponsored programs, bank-sponsored programs and term structures, and other
programs with Institutional Investors, all of which are intended, in turn, to facilitate
the growth of its mortgage originations, MUA and mortgage renewals, key drivers
of the Issuer’s earnings and long-term value. See “Use of Proceeds.”
The Issuer will not receive any proceeds from the Secondary Offering.
Lock-Up Arrangements:
The Issuer, and the directors and management of the Issuer, as well as the Selling
9
Shareholders, holding in aggregate  % of the outstanding Common Shares after the
Offering (or  % if the Over-Allotment Option is exercised in full), have entered
into agreements pursuant to which such parties have agreed, subject to certain
exceptions, not to sell Common Shares or securities convertible or exchangeable
into Common Shares (or announce any intention to do so) for 365 days (or, in the
case of the Issuer, 180 days) after the Closing Date. See “Plan of Distribution –
Lock-Up Arrangements”.
Dividend Policy:
Subject to financial results, capital requirements, available cash flow and any other
factors that the Issuer’s Board of Directors (the “Board of Directors” or “Board”)
may consider relevant, it is the intention of the Board of Directors following Closing
to declare quarterly cash dividends which will be paid in arrears.
The Issuer expects the first quarterly dividend will be equal to approximately $0.20
per Common Share, representing an annualized yield of approximately ●% based on
the Offering Price.
The Issuer expects the first quarterly dividend will be declared in October 2016
following the announcement of MCAP’s results of operations for the three-month
period ended August 31, 2016 and paid in November 2016. The amount and timing
of the payment of any dividends are not guaranteed and are subject to the discretion
of the Board of Directors. See “Dividend Policy”.
Risk Factors:
An investment in the Common Shares is speculative and involves a high degree of
risk. Prospective purchasers should carefully consider the information set out under
“Risk Factors” beginning on page 124 and the other information in this prospectus
before investing in Common Shares.
Risks related to MCAP’s business and the Offering include: funding and liquidity
risk, including timely payment guarantees under CMHC-sponsored programs;
repurchase or indemnity obligations and breach of representations and warranties on
mortgage sales; reputational and brand risk; failure of information technology
systems; interest rate, hedging and basis risk; changes in, or introduction of
government legislation and regulations; reliance on independent mortgage brokers;
reliance on Mortgage Insurance Companies and the ability to obtain mortgage
default insurance; reliance on key management personnel; competition; termination
of servicing contracts and trigger events; restrictive covenants, including change of
control provisions in credit agreements; concentration of Institutional Investors;
credit risk; the condition of the Canadian real estate market and/or the general
economy in Canada may deteriorate; litigation risk; deterioration of servicer or
corporate ratings; labour costs; the ability to sustain performance and growth; the
impact of natural disasters and other events; environmental matters; seasonality of
originations; MCAP is not an OSFI-regulated entity; no prior public market for the
Common Shares; volatile trading price for the Common Shares; the Selling
Shareholders will retain a significant portion of the voting power of the Issuer after
the Offering; payments of dividends; dilution; use of proceeds; MCAP will incur
additional expenses as a result of being a public company; and holding company
risk.
10
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The consolidated statements of financial position data and consolidated statements of income and comprehensive income
data included below for each of the years ended November 30, 2015, November 30, 2014, and November 30, 2013, and as at
November 30, 2015 and 2014 has been prepared by management of MCAP based on the audited consolidated financial statements
of MCAP for those years included elsewhere in this prospectus. The selected financial data for MCAP as at November 30, 2013
and as at February 28, 2015 are derived from financial statements of MCAP that are not included in this prospectus. The
consolidated statements of financial position data and consolidated statements of income and comprehensive income data included
below as at February 29, 2016 and for the three month periods ending February 29, 2016 and February 28, 2015 has been prepared
by management of MCAP based on the unaudited condensed consolidated financial statements of MCAP for those periods
included elsewhere in this prospectus.
You should review the following information together with MCAP’s consolidated financial statements included
elsewhere in this prospectus and Management’s Discussion and Analysis of Financial Condition and Results of Operations
Key Operating Data:
As at February 29,
As at February 28,
2016
2015
As at November 30,
2015
(in $ thousands)
Mortgages Under Administration
Single-family residential ..............................................................................................
48,683,402
43,864,844
Commercial and construction ......................................................................................
4,636,841
3,779,202
Total MUA1 .................................................................................................................
53,320,243
47,644,046
Sub-serviced MUA ......................................................................................................
7,314,434
6,467,165
MCAP-issued NHA-MBS and CMB securitized
2
mortgages ...................................................................................................................
15,656,354
10,844,919
Three months
ended February 29,
Three months
ended February 28,
2016
2015
2013
48,417,830
4,268,576
52,686,407
7,320,110
42,532,996
3,611,184
46,144,180
6,309,675
37,403,036
2,934,916
40,337,952
5,532,328
14,569,115
9,162,318
4,112,527
Year ended November 30,
2015
(in $ thousands)
Mortgage Origination Volumes
1,696,193
2,278,068
592,575
431,005
Total origination volumes3 ...........................................................................................
2,288,768
2,709,073
Single-family residential renewals ...............................................................................
907,648
762,683
1
2014
(in $ thousands)
2014
2013
(in $ thousands)
11,251,990
3,058,205
14,310,195
3,961,667
9,480,201
1,992,478
11,472,679
2,700,657
8,181,687
2,280,909
10,462,596
2,852,380
Includes sub-serviced MUA and NHA-MBS and CMB securitized mortgages. As at November 30, 2012, total MUA was $36.1 billion, of which sub-serviced
mortgages represented $5.0 billion.
2
MCAP-issued NHA-MBS and CMB outstanding as at November 30, 2012 was $1.902 billion.
3
Renewals, which occur at the maturity of a mortgage loan, are not included in “total origination volumes”.
11
Consolidated Statement of Income and
Comprehensive Income Data
Three months
ended February 29,
Three months
ended February 28,
2016
2015
2015
2014
(in $ thousands, except per unit earnings data)
Net interest income on securitized mortgages ....................................................................
47,937
33,613
169,014
Servicing and administration income..................................................................................
19,549
17,963
89,743
Mortgage origination fees ...................................................................................................
23,210
15,666
108,619
Other income4.....................................................................................................................
(8,372)
13,630
51,783
Total revenue ......................................................................................................................
82,324
80,872
419,159
Origination expense............................................................................................................
21,745
34,299
165,673
Interest expense ..................................................................................................................
11,303
9,849
43,214
5
Operating expenses ...........................................................................................................
28,766
29,305
119,487
3,787
4
22,125
Provision for income tax ....................................................................................................
16,723
7,415
68,660
Net income .........................................................................................................................
Per Unit Highlights
Weighted average number of basic and diluted units6 ........................................................
29,250
29,162
Basic and diluted earnings per unit .....................................................................................
0.57
0.25
29,215
2.35
2013
105,018
76,854
67,811
70,629
320,312
140,658
23,916
105,324
9,855
40,559
80,454
68,872
89,434
29,644
268,404
113,353
17,037
109,821
919
27,274
29,019
1.40
20,444
1.33
Consolidated Statement of Financial Position Data
As at February 29,
As at February 28,
2016
2015
As at November 30,
2015
(in $ thousands)
Total assets .........................................................................................................................
22,010,341
16,494,830
Long-term debt ...................................................................................................................
204,295
152,869
Total partners’ equity .........................................................................................................
321,600
292,383
4
5
6
2014
2013
(in $ thousands)
21,081,191
202,370
332,688
14,938,012
151,220
294,868
8,907,023
296,925
Other income includes investment income, securitization and other financial (losses)/gains and leasing fees.
Operating expenses includes salaries and benefits and other operating costs.
Each unit of MCLP will be exchanged for 1.25 Common Shares prior to Closing pursuant to the Reorganization. See “Corporate Structure and Reorganization”
and “Prior Issuances” below.
12
INDUSTRY OVERVIEW
MCAP operates in the Canadian mortgage finance industry, which provides mortgages for residential and
commercial properties, and for construction purposes. According to Statistics Canada, the total balance of mortgages
outstanding in Canada was approximately $1.5 trillion as at December 31, 2015, making it one of the largest finance
markets in Canada.
The mortgage finance industry is primarily driven by the residential sector, which, according to the Bank of
Canada, represented an amount of approximately $1.4 trillion of mortgages outstanding as at December 31, 2015,
consisting of both single-family and multi-unit residential mortgages. Since 1990, the amount of Canadian residential
mortgages outstanding has expanded significantly and has been highly resilient through long-term economic cycles,
growing at a compound annual growth rate of 6.9%, with an average annual increase of $65.4 billion over the last five
calendar years, as shown in the chart below.
Single-Family and Multi-Unit Residential Mortgages Outstanding in Canada ($ billion)
Source: Statistics Canada
2015 data as at May 2016
As at December 31, 2015, non-residential mortgage balances in Canada amounted to approximately $121 billion
according to Statistics Canada. Management of MCAP believes that most of the $14.8 billion of mortgages reported by
Statistics Canada as residential mortgages funded by pension funds (and therefore included in the $1.4 trillion figure noted
above) are actually non-residential mortgages, bringing the actual non-residential mortgage balance from approximately
$121 billion to over $130 billion.
The following Canadian mortgage finance industry overview includes discussions of key industry trends
subdivided by product type (single-family residential mortgages, commercial mortgages and construction loans), the
competitive landscape, barriers to entry and changes to the regulatory environment.
Key Industry Trends by Product Type
Single-Family Residential Mortgages (“single-family mortgages”)
Single-family mortgage lenders provide mortgage financing to purchasers and owners of single-family dwellings.
For purposes of this prospectus, single-family dwellings include both (i) residential properties containing up to four
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dwelling units and (ii) individual units (such as condominiums) within larger multi-unit dwellings. Single-family
mortgages may be subcategorized based on the underwriting criteria applied by the lender. “Prime single-family
mortgages” are mortgages on and secured by properties that are either (i) insured for principal and interest by CMHC or by
one of Canada’s private mortgage default insurers, Genworth Financial Mortgage Insurance Company Canada
(“Genworth”) and Canada Guaranty Mortgage Insurance Company (“Canada Guaranty”, and together with CMHC and
Genworth, the “Mortgage Insurance Companies”) or (ii) to MCAP’s knowledge, generally in conformance with the
mortgage underwriting standards of Canadian domestic banks that are authorized under the Bank Act (Canada) to accept
deposits and which may be eligible for deposit insurance provided by the Canada Deposit Insurance Corporation
(“Schedule I Banks”) at the time the mortgage is underwritten. “Alt-A” mortgages are mortgages on and secured by
properties made to Alt-A borrowers. Alt-A borrowers are generally considered to be “A” quality borrowers with respect to
their credit histories, but do not qualify for a prime mortgage because of non-conformities, such as the types of property
being financed (e.g., second homes) or the degree of income disclosure and verification required (e.g., where the borrower
is self-employed or receives commission-based income). Single-family residential mortgages that are neither Prime nor AltA mortgages are generally considered to be sub-prime mortgages.
According to a report issued in June 2015 (based on a survey of homeowners completed in April and May of
2015) by the Canadian Association of Accredited Mortgage Professionals (now called Mortgage Professionals Canada
(“MPC”)) 67% of outstanding single-family mortgages have a five-year term leading to a fairly predictable level of
mortgages due for renewal on an annual basis.
Growth potential of the single-family mortgage market
According to the Bank of Canada, residential mortgages outstanding have consistently increased on a year-overyear basis since 1990, across economic cycles and through market downturns. Management of MCAP believes that growth
in the single-family mortgage market, which comprises the vast majority of residential mortgages outstanding, is primarily
driven by the following three factors:
1) Migration into Canada:
According to the CMHC Fourth Quarter 2015 Housing Market Outlook, net migration to Canada has been in
the range of 240,000 to 270,000 individuals per year for the years 2011 through 2014 and was estimated to be
208,000 in 2015. Net migration contributes to annual household formation, a leading indicator of housing
demand, which creates demand for new mortgages. According to CMHC, average annual household
formation is estimated at 190,000 over the 2011 to 2016 period.
2) Resale activity and new home construction:
Annual residential unit sales and the average price per dwelling unit have steadily increased over time, which
is reflected in the growth in the Canadian single-family residential mortgage market. Since 1990, singlefamily residential unit sales have grown at a compound annual growth rate of 2.9% and average housing
prices have increased over the same time period at a compound annual growth rate of 4.7%, as shown in the
chart below.
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$500,000
550,000
$450,000
500,000
$400,000
450,000
$350,000
400,000
$300,000
350,000
$250,000
300,000
$200,000
250,000
$150,000
200,000
$100,000
Average Price
600,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Unit Sales
Historical Residential Unit Sales and Prices in Canada
Unit Sales (left hand side)
Average Price (right hand side)
Source: Canadian Real Estate Association (“CREA”)
Analysis by each of CMHC, the Bank of Canada, CREA, and MPC all conclude that Canada’s housing market
has notable regional differences. It is generally agreed that recently the housing market in each of Toronto and
Vancouver has remained very strong, while Alberta, Saskatchewan and Newfoundland and Labrador are
experiencing a noticeable decline in resale activity, and the rest of Canada has generally reflected more
normalized resale activity and price levels.
Total new housing starts were reported by CMHC to be 195,536 in 2015, a level that is in line with the
average for the preceding five years of approximately 195,000 housing starts per year. Furthermore, according
to CMHC, and as noted above, average annual household formation, is estimated at 190,000 over the 2011 to
2016 period.
3) Interest rate environment:
Mortgage interest rates have decreased to historic lows over the past several years, which has contributed to
the recent growth of the amount of mortgages outstanding in the single-family mortgage market. According to
BMO Economics Research, the Bank of Canada’s two rate reductions and falling global bond yields reduced
average interest rates applicable to single-family mortgages by about 30 basis points in Canada during 2015.
This effectively lowered single-family mortgage debt-service costs by just over 1% of income. The continued
low interest rate environment has contributed to stabilized housing affordability over the past several years,
with an average mortgage debt-service ratio in 2015 of 39.5%, slightly higher than the long-term average of
38.6% according to the MPC “Annual State of the Residential Mortgage Market in Canada” December 2015
report (the “MPC December 2015 report”).
MCAP estimates that annual single-family mortgage originations in Canada are currently approximately $400 to
$450 billion, consisting of mortgage financing for purchases of homes (including resale transactions) and renewals of
existing mortgages at the scheduled maturity thereof (“renewals”) and refinancings of existing mortgages prior to the
scheduled maturity thereof (“refinancings”) from existing homeowners. These figures are supported by the MPC
December 2015 report (based on a survey of homeowners completed in October 2015) that estimates new mortgages for
2015 of $447 billion comprised of $188 billion on new homes and resales, $200 billion of mortgage renewals and $59
billion from refinancings.
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Distribution channels and importance of mortgage brokers in the single-family mortgage market
Single-family mortgages are primarily originated through two channels in Canada: (i) through banks and other
financial institutions, and (ii) through registered mortgage brokers.
Mortgage brokers are licensed real estate financing professionals that act as intermediaries between borrowers and
lenders during the mortgage loan origination process. The mortgage broker’s role is to make an initial assessment of the
borrower’s creditworthiness, present mortgage applications to lending institutions, help the borrower select the most
appropriate lender for the borrower, secure the most favourable mortgage terms for the borrower, and liaise between the
borrower and lender. MCAP believes that the largest mortgage broker industry association in Canada is MPC, which has
over 12,000 members.
CMHC’s 2015 mortgage consumer survey states that 42% of repeat buyers used a mortgage broker to arrange their
mortgage in 2014, compared to 32% in 2012. For first-time buyers, the rates were 55% in 2014 compared to 48% in 2012
and for borrowers refinancing their mortgages (excluding renewals), the rates were 33% in 2014 compared to 27% in 2012.
The MPC December 2015 report states that 42% of mortgage consumers who purchased homes in 2015 used a mortgage
broker to arrange their mortgage and 27% of mortgage consumers who renewed or refinanced their mortgages in 2015 used
a mortgage broker. Based on this information, MCAP estimates prime and Alt-A single-family mortgage originations
through licensed mortgage brokers to be approximately $100 to $125 billion per annum.
Since the introduction of the Guideline B-20 in 2012, which is discussed below, MCAP believes that many
mortgages previously underwritten by the Schedule I Banks as prime single-family mortgages are currently being
categorized as Alt-A mortgages. This is evidenced by the growth in originations since 2012 by mortgage lenders that
specialize in Alt-A mortgage originations.
Funding of single-family mortgages and mortgage default insurance
The Canadian residential mortgage finance industry has historically been dominated by the Schedule I Banks,
which have approximately $1 trillion of residential mortgages on their collective balance sheets (which includes amounts
that they have financed through NHA-MBS and CMB programs) and covered bonds. More recently, the market is seeing
further diversification of funding sources as residential mortgages are increasingly being financed through various capital
markets funding programs, such as NHA-MBS, CMB, asset backed commercial paper (“ABCP”), and residential mortgage
backed securities (“RMBS”). See “Business – Sources of Long-Term Funding – Securitization of Mortgages” below. See
also “Changes to Regulatory Environment” below for a discussion on restrictions imposed on ABCP effective July 1, 2016.
In particular, CMHC reports show that total NHA-MBS outstanding (including CMB) has grown from $100 billion as of
December 2005 to $441 billion as of December 2015. These capital markets programs typically provide an efficient cost of
capital to mortgage finance companies and other mortgage funders and are an alternative in the marketplace to the use by
traditional deposit-taking balance sheet lenders of funds on deposit to finance mortgage lending.
Mortgage finance companies such as MCAP typically use a combination of financing sources to fund their
mortgages, including selling mortgages to financial institutions (who then typically show such mortgages on their balance
sheets) and the capital markets funding programs noted above. Access to and development of capital markets funding
options as an alternative to financial institution balance sheet funding has contributed to the success of mortgage finance
companies such as MCAP.
A defining feature of the Canadian mortgage industry is the Federal Government’s support of housing finance
through mortgage default insurance and public securitization programs. Federally regulated lenders are required to obtain
mortgage default insurance on loans in which the homebuyer has made a down payment of less than 20% of the property
value (such insurance is not available on homes with a property value in excess of $1 million). The premiums for this
insurance are paid by the borrower. Portfolio default insurance is also available that allows a lender to insure a portfolio of
mortgages that are not already individually insured. The premiums for portfolio insurance are paid by the lender. Mortgage
default insurance is backed by an explicit guarantee provided by the Federal Government of Canada covering 100% of the
loss incurred by the lender in the case of defaulted mortgages that are insured by CMHC and subject to a deduction equal to
10% of the original mortgage amount in the case of defaulted mortgages insured by Genworth and Canada Guaranty. In
addition to offering protection to the lender in the event of borrower default, the insurance program acts as an important
policy lever for controlling risk, since the characteristics of the mortgage and of the borrower must satisfy minimum
underwriting standards in order to qualify for the insurance. Mortgage default insurance is provided by the Mortgage
16
Insurance Companies. According to RBC Equities Research, approximately 55% of all residential mortgages in Canada are
insured. Recent regulations enacted by the Federal Government restrict the use of portfolio default insurance. See “Changes
to the Regulatory Environment” below.
Commercial Mortgages
The Canadian commercial mortgage market consists primarily of multi-unit residential mortgages (“multi-unit
mortgages”), which are typically used to finance rental apartment buildings, and mortgages for industrial, retail and office
properties. There are numerous other commercial properties that are also capable of supporting commercial mortgages such
as hotels, entertainment complexes, self-storage facilities and farms, however MCAP believes that industrial, retail and
office properties represent the most significant portion of non-residential commercial mortgages in Canada.
Underwriting decisions with respect to multi-unit mortgages, along with mortgages on industrial, retail and office
properties, are typically based on the cash flow from the property that is available to service the mortgage, which is in turn
highly dependent upon vacancy rates and the ability of tenants to make their rental payments when due. Drivers of tenant
demand include local economic growth, building location, condition and amenities and access to arterial roadways and
public transportation.
Multi-unit mortgages can be either insured through CMHC or uninsured. Insured multi-unit mortgages undergo
specific underwriting procedures by CMHC prior to mortgage default insurance being approved. As a result, insured multiunit mortgages represent the most conservative class of loans in the Canadian commercial mortgage market. New CMHC
multi-unit insurance volumes were $7.4 billion in 2015 compared to $5.9 billion in 2014. Total CMHC insurance in force
on multi-unit residential properties was $58 billion as at the end of 2015 compared to $53 billion as at the end of 2014.
Construction Loans
The Canadian residential construction mortgage market consists primarily of land development loans,
condominium construction loans and freehold residential construction loans. Underwriting decisions with respect to
residential construction loans are typically based on the track record of builders with respect to the product being developed
and the sales liquidity of the end product being developed.
The annual amount of expenditures on new residential construction in Canada (including freehold and
condominium construction, but excluding expenditures by governments and non-profit institutions) was approximately
$65.6 billion in 2015, up slightly from $61.5 billion in 2014, according to CMHC. The amount of residential construction
loan origination is primarily driven by the number of housing starts, which has remained fairly constant since 2010 at
approximately 195,000 starts per year.
There is also a large commercial construction mortgage market driven by the construction of office buildings,
shopping centres, industrial buildings, hotels, entertainment complexes, and other buildings and installations supporting
commercial enterprises and government activities. Meaningful data with respect to this segment is difficult to assemble, as
it is often skewed by mega-projects in certain sub-segments of the industry, and the types of commercial properties reported
on covers a wide spectrum of construction projects.
Competitive Landscape
As discussed above, the MPC December 2015 report found that 42% of mortgage consumers who purchased
homes in 2015 used a mortgage broker to arrange their mortgage and 27% of mortgage consumers who renewed or
refinanced their mortgage in 2015 used a mortgage broker. For first-time buyers, the rates were 55% in 2014 compared to
48% in 2012 and for borrowers refinancing their mortgages (excluding renewals), the rates were 33% in 2014 compared to
27% in 2012. MCAP estimates that over 90% of all mortgage broker single-family prime and Alt-A mortgage originations
are channeled through a portal managed by D+H Corporation (“D+H”). D+H reports how those mortgages are funded by
lender type. Through the fourth quarter of 2015, D+H reports that banks directly funded approximately 36% of singlefamily mortgages that were originated by mortgage brokers, mortgage finance companies (including MCAP) funded
approximately 45%, and credit unions funded approximately 2%, with the balance of approximately 17% funded by Alt-A
lenders. The primary lenders for mortgage broker-originated single-family mortgages with whom MCAP competes are
certain Schedule I Banks, mortgage finance companies and credit unions that directly access this market.
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Commercial mortgage lenders with whom MCAP competes include Schedule I Banks, life insurance companies,
pension funds as well as mortgage finance companies and specialty funders.
Reliable data on construction financing volumes and balances held by lenders is generally not available. MCAP
believes that the primary funders of construction loans are Schedule I Banks, life insurance companies, certain mortgage
investment corporations and other entities specializing in construction financing. Other than a small amount jointly invested
by MCAP in construction loans in partnership with the lenders that regularly acquire construction loans originated by
MCAP, all MCAP-originated construction loans are sold to and funded entirely by such lenders. Most of these lenders also
have their own origination teams with whom MCAP competes for construction loans.
Barriers to Entry
For companies considering establishing operations in MCAP’s industry, there are significant barriers to entry.
They can be summarized in the following categories.
Established Relationships
In order to obtain the necessary funding (which includes warehouse lines and other short-term financing facilities,
access to capital markets, hedging facilities and sales contracts with Institutional Investors), origination relationships and
access to mortgage default insurance, an enterprise must establish a track record demonstrating its ability to originate and
service a meaningful volume of mortgages and underwrite them to the high standards required by funding sources. It takes
many years to establish an observable portfolio history and underwriting database. Typically, funding sources want to look
back at the performance of a portfolio over several years to be comfortable with the quality of a portfolio generated by a
particular enterprise. Similarly, while origination sources such as mortgage brokers, property owners or developers may try
out a new enterprise with a few transactions, mortgage brokers, property owners and developers typically have preferred
partnerships and established relationships based on a long history. A proven track record of providing continuous service
and funding, including through periods when access to funding is more expensive or otherwise restricted, provides MCAP
an entrenched market position representing a significant competitive advantage.
Mortgage Insurance Companies also rely on a proven track record before agreeing to provide default insurance for
an enterprise’s portfolio of mortgages. This means that to start out, an enterprise would typically not have access to
mortgage default insurance which represents 55% of the residential mortgage market, as noted above. As well, without such
a track record, an enterprise would not qualify as an issuer for NHA-MBS which is a valuable source of competitivelypriced funding for mortgage finance companies.
Required Critical Mass and Investment in Infrastructure
In order to be a competitive mortgage finance company, an entrant would need a critical mass of origination
capacity and MUA. Managing a high volume of originations and funded mortgages requires significant investments in staff,
technology and developing internal control processes and quality assurance programmes. Without a large base over which
to spread those costs, a new entrant will have a significantly higher cost structure than established mortgage finance
companies such as MCAP. Critical mass of originations and MUA is necessary to achieve the cost efficiencies in order to
compete for servicing and funding contracts.
In addition to hiring people to run all aspects of a large mortgage finance company, significant ongoing training
and development costs are required, especially for internal controls and quality assurance programs, complex capital
markets transactions and investor reporting which are critical elements of a large and successful mortgage finance company
such as MCAP.
Changes to the Regulatory Environment
MCAP originates mortgages through regulated mortgage brokers, and sells its mortgages to Institutional Investors.
MCAP also relies on securitization vehicles, including through programs managed by CMHC and by certain of the
Schedule I Banks. Although not directly regulated by OSFI itself, MCAP must comply with relevant regulations and
standards imposed (i) on federally regulated financial institutions (“FRFIs”) in order for those FRFIs (or securitization
vehicles managed by such FRFIs) to be able to purchase mortgages from MCAP and to have MCAP service those
18
mortgages, and (ii) by CMHC in order to be able to continue to qualify to have access to CMHC’s securitization programs.
Consequently, awareness of and compliance with regulatory changes are important elements of MCAP’s business.
The Canadian regulatory environment has continued to evolve over time, and this has impacted the mortgage
industry as a whole. Key recent regulatory changes include the following:

April 2016 – OSFI announced updated regulatory capital requirements for residential mortgages for federally
regulated financial institutions to ensure that capital requirements remain prudent in periods where house
prices are high relative to household income and/or house prices are increasing rapidly in nominal terms. The
rule change will come into effect on November 1, 2016 after a public comment period.

February 2016 – New regulations were enacted by the Federal Government that, subject to certain transition
rules, prohibit the use after June 30, 2016 of high ratio mortgages as collateral in securitization vehicles that
are not sponsored by CMHC. The new regulations also provide, again subject to certain transition rules, that
after June 30, 2016 portfolio-insured low ratio mortgage loans must be securitized via a CMHC program
within six months of being insured, or of coming out of a CMHC program. Mortgage lenders who have
established ABCP securitization programs for insured mortgage loans may continue to use them until
December 31, 2021 up to the contracted limits of those facilities in place on July 1, 2016 however no new
ABCP or other non-CMHC securitization programs may be established for insured mortgages after June 30,
2016 and all insured mortgages must be removed from such programs by December 31, 2021.

February 2016 – New rules took effect, increasing the minimum down payment percentage in order for a
purchaser to qualify for government-backed insured residential mortgages on properties priced between
$500,000 and $999,999.

December 2015 – CMHC announced changes to its securitization programs. CMHC will increase certain
guarantee fees it charges for its timely payment guarantee for interest and principal on NHA-MBS and CMB
transactions effective July 1, 2016.

November 2014 – OSFI finalized “Guideline B-21: Residential Mortgage Insurance Underwriting Policies
and Procedures” (“Guideline B-21”), which sets out OSFI’s expectations for prudent residential mortgage
default insurance underwriting and guides interactions between the federally regulated Mortgage Insurance
Companies and mortgage lenders.
o
Guideline B-21 became fully effective as of June 30, 2015 and is applicable to federally regulated
mortgage default insurers.

February 2014 – New amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing
Act (Canada) (“PCMLTFA”) regulations came into force. These amendments were issued in January 2013
and introduced, among other measures, enhanced requirements for ascertaining and confirming a customer’s
beneficial ownership information, conducting ongoing monitoring of customer relationships and maintaining
related records.

August 2013 – CMHC announced annual limits to the guarantee allocation for NHA-MBS and changes to the
allocation methodology. In September 2013, CMHC announced the new allocation methodology which was
designed to ensure that issuers have equal access to new guarantees.

June 2012 – OSFI finalized “Guideline B-20: Residential Mortgage Underwriting Practices and Procedures”,
(“Guideline B-20”) which sets out OSFI’s expectations for prudent single-family mortgage underwriting. It
applies to all FRFIs that are engaged in the underwriting and/or the acquisition of single-family residential
mortgages in Canada. Guideline B-20 states that FRFIs may only purchase single-family residential
mortgages from an entity whose underwriting standards are consistent with the FRFI’s residential mortgage
underwriting policy and OSFI’s Guideline B-20.

April 2010 – CMHC announced that for loans with greater than 80% LTV and with a fixed-rate term of less
than 5 years and for all variable-rate mortgages, regardless of the term, such loans are to be underwritten
based on the qualifying interest rate, which is the greater of the benchmark rate and the contract interest rate.
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For loans with a fixed rate term of 5 years or more, the qualifying interest rate is the contract interest rate.
CMHC defines the benchmark rate as the Chartered Bank — Conventional Mortgage 5-year rate that is the
most recent interest rate published by the Bank of Canada in the series V121764. As at June 1, 2016, the
benchmark qualifying rate for insured high-ratio mortgages is 4.64%.
Regulatory changes are typically communicated in advance to the market by regulators, generally allowing market
participants ample time to adjust their operations as may be required in order to comply with such changes. The
continually evolving Canadian regulatory framework helps ensure the resiliency and stability of the housing market.
Canadian Residential Mortgage Industry Outlook
The Canadian residential mortgage industry has grown significantly since 1990, driven by strong net migration,
stable resale activity and continued new home construction, as well as mortgage affordability boosted by a prolonged low
interest rate environment.
According to the Bank of Canada Monetary Policy Report January 2016, low interest rates and higher house prices
have led to strong growth in mortgage credit, recently increasing the year-over-year growth of total household credit to 5%.
Looking ahead, despite recent increases in total household credit, mortgage and consumer borrowing rates are still low and
are expected to continue to support mortgage and consumer credit growth. However, as the economy strengthens and
household borrowing rates begin to normalize over the Bank of Canada projection horizon, the Bank of Canada expects the
housing market and household indebtedness to stabilize.
According to CMHC’s Housing Market Outlook from Q2 2016, net migration is forecasted at over 236,000 in
2016 and over 244,000 in 2017 which it notes will help support Canada’s housing market. A reduction in new housing
starts to approximately 181,300 to 192,300 units in 2016 and approximately 172,600 to 183,000 units in 2017 is expected
reflecting slightly elevated levels of completed but unabsorbed units and increased vacancy rates in purpose-built rental
units.
According to CREA’s updated resale housing forecast published in March 2016, national home sales are forecast
to reach 511,400 in 2016, up 1% from 2015 as strong resale activity in B.C. and Ontario continues and housing market
resale activity declines in Alberta. Declines in Saskatchewan and Newfoundland and Labrador are expected to be offset by
modest gains in the remaining provinces, where strengthening economic prospects should translate into a slow and steady
improvement in sales amid the continuation of affordable prices due to an elevated supply of listings. The national average
price for single-family homes is forecast by CREA to increase by 8% to $478,100 in 2016.
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BUSINESS
MUA. MCAP focuses on prime, insured mortgage products across the country. As of May 31, 2016, MCAP’s MUA was
approximately $56 billion, and in its 2015 fiscal year MCAP had $14.3 billion of mortgage originations plus $4 billion of
mortgage renewals. MCAP’s business model is to originate and underwrite mortgages, fund them by selling them to
Institutional Investors or a securitization vehicle, and then provide ongoing mortgage servicing back to that Institutional
Investor or securitization vehicle. MCAP is exposed to the direct credit risk of most of its originated mortgages only
vehicle. MCAP’s exposure is thereafter limited to certain retained obligations, such as the obligation to service the
mortgages and timely payment guarantees under CMHC-sponsored programs. MCAP had direct credit exposure to
mortgages representing only 0.04% of MCAP’s MUA (excluding warehouse loans) as of its 2015 fiscal year end. MCAP
operates under two operating segments: (i) single-family mortgages (92% of MUA), of which 98% are prime mortgages
that are insured or insurable by Mortgage Insurance Companies; and (ii) commercial mortgages and construction loans (8%
of MUA).
Key drivers of MCAP’s historical growth were the acquisition in 2012 of the Canadian mortgage operations of
ResMor and the 80% of MSC that MCAP did not previously own and the successful integration of these operations.
Secondly, the injection of additional equity in MCAP of approximately $100 million in 2013 and the raising of $200
million of long-term debt in 2014 and 2015 enabled MSC to increase its participation levels in the NHA-MBS and CMB
programs. As a result of MCAP’s larger platform and additional funding capabilities, MCAP has experienced significant
organic growth over the past three years. MUA increased from $36 billion at the end of 2012 to $53 billion at the end of
2015, representing a compound annual growth rate of 13% over that period. Similarly, origination volume increased from
$9.7 billion in 2012 to $14.3 billion in 2015. These growth figures are reflected in MCAP’s operating results with net
income increasing from $27 million in 2013 to $69 million in 2015.
MCAP’s Business Model
MCAP’s business model is to earn revenues by originating and underwriting mortgages, funding mortgages by
selling them to a chosen Institutional Investor or securitization vehicle, and providing ongoing mortgage servicing to the
Institutional Investor or securitization vehicle. MCAP’s proven underwriting practices, conservative risk management,
diverse and established funding relationships and robust and scalable operating and IT systems create a low-risk business
model designed to seamlessly fulfil all aspects of the mortgage product life cycle. This set of capabilities, which MCAP has
built over a long period of time, creates a barrier to entry for new entrants. The following diagram depicts this business
model.
Lines of Business (Origination Segments)
(2015 MUA of $52.7 billion)
Single Family Residential
(92% of 2015 MUA)
Commercial and Construction
Residential (8% of 2015 MUA)
• Prime insured or insurable (98% of Single Family Residential MUA)
• Alt-A (2% of Single Family Residential MUA)




• CMHC-insured multi-unit residential
• Conventional commercial
• Construction
Origination
Underwriting
Funding (and pooling loans for sale)
Servicing
Primary Funding Sources
CMHC-Sponsored Programs
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Bank-Sponsored Programs
In order for MCAP’s business model to be optimized, there are several complex elements that require continuous
attention. Expertise in capital markets transactions is critical to the success of MCAP as the differing requirements of
multiple funding programs necessitates constant monitoring of both the characteristics of the mortgages being originated
and market changes (such as interest rate movements) in order to ensure that the sale of MCAP’s mortgages are profitably
managed, while at the same time, ensuring that Institutional Investors are allocated their desired volume of mortgages.
Managing MCAP’s high volume of originations requires close attention to liquidity and funding availability as well as
intricate hedging strategies.
MCAP’s business model is designed to process a high volume of single-family residential loans efficiently while
at the same time, maintaining MCAP’s strong underwriting practices. This requires the right mix of a high degree of
automation and human interaction on a file-by-file basis. MCAP’s IT team works very closely with the experts in the
various business units such as origination, underwriting, servicing and capital markets in order to ensure the efficient and
accurate processing of transactions.
Ongoing and changing regulatory requirements also demand constant attention in order to ensure that MCAP’s
operations and products comply with all legislative and contractual requirements. In addition to CMHC regulatory
requirements and compliance with OSFI regulations that MCAP must meet in order to sell loans to Institutional Investors,
much of MCAP’s business involves mortgage lending to consumers (home-owners) which is governed by numerous
statutes not restricted to the mortgage finance industry.
The day-to-day execution of MCAP’s business model is shown in the following chart with more detailed
explanations of the individual steps further below:
22
Origination Channels and Brand Strategy
“Origination” broadly refers to the process of: (i) sourcing mortgage applications from prospective borrowers; (ii)
underwriting mortgage loan applications; and (iii) funding mortgages. MCAP’s origination practices differ depending on
whether the loan is a single-family mortgage or a commercial mortgage or a construction loan. MCAP has robust
origination platforms for each of these loan types. Approximately 79% of MCAP’s origination volume in 2015 was from
single-family mortgages, and approximately 21% of MCAP’s origination volume in 2015 was from commercial mortgages
and construction loans.
Single-Family Mortgages. MCAP’s single-family MUA increased from $22.0 billion at the end of 2010 to $48.4
billion at the end of 2015, representing a compound annual growth rate of approximately 17% over that period.
MCAP’s strategy is to continue its focus on originating high-quality single-family mortgages from the Canadian
independent mortgage broker market. Single-family mortgages are predominately sourced from a network of approximately
4,500 selected mortgage brokers and agents located across Canada. MCAP, including RMG, was the second largest
originator of mortgages originated in the Canadian mortgage broker channel in the first quarter of 2016 according to the
2016 D+H market share report for the first quarter of 2016. Prior to a mortgage broker being approved as a source of new
mortgage originations, MCAP conducts a thorough review of the broker, including reference checks, interviews and
confirmation that the broker holds a valid brokerage license and has membership in a professional mortgage broker
organization. In addition to obtaining approval as an authorized mortgage broker for MCAP, MCAP carries out continuous
monitoring of broker applications and originations to confirm that mortgages submitted by a particular mortgage broker and
his/her agents are performing at an expected level with respect to pre-funding underwriting quality and post-funding arrears
levels.
MCAP plans to maintain its existing broker relationships and to continue to develop new relationships with
mortgage brokers going forward. MCAP plans to develop and support emerging technology in the broker channel to access
new marketing opportunities and relationships. Through its MCAP, RMG and Eclipse brands, MCAP employs a multibrand strategy (with each brand focusing on different brokers and borrowers) and offers a wide range of single-family
mortgage products. The MCAP brand has national scope and offers a full product suite including value mortgages and
home equity lines of credit. The RMG brand has a national scope (except Québec) and offers a full product suite including
value mortgages. The Eclipse brand is associated with a “real estate first” lending philosophy and is restricted to larger
markets based on detailed investor criteria. MCAP’s diversified strategy permits MCAP to take advantage of cross-referral
opportunities between the various mortgage markets and also provides Institutional Investors with a single provider of a
variety of mortgage products to meet a variety of investment requirements. MCAP’s multi-brand strategy can be
customized for different origination channels as brands can be differentiated based on products offered, borrower profile
and broker compensation structure. The offering of multiple brands helps to diversify MCAP’s product-offerings, thereby
reducing the risk of being overly concentrated in one area of the single-family mortgage market.
MCAP focuses on originating prime single-family mortgages due to the inherent quality of these loans and the
significant funding available for this asset class. While MCAP also originates Alt-A mortgages, funding of Alt-A
mortgages accounted for less than 5% of MCAP’s single-family mortgage originations in 2015. MCAP does not originate
any sub-prime mortgages.
Commercial Mortgages and Construction Loans. MCAP’s commercial and construction MUA increased from
$1.3 billion at the end of 2010 to $4.3 billion at the end of 2015 representing a compound annual growth rate of
approximately 27% over that period.
Commercial Mortgages. Approximately 7% of MCAP’s origination volume in 2015 was from commercial
mortgages. Within the commercial mortgage market, MCAP focuses on CMHC-insured multi-unit mortgages across
Canada. Of MCAP’s commercial MUA, over 84% is represented by insured multi-unit mortgages. MCAP offers term
mortgage loans for office, industrial, retail and multi-unit properties. The majority of mortgages are sourced via third-party
mortgage brokers, but MCAP also has strong direct relationships with a number of large property owners. These strategies
are complementary, as larger organizations have the infrastructure to develop direct lending relationships, while smaller
borrowers see value in having mortgage brokers canvas the market for the best product or rate.
MCAP does not broker commercial mortgage transactions and views its mortgage brokers as partners in the
business, respecting their relationship. MCAP plans to continue expanding its relationships with brokers and borrowers and
23
its funding capacity in order to broaden its market presence. Having multiple funding sources allows MCAP to offer a
diversified product line to commercial borrowers and mortgage brokers.
Construction Loans. Approximately 14% of MCAP’s origination volume in 2015 was from construction loans,
98% of which was residential construction loans. Unlike single-family and commercial mortgages, construction
originations are measured using the total amount committed when a loan is accepted by a borrower. The advancement of
the actual funds is done over the life of the construction project (typically 18 to 30 months) and the aggregate amount
advanced is reflected in MUA.
MCAP offers land development loans, low-rise and high-rise condominium construction loans, and revolving
freehold construction loans in the major urban centres across Canada. Virtually all construction loans are secured by
mortgages. The majority of construction loans originated by MCAP are sourced through direct relationships with
developers that MCAP has established over many years. MCAP places these mortgages with its Institutional Investors
whenever possible, in order to generate servicing fee revenue in addition to origination fee revenue.
MCAP aims to strengthen its existing borrower relationships while continuing to target new relationships that can
be grown into valued clients. MCAP is also developing new Institutional Investor relationships across Canada that are
expected to enhance and expand upon MCAP’s current product offerings for its developer clients. From time to time and in
partnership with major Institutional Investors, MCAP may invest a small amount of its capital in construction loans on a
pari passu basis.
Portfolio Breakdown. During fiscal 2015, single-family mortgages represented 93% of MCAP’s revenue.
MCAP’s historical originations of single-family mortgages were $8.2 billion during fiscal 2013, $9.5 billion during fiscal
2014 and $11.3 billion during fiscal 2015; and MCAP’s single-family MUA grew from $37.4 billion to $42.5 billion and
$48.4 billion as of November 30, 2013, 2014 and 2015, respectively. During fiscal 2015, commercial and construction
mortgages represented 7% of MCAP’s revenue. MCAP’s historical originations of commercial and construction mortgages
were $2.3 billion during fiscal 2013, $2.0 billion during fiscal 2014 and $3.1 billion during fiscal 2015; and MCAP’s
commercial and construction MUA grew from $2.9 billion to $3.6 billion and $4.3 billion as of November 30, 2013, 2014
and 2015, respectively.
Underwriting
“Underwriting” is the process of reviewing a mortgage application, assessing the creditworthiness of the
borrower and the value of the property to be mortgaged and making a determination regarding whether or not to commit
funding to the relevant mortgage based on whether the loan terms comply with MCAP’s and MCAP’s funders’ mortgage
underwriting policies.
MCAP is not a financial institution that is directly subject to regulation by OSFI. Management believes that its
underwriting procedures are comparable with those of most OSFI-regulated entities and that adhering to these practices, as
well as regular evaluations by MCAP’s OSFI-regulated funding partners, has strengthened MCAP’s relationships with its
Institutional Investors, Mortgage Insurance Companies and rating agencies.
Part of the underwriting process involves the setting of conditions upon which a mortgage application would be
approved. MCAP employs various risk management and analytical techniques when underwriting mortgages and is
committed to originating high-quality, low-risk mortgages. MCAP’s disciplined and efficient underwriting practices and
systems allow it to efficiently and prudently originate and underwrite a high volume of mortgage loans that historically
have had low arrears rates. Over the last three full fiscal years, the delinquency ratio for prime single-family mortgages
originated and underwritten by MCAP, using its residential mortgage underwriting policy, has averaged 0.22% compared to
an industry average of 0.29% as reported by the Canadian Bankers Association over the same period. As of May 31, 2016,
MCAP has not experienced any loss of principal on any of the commercial mortgages or construction loans it has
underwritten since 2009.
24
90-Day Delinquency Ratio for Prime Single-Family Mortgages: MCAP-Originated vs. Industry Rates
0.50%
0.40%
0.30%
0.20%
0.10%
0.00%
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
MCAP Originated
Apr-14
Oct-14
Apr-15
Industry (CBA)
Oct-15
Apr-16
Source: Canadian Bankers Association
Funding Sources
“Funding” a mortgage is the process of confirming that all of the underwriting conditions have been met and
disbursing the mortgage funds to the borrower and registering the mortgage on title against the mortgaged property. MCAP
does not provide its own capital as the long-term source of funding for the large majority of the mortgages it underwrites,
but instead focuses on Institutional Investors and securitization vehicles to meet its funding requirements. MCAP’s business
model is structured such that, except for the short periods of time during which mortgages are funded using its own capital
or borrowings under its warehouse loan facilities, the mortgages underwritten by MCAP are ultimately owned by the
funding sources. MCAP is exposed to the direct credit risk of most of its originated mortgages only temporarily (typically
immediately after funding), before that risk is transferred to an Institutional Investor or securitization vehicle. MCAP’s
exposure is thereafter limited to certain retained obligations. See “Sources of Long-Term Funding – Securitization of
Mortgages” below. MCAP co-invests a small amount in construction loans jointly with certain of its major Institutional
Investors (totaling approximately $15.4 million as at February 29, 2016).
“Warehousing” is the process of acquiring a number of individual funded mortgages, typically financed by
warehouse loan facilities. The individual mortgage loans are held for a short time on MCAP’s balance sheet and financed
by borrowings under MCAP’s warehouse loan facilities or by its own capital, until a sufficient number of funded mortgage
loans are acquired such that the mortgages may be combined to form pools or portfolios that may be subsequently sold or
securitized.
The short periods of time during which MCAP holds mortgages funded using its own capital or borrowings under
its warehouse loan facilities are typically immediately following the initial funding of those mortgages, while such
mortgages are being accumulated in pools or portfolios to be sold or securitized. MCAP is exposed to the direct credit risk
of most of its originated mortgages only temporarily (typically immediately after funding), before that risk is transferred to
an Institutional Investor or securitization vehicle. MCAP’s exposure is thereafter limited to certain retained obligations,
such as the obligation to service the mortgages and timely payment guarantees under CMHC-sponsored programs.
MCAP endeavours to minimize its funding costs by employing its capital and warehouse loan facilities to
strategically time when it will place mortgages in the most cost-effective long-term funding channel. MCAP has access to
both regulated and non-regulated funding sources and is often able to combine regulated and non-regulated funding sources
together to be able to offer competitive mortgage products to the marketplace.
25
MUA Distribution by Funding Sources (as of FY2015)
CMHCsponsored
27%
Institutional
Buyers
63%
Banksponsored/
Term funding
MCAP
7%
Warehouse
3%
Servicing
“Servicing” is the process of managing the mortgage throughout its term (i.e. after funding), including collecting
all payments due from the borrower, remitting the corresponding payments to the appropriate Institutional Investor or
securitization vehicle, and maintaining correspondence with the borrower throughout the term of the mortgage as may be
required or requested. Servicing commercial and residential mortgages also includes activities such as tracking property
taxes and property insurance, tracking contractual obligations of borrowers, performing default management where
necessary, carrying out activities related to refinancing a mortgage before its maturity date, renewing a mortgage as it
comes to the end of its term and discharging a mortgage upon it being fully repaid. Servicing construction loans involves
reviewing professional reports and on-site inspections to ensure that the conditions for ongoing funding of the project are
fulfilled.
MCAP’s business model is to originate and underwrite mortgages, fund them by selling them to an Institutional
Investor or a securitization vehicle, and then provide ongoing mortgage servicing back to that Institutional Investor or
securitization vehicle, as servicing fees provide MCAP with predictable long-term recurring revenue. As a result, MCAP’s
existing portfolio of MUA represents a significant asset for MCAP. MCAP services virtually all of the mortgages generated
through its mortgage origination activities and seeks to renew mortgages in its portfolio when they mature.
MCAP also services mortgages originated by third-party mortgage lenders and, in some cases, also underwrites
mortgages for such third-party mortgage lenders using the relevant lender’s underwriting policy. Management believes that
MCAP is one of the largest third-party sub-servicers of residential mortgages in Canada. Many Institutional Investors and
securitization vehicles do not have the capability or the systems in place to underwrite and administer mortgage loans
efficiently or cost effectively. As MCAP’s MUA grows, MCAP’s scalable servicing platform and servicing expertise
provides it with an opportunity to increase profit margins, as MCAP can service incremental mortgages at a lower marginal
cost.
MCAP’s single-family residential and commercial mortgage servicing platforms were the first in Canada to be
publicly rated by a rating agency and have been consistently rated “above average” by S&P since 2002. MCAP’s
commercial primary servicing platform is also rated CPS3+ by Fitch (indicating a level of overall servicing ability between
“proficient” and “high performance”). MCAP has single-family servicing offices in Calgary, Edmonton, Regina, Kitchener,
and at its head office in Toronto. Commercial mortgages are serviced out of Regina and Toronto and construction loans are
serviced out of Vancouver, Calgary and Toronto. MCAP is able to scale its servicing platforms, processes and call centres
to effectively and efficiently manage its clients’ mortgage-related needs.
26
Composition of MCAP’s administered portfolio
MCAP constantly monitors the composition of its originated portfolio based on a number of key risk factors,
including geographic distribution and, in the case of single-family borrowers, by their credit score and loan to value
(“LTV”) ratios. The following tables provide information about MCAP’s MUA as of the dates indicated.
November 30, 2015 MUA by Property Location (Excludes Sub-servicing Portfolio)
Prime Single-Family
Residential
Commercial and
Construction
Ontario
50.4%
43.6%
Alberta
22.2%
13.9%
British Columbia
15.1%
22.2%
Québec
4.9%
14.1%
Eastern Canada
3.3%
3.5%
Other
4.2%
2.7%
Total
100.0%
100.0%
Geographic Distribution
2015 Prime Single-Family Residential (Excludes Sub-servicing Portfolio) Portfolio
Beacon Score Distribution
(% of November 30, 2015 Prime Single-Family
MUA)
61.3%
720+
680 - 719
21.1%
600 - 679
16.1%
< 600
1.5%
Total
100.0%
LTV Distribution(1)
(% of November 30, 2015 Prime Single-Family
MUA)
53.7%
>80%
> 70% - 80%
29.6%
0 - 70%
16.7%
100.0%
Total
(1)
“LTV” here represents the mortgage loan amount as of November 30, 2015 divided by the
collateral value at the time of origination.
MCAP’s portfolio of single-family MUA as at November 30, 2015 represents 206,000 mortgages. Based on this
number, the average mortgage loan amount outstanding as of November 30, 2015, including mortgages that are subserviced, is $234,900. The average mortgage loan amount for MCAP mortgages (i.e. excluding sub-serviced mortgages) is
$232,700. The chart below shows the proportion of all mortgages by size.
27
MCAP Single-Family Mortgage Balances Outstanding as of February 29, 2016
$150,001$450,000
70.6%
≤$150,000
11.8%
$450,001$750,000
15.6%
>$750,000
2.0%
Renewal Profile of Existing Portfolio
The majority of single-family mortgages originated by MCAP have terms between three and five years, and the
majority of commercial mortgages originated by MCAP have terms of five or ten years, generating opportunities at the
maturity date to renew, re-sell and continue servicing such mortgages. In the cases of single-family renewals that are resold to certain Institutional Investors who previously owned the renewed mortgages, the renewal fee paid to MCAP is
designed to reimburse MCAP for its costs to process such renewals. Upon renewal of these mortgages, MCAP continues to
earn mortgage servicing fee income from such mortgages. Construction loan balances typically build up as draws are made
over the life of the construction project. Loans are paid out in full when the project is completed with the process typically
lasting between 18 and 30 months. By design, construction loans do not generate renewal opportunities for a specific
project loan.
A predictable portion of MCAP’s single-family MUA comes up for renewal annually, and in MCAP’s 2015 fiscal
year MCAP renewed $4 billion of single-family mortgages. On average, MCAP has renewed 76% of the single-family
mortgages in its portfolio that have come up for renewal over each of the last three fiscal years. Renewals are an attractive
source of originations for MCAP, given that origination costs associated with renewals are significantly lower compared to
new originations. Continuing to successfully renew its existing portfolio will contribute to MCAP’s profitability and allow
MCAP to earn consistent revenue through re-sales of renewed mortgages and ongoing mortgage servicing fee income.
Management believes that MCAP’s ability to retain its renewing mortgages is affected by, among other things, factors such
as interest rates, changes in the housing market and the borrower’s arrears history. Management believes that modestly
increasing interest rates and/or modest declines in the housing market (in line with general market trends) and/or a small
number of missed or late payments by the borrower all contribute to increased renewal retention and reduced refinancing
activity which results in a reduction in the run-off of MUA.
The percentages of MCAP’s single-family and commercial mortgage portfolios under administration (excluding
sub-serviced mortgages) that are scheduled to mature over each of the next ten years are as follows (based on outstanding
mortgage balances as at November 30, 2015):
Scheduled Maturity
During Fiscal Year
2016
Single-Family
Commercial
11%
2%
2017
14%
4%
2018
18%
2%
28
Scheduled Maturity
During Fiscal Year
2019
Single-Family
Commercial
22%
8%
2020
31%
8%
2021
1%
14%
2022-2025
2%
58%
After 2025
1%
4%
Total
100%
100%
Single-family mortgages maturing beyond ten years typically reflect balances on home-equity lines of credit.
Business of Scale with a History of Successful Acquisitions
MCAP’s business is designed to minimize the risks of market fluctuations by relying on its size and scale, its
flexibility to re-allocate internal resources and its competency in acting opportunistically to acquire assets when market
opportunities arise. MCAP’s access to large and diverse sources of funding is designed to provide the flexibility to place
mortgages effectively into the lowest cost funding source. Additionally, the costs associated with MCAP’s origination and
underwriting activities are largely variable, providing MCAP with the flexibility to adjust its origination and underwriting
activities to meet changing short-term market conditions, which is intended to reduce the overall impact of such short-term
market conditions on profitability. If origination demand weakens, internal resources can be partially re-allocated in the
short-term towards other revenue-generating initiatives such as default management and onboarding sub-servicing
portfolios. Finally, management has a proven track record of successfully acquiring and integrating other mortgage
company operations and third-party mortgage portfolios in varying market conditions that have historically added to
MCAP’s market share, operational capabilities and earnings. The acquisition of the Canadian mortgage operations of
ResMor in 2012 was MCAP’s most recent significant acquisition.
Credit (Borrower Default) Risk in MCAP’s Business Model
MCAP is very focused on credit risk and the credit quality of its loan portfolios. However, unlike most
institutional lenders who hold pools of mortgages for their own account for the full term of the loans, MCAP’s business
model is to originate and underwrite mortgages, fund them by selling them to Institutional Investors or a securitization
vehicle, and then provide ongoing mortgage servicing back to that Institutional Investor or securitization vehicle. MCAP is
exposed to the direct credit risk of most of its originated mortgages only temporarily (typically immediately after funding),
before that risk is transferred to an Institutional Investor or securitization vehicle. MCAP’s exposure is thereafter limited to
certain retained obligations, such as the obligation to service the mortgages and timely payment guarantees under CMHCsponsored programs.
In the case of mortgages sold to Institutional Investors, all of the credit risk is transferred to such Institutional
Investors upon sale. In the case of mortgages sold to securitization vehicles, the securitization vehicles assume the credit
risk, however, MCAP provides certain credit enhancements to the securitization vehicles in respect of such credit risk.
In the case of mortgages sold to CMHC-sponsored programs, all mortgages are insured however, in the case of a
defaulted mortgage, MCAP is obligated to honour the timely payment guarantee to which NHA-MBS and CMB investors
are entitled. Through MCAP’s defaulted mortgage realization process, MCAP recovers what is available from the borrower
and/or the sale of the underlying property and, if that results in a shortfall, such shortfall is paid to MCAP under the
mortgage default insurance. The result of this is that MCAP has to carry the defaulted mortgage payments for the period of
time that it takes to realize on the defaulted mortgage. This requires that MCAP have sufficient liquidity facilities and
capital available to finance such payments until MCAP recovers the full balance owed.
In the case of mortgages sold to ABCP securitization vehicles, MCAP posts cash collateral to cover a portion of
the securitization vehicle’s potential losses from defaulted mortgages. The cash collateral posted for insured mortgages is
significantly less than the cash collateral posted for uninsured mortgages reflecting the additional loss protection that the
29
securitization vehicle receives on account of the mortgage default insurance. The process for managing defaulted mortgages
is the same as in the case of insured defaulted mortgages sold to CMHC-sponsored programs in that MCAP recovers what
is available from the borrower and/or the sale of the underlying property. Only in the event that such process does not
realize the full amount owing on the defaulted mortgage is there a loss. In the case of insured mortgages, such a loss is
recovered from the mortgage default insurance. In the case of uninsured mortgages, the securitization vehicle can access the
cash collateral to cover the loss. If the cash collateral posted is not sufficient to cover all such losses, the securitization
vehicle has no recourse back to MCAP for the excess losses. The maximum exposure to MCAP in these scenarios
therefore, is the amount of cash collateral posted by MCAP. MCAP manages arrears and defaults in ABCP securitization
vehicles using its liquidity facilities and capital to reduce the risk that its cash collateral will be retained by the
securitization vehicle.
In the case of uninsured mortgages sold into RMBS programs, all risks of losses from borrower default are
assumed by the RMBS investors.
In the case of insured mortgages funded by MCAP’s capital or its warehouse loan facilities that go into default,
MCAP has no obligations to fund ongoing payments to a securitization vehicle, however, MCAP holds such mortgages
throughout the defaulted mortgage realization process and, in the event that there is a shortfall, MCAP recovers such
shortfall at the end of the realization process from the mortgage default insurance. This requires use of MCAP’s liquidity
facilities and capital during the realization period.
Finally, in the limited cases of uninsured mortgages funded by MCAP’s capital or its warehouse loan facilities that
go into default, MCAP holds such mortgages through the defaulted mortgage realization process and, in the event that there
is a shortfall, it would be a loss to MCAP.
As described above, the primary impact to MCAP arising from borrower default is on its liquidity facilities and
capital. MCAP focuses on maintaining sufficient liquidity and capital to meet its expected funding requirements including
the funding of defaulted mortgages. As at November 30, 2015, MCAP was using $68.1 million of its liquidity facilities and
capital to fund defaulted mortgages of which $57.9 million are insured.
Notwithstanding that MCAP’s exposure to credit risk from borrower default is limited (as described above),
MCAP maintains strong underwriting fundamentals and has a robust default management process, both of which are
designed with the intention to minimize credit losses from borrower default. These practices are applied to all mortgages
originated and underwritten by MCAP, regardless of how the mortgage is ultimately funded. Management believes that a
modest increase in arrears in line with general market trends is not detrimental to MCAP’s operations as arrears tend to
result in increased fees being charged to borrowers for missed, returned or late payments as well as default management
fees. MCAP retains such fees as part of its servicing and administration income.
Other than a small amount invested in construction loans by MCAP jointly with certain of its major Institutional
Investors, MCAP does not take direct credit risk on its construction loans or uninsured commercial mortgages, as those
loans are approved and funded by the Institutional Investors. Like its single-family mortgages, MCAP takes the credit risk
on insured, funded, multi-unit mortgages until they are sold or securitized, but the mortgage default insurance ensures
repayment of principal and interest.
MCAP is motivated to ensure that the quality of the mortgages it originates meets the expectations of Institutional
Investors and the securitization market, as the Institutional Investors and securitization market could otherwise choose to
not purchase MCAP-originated mortgages.
30
Interest Rate Risk in MCAP’s Business Model
During the period from issuance of a commitment for a single-family fixed rate mortgage until the sale of such
funded fixed-rate loan, MCAP has interest rate risk related to the mortgage. MCAP manages that exposure by hedging a
portion of its committed but not yet funded mortgage portfolio based on its expectation of the percentage of commitments
that will actually be funded to become mortgages. In determining that percentage, MCAP relies on historical funding rates
(reflecting that borrowers often obtain mortgage commitments from more than one lender) which also take into account that
borrowers are more likely to close on their commitments if interest rates are higher at the time of closing/funding than at the
time of commitment. MCAP also hedges all of the funded fixed-rate loans that it warehouses until sale, including both
multi-unit and single-family mortgage products.
In addition to managing interest rate risk as noted above, increases in interest rates allow MCAP to earn higher
interest income on mortgages while they are warehoused (offset partially by higher interest expense charged on the
warehouse loan facilities to the extent that the mortgages are financed by such warehouse loan facilities) and higher interest
income on funds held in trust.
How MCAP Generates Profits Across its Diversified Platform
Revenue
MCAP’s revenue is well diversified across multiple lines of business and services and is primarily driven by the
revenue items described below. For further discussion, see “Management’s Discussion and Analysis – Revenue”.

Net interest income on securitized mortgages: represents the net interest spread on mortgages that have
been securitized by MCAP.

Mortgage origination fees: represents fees generated when (i) residential mortgages are sold to Institutional
Investors and (ii) commitment fees are paid by commercial and construction borrowers.

Servicing and administration income: represents revenue from servicing MCAP’s MUA. Revenue is earned
from Institutional Investors and securitization vehicles based on the value of MUA as well as from mortgagor
fees.

Investment income and leasing fees: represents the (i) mortgage interest earned on mortgages that are owned
by MCAP, (ii) income earned on funds held in trust, and (iii) income related to MCAP’s remaining portfolio
of equipment leases.

Securitization and other financial instrument gains: includes gain on sale of certain securitized mortgages,
fair value adjustments of financial instruments and hedge gains or losses.
31
FY2015 Revenue by Type
Expenses
In addition to salaries, benefits, overhead, and other operating expenses, MCAP incurs variable expenses,
primarily comprised of origination expense and interest expense (described below). For further discussion, see section
“Management’s Discussion and Analysis – Expenses”.

Origination expense: includes commissions paid to mortgage brokers, electronic processing fees relating to
broker originations, appraisal costs, title insurance costs and mortgage default insurance costs.

Interest expense: consists primarily of costs related to the usage of MCAP’s warehouse loan facilities and
interest expense related to MCAP’s senior secured notes.
Overview of Historical Growth and Financial Performance
MCAP’s history dates back to 1981 to a trust company that was acquired by Mutual Life Assurance Company of
Canada (now Sun Life Assurance Company of Canada) (“Mutual Life”) in 1985 and which, until 1998, operated as a
subsidiary of Mutual Life.
MCAP Financial Corporation (“MFC”) was incorporated in 1997 and, in 1998, MSC was established as a 20%owned investment of MFC to underwrite, service and trade residential mortgages primarily for the other 80%-owners of
MFC, Bank of Montreal and Mutual Life.
MCLP was created in 2000 to carry on MCAP’s commercial mortgage business and was 50% owned by MFC. In
2002, CADCAP Inc., an indirect subsidiary of Caisse de dépôt et placement du Québec, became the other 50% partner in
MCLP. In 2004, MCLP was re-organized such that CADCAP Inc., through CADCAP Limited Partnership, increased its
ownership in MCLP to 75%, and MCAN contributed its interests in an equipment leasing company and in MFC to MCLP
for the remaining 25% ownership interest in MCLP. Otéra subsequently replaced CADCAP Limited Partnership as limited
partner of MCLP. In 2010, MCAP sold its ongoing equipment leasing operations to a Canadian financial institution.
In 2012, MCAP’s equity investors funded the purchase of 80% of MSC that MCAP did not already own. Also in
2012, MCAP acquired the Canadian mortgage operations of ResMor. The transaction with ResMor added approximately $6
32
billion in MUA to MCAP’s servicing portfolio and provided MCAP with access to ResMor’s mortgage broker
relationships. Post-integration, MCAP continued to originate new mortgages using the ResMor platform under a rebranded
name, RMG.
In 2013, MCAP further expanded its equity base via a contribution of $100 million of new equity from its existing
equity investors. In 2014 and 2015 MCAP raised $200 million in long-term corporate debt. These transactions bolstered
MCAP’s capital position for further growth and provided additional access to various funding sources (such as increasing
the level at which MCAP could participate in NHA-MBS programs).
MCAP is headquartered in Toronto, Ontario with additional offices across Canada in Vancouver, Calgary,
Edmonton, Regina, Kitchener, Montréal and Halifax. At the end of its 2015 fiscal year, MCAP employed 724 employees
and together with its predecessors has originated and serviced mortgages for third parties in Canada for over 20 years.
Historical Growth in Key Operating Metrics
The following tables show the historical levels of MCAP’s MUA as of the last day of, and MCAP’s annual
mortgage origination for, the fiscal years indicated.
MCAP Mortgages Under Administration ($ billion)
Pre-acquisition
of ResMor assets
$23.2
$27.0
2010
2011
$36.1
$40.3
2012
2013
Note: Includes 100% of MSC’s MUA for all years.
33
$46.1
2014
$52.7
2015
MCAP Mortgage Originations (Excluding Renewals) ($ billion)
Pre-acquisition of
ResMor Assets
$14.3
$6.1
$6.9
2010
2011
$9.7
$10.5
$11.5
2012
2013
2014
2015
Note: Includes 100% of MSC’s originations for all years and 100% of RMG originations after the acquisition in June 2012.
MCAP Single-Family Mortgage Renewals ($ million)
Pre-acquisition of
ResMor Assets
$3,962
$290
$2,852
$129
$972
$22
$1,497
$951
2010
2011
2012
$184
$3,672
$1,597
$100
$835
$37
$799
$2,701
Prime
$2,723
$2,517
2013
2014
Alt-A
Note: Includes 100% of MSC’s renewals for all years and 100% of RMG renewals starting in 2013.
34
2015
The following charts show MCAP’s revenue, broken out by type, and MCAP’s historical pre-tax income for the
fiscal years 2013 to 2015 inclusive.
MCAP Revenue ($ million)
$419
$49
$320
$268
$27
$22
$77
$69
$8
$44
$90
$2
$109
$68
$89
$169
$105
$80
2013
2014
Net Interest Income on Securitized Mortgages
Securitization and Other Financial Instrument Gains
2015
Mortgage Origination Fees
Servicing and Admin. Income
Investment Income and Leasing Fees
Historical Pre-Tax Income ($ million)
$91
$50
$28
2013
2014
2015
Competitive Strengths
Through its 20+ year history of originating and servicing mortgages for third parties in Canada, MCAP has
developed a leading position within the industry. MCAP is well positioned relative to its peers and has demonstrated
experience adapting to the changing Canadian regulatory environment and innovating new products and customer
solutions. Significant barriers to entry exist for potential new competitors, and management has reinforced and leveraged
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some of those barriers by investing resources to ensure that MCAP has the required systems, skills and processes to be able
to continue to grow its operations efficiently and profitably. MCAP believes that it has, in particular, the competitive
strengths discussed below.
Leading Market Position with Mortgage Brokers and Borrowers
MCAP has established itself as the second largest mortgage finance company in Canada with approximately $53
billion of MUA as at the end of its 2015 fiscal year, representing over 206,000 mortgage loans. In 2015, MCAP originated
$14.3 billion of mortgage loans across all of its business segments. MCAP’s origination capabilities benefit from the
mortgage broker and borrower relationships managed by its highly trained, in-house origination and underwriting teams
located in offices in Vancouver, Calgary, Edmonton, Toronto, Montréal and Halifax. MCAP believes that its geographic
diversity gives it an in-depth understanding of each key real estate market in Canada.
The vast majority of business originated for MCAP’s single-family and commercial mortgage product lines is
derived through its network of over 4,500 independent mortgage brokers and agents. MCAP has a long history and strong
relationships with most of these brokers and agents and, at the same time, has introduced new broker-based technology in
order to help establish relationships with newer mortgage brokers. Each single-family mortgage broker must pass a
rigorous evaluation process prior to being permitted to conduct business with MCAP, and must continue to meet
performance standards on an ongoing basis. The commercial mortgage brokers with whom MCAP deals with are wellestablished.
MCAP believes that mortgage brokers see MCAP as a dependable broker-oriented partner offering a wide range of
products with high-quality service and competitive pricing. Based on the fourth quarter of 2015 D+H market share report,
MCAP’s overall direct market share of the 2015 broker-originated single-family mortgage business that was processed by
D+H (which MCAP believes represents over 90% of all such broker-originated business) was 12.7% (up slightly from
12.6% in 2014), making MCAP the third largest market participant, behind a Canadian Schedule I Bank and another
mortgage finance company. The 2016 first quarter D+H report showed that MCAP’s market share for that period was
13.3% making MCAP the second largest market participant, behind the same Canadian Schedule I Bank.
MCAP believes that commercial and construction borrowers see MCAP as an industry expert able to provide
reliable, well-structured and cost-efficient funding. For MCAP’s construction loans product line, given the complexity
involved in this type of lending, MCAP has found it most effective to deal with the developers and builders directly as
MCAP staff are highly knowledgeable about their markets and industry practices. MCAP’s history of working with many
of these developer and builder clients dates back over 20 years. This long history of borrower relationships lets MCAP
offer its Institutional Investors the opportunity to invest in construction loans with this established borrower base.
Proven Underwriting Practices with Conservative Risk Management
Strong risk management is a high priority for MCAP. MCAP’s stringent underwriting processes and its effective
default management processes are evidenced by single-family mortgage arrears rates that have historically been in line with
or better than the industry average, and no loss of principal on commercial mortgages or construction loans underwritten by
MCAP since 2009, and as of May 31, 2016, no commercial or construction arrears. MCAP’s portfolio is also widely
diversified along a number of key metrics, including geographic concentration and LTV ratios, as a strategy to reduce risk
within the portfolio. Not only do strong underwriting skills and default management processes make MCAP attractive to its
funding sources, they also enable MCAP to achieve significant profits from portfolio acquisitions.
MCAP’s business model is structured such that, except for the short periods of time during which mortgages are
funded with borrowings under its warehouse loan facilities or using its own capital, the mortgages are ultimately owned by
the funding sources, other than a small amount invested in construction loans jointly with certain of its major Institutional
Investors. MCAP is exposed to the direct credit risk of most of its originated mortgages only temporarily (typically
exposure is thereafter limited to certain retained obligations, such as the obligation to service the mortgages and timely
payment guarantees under CMHC-sponsored programs.
Although MCAP is not a financial institution that is subject to direct OSFI regulation, management believes that
its underwriting capabilities are comparable to those of most OSFI-regulated entities. The vast majority of MCAP’s
Institutional Investors are FRFIs that are subject to various Canadian regulatory requirements including by OSFI. MCAP’s
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internal controls, operating processes and reporting capabilities are regularly reviewed and evaluated by its Institutional
Investors, Mortgage Insurance Companies and rating agencies. Management believes that these evaluations have confirmed
that MCAP’s processes meet or exceed the requirements placed upon it by its Institutional Investors and upon its
Institutional Investors by their respective regulators. MCAP also manages large pools of mortgages on behalf of FRFIs,
which requires a high degree of formalization in structure and rigour. As a direct result of the discipline resulting from this
method of operation, MCAP has developed strong internal and external controls designed to ensure that mortgage loans are
underwritten and serviced by MCAP in accordance with documented policies and procedures that govern these asset classes
for regulated entities. Management believes that these sophisticated controls, policies and reporting capabilities help to
reinforce a culture of conservative risk management.
Diverse and Established Sources of Funding
MCAP has developed long-term relationships with, and utilizes, over 25 Institutional Investors and several
securitization programs. MCAP uses a broad range of Institutional Investors and financing vehicles to provide funding for
the various products that MCAP offers across its multiple lines of business. This enables MCAP to adapt to changes in the
financial markets and select profitable financing options through active management of these vehicles. As well, it reduces
MCAP’s overall business risk, as MCAP is not dependent on any single Institutional Investor or financing vehicle. Overall,
this established and diverse funding platform has provided MCAP with the flexibility to finance mortgages in a costeffective and efficient manner. In addition to diverse and established sources of funding, MCAP has also grown its equity
capital base to support these channels both organically through growth in retained earnings and through previous capital
injections from MCLP unitholders.
MCAP’s long-term relationships with a diverse group of Institutional Investors have been core to MCAP’s growth
strategy and success. MCAP believes that Institutional Investors see MCAP as having a strong financial profile and track
record, a national presence, the ability to source a large number of diverse loan types, the required policies and procedures
to meet regulatory requirements and the systems and processes required to provide mortgage administration and origination
services on a cost-effective basis. This reputation helps MCAP retain existing Institutional Investors, attract new
Institutional Investors and offer additional products and services.
MCAP has access to both regulated and unregulated capital, enabling MCAP to provide a broad range of funding
to support a wide range of lending products. MCAP’s Institutional Investors and capital markets funding sources each have
unique investment requirements, are geographically diverse, are of different sizes and have different risk appetites. This
allows MCAP to offer to mortgage brokers and borrowers a comprehensive menu of competitive single-family, commercial
and construction loan products with different rates and terms.
In addition to sales to Institutional Investors, MCAP uses securitization sources such as CMB, NHA-MBS, ABCP,
RMBS and commercial mortgage backed securities (“CMBS”) to fund mortgages. MCAP’s expertise and ability to work
with partners to develop and structure capital markets funding vehicles contributes to the variety of funding sources MCAP
is able to access. Because MSC has been approved by CMHC as an “NHA-MBS issuer” and a “CMB seller”, MCAP is
able to participate in the CMB and NHA-MBS programs. These diverse sources of funding help to ensure that MCAP is
consistently in the market with highly competitive and desirable mortgage products.
Stable, Predictable and Recurring Sources of Revenue through Servicing and Securitization Activities
MCAP’s business model has created significant, stable and recurring revenue. In particular, MCAP’s servicing
platform delivers highly predictable and recurring servicing and administration fee income. MCAP retains the servicing
rights relating to virtually all of the mortgages that it originates. MCAP also services mortgage portfolios for third parties.
This provides a stable, long-term source of revenue for MCAP over the life of its mortgages and mortgage renewals, as
borrowers do not tend to move their mortgages between lenders on a frequent basis, and lenders who have outsourced their
mortgage servicing also do not change service providers on a frequent basis. MCAP has a large, efficient and scalable
mortgage servicing platform that generates sustainable and predictable earnings that will grow as the balance of MUA
grows.
Additionally, due to the nature the securitization vehicles MCAP can access, the interest paid to securitization
investors is typically lower than mortgage interest paid to MCAP by borrowers. MCAP earns income from this net interest
spread on the securitized mortgages over their entire term, therefore providing reasonable predictability of revenue and cash
flow for future periods that is already embedded in MCAP’s portfolio.
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Each single-family and commercial mortgage underwritten and funded by MCAP has a specific maturity date. For
prime single-family mortgages, the most common mortgage term is five years and for commercial mortgages, it is ten
years. This provides MCAP with a predictable stream of renewal opportunities based on the year in which the mortgage
was funded. Renewals provide the opportunity for MCAP to continue to service mortgages for additional terms and thereby
provide further predictability to future earnings and cash flows. Renewals are also beneficial given their lower upfront
costs as MCAP typically does not pay any significant origination expenses upon renewal.
Robust and Scalable Information Technology Platforms
As a mortgage finance company involved in the origination, underwriting, funding and servicing of single-family,
commercial and construction mortgages, MCAP operates a scalable, sophisticated IT platform that it has developed through
substantial investment. MCAP owns or has direct source code access for its key systems and software used in origination,
underwriting, servicing and reporting. MCAP’s systems are supported in-house by a department of highly qualified IT
professionals and meet the standards set forth by MCAP’s Institutional Investors, rating agencies and other third parties.
This allows MCAP to provide reliable, secure and confidential services to borrowers, brokers, Institutional Investors and
securitization programs. As well, this allows MCAP to remain flexible in order to meet changing regulatory or compliance
requirements. MCAP believes that it could scale its servicing capacity to over $100 billion of MUA and that it currently
has the ability to process $30 billion of single-family mortgage applications annually.
MCAP’s systems are capable of providing timely and reliable reporting for both internal and external users and
providing the information required to meet the customer service requirements related to administering over 206,000
mortgages. MCAP continually invests in its IT platform to support the development of new products, the changing
requirements of new and existing Institutional Investors, new regulatory requirements and the use of emerging
technologies. MCAP’s systems reliably manage current daily processing requirements and also have significant capacity
for additional origination and servicing volumes and for specialized services such as portfolio onboarding.
MCAP’s IT platform further supports MCAP’s ability to offer additional services such as default management and
collections for third-parties. By supplementing MCAP’s revenues with additional services during periods of market
downturn, MCAP is able to reduce the volatility of its returns through changes in its business cycle.
Experienced Senior Management Team with Residential, Commercial and Construction Mortgage Experience
MCAP has a strong senior management team that is experienced in working with major financial institutions and
institutional and private real estate investors, with, on average, more than 22 years of experience in the Canadian mortgage
finance industry and more than 20 years at MCAP. MCAP’s comprehensive team of professionals is dedicated to building
productive, long-term relationships with clients. Twenty-seven members of MCAP’s management team also have an equity
investment in MCAP representing a 7.2% interest in MCAP, as at February 29, 2016.
Many of MCAP’s existing management have been with the company through its growth history and have gained
significant experience in acquiring, integrating and growing the value of MCAP’s investments including arranging the
necessary funding to complete such acquisitions. Management’s history of successfully acquiring other mortgage company
operations and third-party portfolios has provided MCAP with the capability of continuing its strategy of acting on
opportunistic investments going forward and enhancing the value of MCAP, augmenting MCAP’s organic growth profile.
MCAP’s Opportunities for Growth
The following table highlights key performance targets with respect to 2020 mortgage originations and mortgage
renewals and the resulting impact to MUA based on MCAP's long-term strategic plan.
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MCAP believes that its most significant growth opportunities are:

Embedded growth from renewals;

Increasing the size of MCAP’s sub-servicing portfolio;

New and enhanced funding programs;

Expanding MCAP’s mortgage platform through the addition of new brokers, geographic expansion and new
sources of revenue;

Expanding MCAP’s existing commercial mortgage platform;

Continuing the rollout of new innovative products; and

Potential future acquisitions of mortgage company operations and third-party mortgage portfolios.
Embedded Growth from Renewals
A predictable portion of MCAP’s single-family MUA comes up for renewal annually, and in MCAP’s 2015 fiscal
year it renewed $4 billion of single-family mortgages. On average, MCAP has renewed 76% per year of the single-family
mortgages in its portfolio that have come up for renewal over the last three fiscal years. As MCAP’s portfolio increases in
size, the annual amount of mortgages that come up for renewal also increases. Successfully renewing a mortgage helps to
sustain the size of MCAP’s portfolio of MUA and contributes to MCAP’s profitability by earning continued funding
revenue from the re-sale or re-securitization of such mortgage as well as ongoing mortgage servicing fee income.
Management expects earnings from renewals to increase substantially going forward given the expected increase in revenue
with minimal additional expenses.
Increasing the Size of MCAP’s Sub-servicing Portfolio
MCAP has invested significantly in the technology and resources required to service a significantly larger
mortgage portfolio than MCAP currently has under administration. As a result, MCAP has the capacity to onboard thirdparty portfolios of other lenders from which MCAP could earn incremental servicing income. Currently, MCAP has
approximately $7.3 billion in sub-servicing MUA, primarily with four major clients. MCAP has developed expertise in
onboarding portfolios from other systems and regularly reviews the market for opportunities to take on additional sub-
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servicing portfolios. Given MCAP’s significant scale and internal resources, it is capable of servicing third-party portfolios
at lower costs than the costs incurred by many smaller lenders to service their portfolios internally. Therefore, MCAP is
capable of generating profits by offering these services to smaller lenders, or other parties with less robust servicing
platforms, while still being economical for these parties. In addition to providing an economical alternative to servicing
their portfolios internally, MCAP provides its sub-servicing clients access to a broad bundle of services and products,
including underwriting the sub-servicing clients’ mortgages (using the clients’ underwriting parameters), making the
relationship more beneficial to a smaller lender.
New and Enhanced Funding Programs
NHA-MBS and CMB are attractive sources of funding for MCAP’s originated and underwritten mortgages given
their historic relatively low cost of funds. NHA-MBS funding is beneficial to MCAP not only as a low-cost source of
residential mortgage funding but also because MCAP retains the mortgage renewal rights at maturity. The CMB program is
particularly price-advantageous to MCAP given that CMBs are typically issued at a smaller premium over Government of
Canada Bonds compared to NHA-MBS. In addition to securitizing mortgages directly through the CMB program, MCAP
may also sell mortgages that qualify for the CMB program on a whole-loan basis to other CMHC-approved entities.
MCAP significantly increased its NHA-MBS qualifying capital in both 2013 and 2014 thereby increasing its
capacity to securitize mortgages through the NHA-MBS and CMB programs. As at the end of its 2015 fiscal year, MCAP
had approximately $15 billion of NHA-MBS and CMB MUA. Over the next three years, a strategic focus for MCAP is to
issue additional NHA-MBS and CMB and optimize its NHA-MBS/CMB portfolio size within the limits allowed by
CMHC. This potential portfolio growth is expected to drive significant earnings expansion over the next three years.
MCAP currently has over 25 Institutional Investor relationships and believes that MCAP offers a strong value
proposition to potential new Institutional Investors. MCAP continues to market its capabilities and attractive platform to
Institutional Investors and expects to onboard new Institutional Investors in the coming years. New Institutional Investors
benefit MCAP by providing additional access to capital for MCAP to originate and underwrite a greater number of
mortgages and thereby increasing MUA and profitability.
Expanding MCAP’s Mortgage Platform through the Addition of New Brokers, Geographic Expansion and New Sources
of Revenue
MCAP currently has a network of over 4,500 independent mortgage broker and agent relationships across Canada
which it has cultivated over many years. MCAP believes that mortgage brokers see MCAP as a dependable brokeroriented partner offering a wide range of products with high-quality service and competitive pricing. Going forward,
MCAP plans to continue to onboard new brokers and increase its market share in the broker-originated single-family
mortgage industry. MCAP’s success in attracting new brokers is demonstrated through its increase in broker-originated
market share from 11.1% in 2013 to 13.3% as of the first quarter of 2016. MCAP has also developed a proprietary online
portal making it easier for borrowers to manage their MCAP and RMG mortgages. The online portal reflects the demand
from brokers and existing borrowers for online mortgage management capabilities and will ultimately drive increased
broker demand through enhanced online capabilities and greater customer satisfaction.
MCAP’s existing portfolio of single-family MUA is currently slightly skewed towards Ontario on a percentage of
MUA basis, with 50.4% of its portfolio as of the end of fiscal year 2015 being in Ontario. Going forward, MCAP plans to
pursue geographic expansion so that its portfolio distribution is more reflective of the major urban population distribution
across Canada. As of the end of fiscal year 2015, only 27.4% of MCAP’s single-family residential portfolio of MUA was
outside of Ontario and Alberta. MCAP believes further penetration into other geographic areas with major urban centres
will provide significant growth potential for MCAP’s portfolio.
Expanding MCAP’s Existing Commercial Mortgage Platform
MCAP plans to continue expanding its existing commercial mortgage platform as it develops new order targets
from several existing Institutional Investor clients that wish to increase their funding of commercial mortgages. MCAP also
plans to add new Institutional Investors for commercial mortgages. This expansion, if successful, would enable MCAP to
increase its share of loans from its existing broker and borrower relationships, while also adding new borrower customers.
Profitability in the commercial mortgage platform is expected to continue to increase as MCAP achieves greater economies
of scale from servicing an incremental volume of commercial mortgages.
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Continuing the Rollout of New Innovative Products
MCAP has various product and service strategies for growing its market share with its existing broker clients.
Since 2013, MCAP has developed a number of key single-family mortgage products, including the RMG Low-Rate Basic
mortgage (2013), the MCAP Value Flex mortgage (2014) and MCAP Fusion mortgage (2015), the latter two of which were
awarded “Mortgage of the Year” honours by Canadian Mortgage Trends. The “Mortgage of the Year” award is given to the
mortgage product that has offered the greatest innovation, flexibility and / or cost savings to homeowners. MCAP has won
the award four of the eight times that it has been presented since 2007. MCAP’s management determines the demand for
new products by assessing continuous feedback from brokers and funders in addition to continuously reviewing the market
for potential opportunities. MCAP’s proven track record of developing innovative products has further strengthened
MCAP’s business relationships with both its broker partners and its Institutional Investors and supports enhanced growth.
Potential Future Acquisitions of Mortgage Company Operations and Third-Party Mortgage Portfolios
Management has a proven track record of successfully acquiring and integrating other mortgage company
operations and third-party mortgage portfolios in varying market conditions that have historically added to MCAP’s market
share, operational capabilities and earnings. Going forward, MCAP will look to opportunistically acquire additional
portfolios and mortgage company operations where those acquisitions are accretive to MCAP’s earnings.
Ownership and Legal Structure
MCLP is an Ontario limited partnership whose partners are Otéra, which, as of February 29, 2016, owned 78.04%
(85% voting) of the equity interests in MCLP, MCAN Holdings LP (a wholly-owned subsidiary of MCAN), which, as of
February 29, 2016, owned 14.74% (15% voting), MCLP Key Personnel Limited Partnership (“Management LP”), which,
as of February 29, 2016, owned 7.22% (0% voting) and 4223667 Canada Inc. (“MCLP GP”), which owned less than
0.01%. MCLP GP is a wholly-owned subsidiary of Otéra and is the general partner of MCLP.
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The following organizational chart sets out the principal equityholders and the material operating subsidiaries of
MCLP immediately prior to giving effect to the Reorganization.
Pre-Reorganization Ownership and Legal Structure
Immediately prior to Closing, the Issuer will affect the Reorganization to facilitate the Offering, whereby the
Issuer will acquire, directly and indirectly, all of the partnership interests of MCLP, and MCLP will become a whollyowned subsidiary of the Issuer. See “Corporate Structure and Reorganization”.
MSC originates and underwrites MCAP-branded single-family mortgages. It services all single-family mortgages,
including those originated and underwritten by MCAP Financial Limited Partnership (“MFLP”), as well as single-family
mortgages for third parties (sub-servicing). As well as being a CMHC-approved lender for single-family and multi-unit
mortgages, it is also an approved NHA-MBS issuer and CMB seller.
MFLP originates and underwrites single-family mortgages under other brand names, including RMG and Eclipse.
It also originates, underwrites and services commercial mortgages and construction mortgages. MFC is the general partner
of MFLP and is also a CMHC-approved lender for single-family and multi-unit mortgages.
Sources of Long-Term Funding
MCAP utilizes diverse sources of long-term financing in order to provide funding for the various products that
MCAP offers across its multiple business units. These sources are primarily Institutional Investors and securitization
vehicles. MCAP’s short-term financing is provided by warehouse facilities, repo facilities and, in certain circumstances,
ABCP.
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MCAP has long-standing relationships with over 25 Institutional Investors, including several Canadian Schedule I
Banks, life insurance companies, credit unions and pension funds, to provide funding for a wide variety of residential and
commercial mortgage and construction loan products. MCAP is also constantly seeking to develop new relationships with
other potential Institutional Investors. These Institutional Investors regularly purchase MCAP’s mortgage products, with
several of them purchasing multiple products. Single-family mortgages are purchased by certain Institutional Investors on
either a committed basis or a whole-loan basis. For Institutional Investors purchasing on a committed basis, the investor
agrees to fund the mortgage when MCAP commits to the borrower and then provides the funds to MCAP at the time of
closing, thereby eliminating the requirement for MCAP to warehouse the mortgage. For Institutional Investors funding on a
whole-loan basis, the Institutional Investor purchases a pool of mortgages that were initially funded by MCAP, and, as a
result MCAP has to temporarily fund and warehouse the mortgages in order to create the pool to be sold. See “Risk Factors
– Funding and Liquidity Risk, Including MCAP’s Timely Payment Guarantee Obligations on Mortgages Sold into CMHCsponsored Securitization Programs” below for more information.
The majority of MCAP’s warehoused mortgages are insured or insurable residential mortgages. MCAP only issues
commitments for commercial mortgages (other than insured multi-unit mortgages) and construction loans after they have
been approved for funding by the ultimate Institutional Investor, and as a result, MCAP does not warehouse these mortgage
products. MCAP may warehouse insured multi-unit mortgages prior to sale to an Institutional Investor or to various
securitization vehicles.
Many of MCAP’s Institutional Investors submit annual and quarterly volume targets after consultation with
MCAP. MCAP monitors its production against these targets and, taking into account market conditions, MCAP will adjust
its origination strategies to ensure that Institutional Investor volume targets are met and to ensure that warehouse funding is
available to support production volumes. MCAP ensures that its Institutional Investor relationships are adequately
diversified such that MCAP has the appropriate level of funding to support the growth of its business and MCAP is not
overly dependent on orders from any one investor. See “Risk Factors – Concentration of Institutional Investors” below for
more information. Institutional Investor volume targets are beneficial to MCAP, given that they provide MCAP with
stronger visibility on its origination volumes for a given period.
MCAP services virtually all of the mortgages it originates after they have been sold to Institutional Investors. This
establishes an ongoing relationship with the Institutional Investor after funding and provides MCAP with the exclusive
direct relationship with the borrower customers.
Securitization of Mortgages
Under IFRS accounting standards, securitization typically is not treated as a sale transaction but is generally
treated as a financing transaction, with the result that the securitized assets remain on a company’s statement of financial
position along with a corresponding securitization liability, notwithstanding that for legal purposes such securitizations are
considered sales. For the purposes of this discussion, the term “securitize” is used in the context of a financing transaction.
MCAP uses two general types of securitization being (i) the CMHC-sponsored NHA-MBS and CMB programs,
and (ii) private securitization vehicles such as bank-sponsored ABCP, RMBS and CMBS. MCAP strategically determines
whether to securitize mortgages, and with which program, based on economics and relevant regulatory and contractual
restrictions or guidelines. In all of the programs that MCAP utilizes for securitization purposes, MCAP retains the spread
between the mortgage interest paid by borrowers and the interest paid to securitization investors, certain mortgagor and
ancillary fees collected on the securitized mortgages, the mortgage renewal rights and certain obligations associated with
these loans including the obligation to service the mortgages. MCAP remains responsible for costs associated with the
securitization such as, and not limited to, hedging costs while mortgages are warehoused, rating agency fees, initial CMHC
fees, mortgage default insurance costs and ongoing program fees.
CMHC-sponsored securitization programs
CMHC offers two securitization programs designed to provide cost-efficient financing to Canadian mortgage
lenders. The first is the NHA-MBS program, introduced in 1986, and the second is the CMB program, introduced in 2001.
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NHA-MBS are securities backed by pools of single-family or multi-unit residential mortgages with similar
maturity dates that are insured by the Mortgage Insurance Companies. Investors in NHA-MBS pools receive blended
monthly payments of principal and interest, where principal is passed through from payments of the underlying mortgagors
and the interest is based on the pool’s coupon rate. Investors in NHA-MBS benefit from an explicit guarantee by the
Government of Canada (through CMHC) since the underlying mortgages are all insured against borrower default. There is
also a government guarantee of timely interest and principal payment for NHA-MBS pools. In the event that a borrower is
late making his or her regular mortgage payment, CMHC guarantees that the NHA-MBS investor will receive its payment
on the scheduled date. CMHC relies on a corresponding timely payment guarantee from the lender/issuer to make the
payment to CMHC. Despite these protections, NHA-MBS investors are subject to prepayment risk since their future cash
flows are reduced if borrowers make full or partial prepayments on their mortgages or if a borrower defaults on his/her
mortgage prior to the end of the mortgage term. In the cases of prepayments of fixed-rate mortgages, NHA-MBS investors
are entitled to certain prepayment penalties regardless of whether or not the lender charges the borrower a corresponding
penalty.
Approved NHA-MBS issuers may sell NHA-MBS securities to capital markets investors. These are typically
called “market MBS”. Approved CMB sellers may also sell NHA-MBS to Canada Housing Trust (“CHT”) under the CMB
program. CHT is a special purpose trust created by CMHC to sell CMBs to investors and use the funds to purchase NHAMBS securities. The CMB program enhances the NHA-MBS program because CMBs are structured to eliminate the
investor’s prepayment risk. The CMB seller manages the interest rate risk and prepayment risk inherent in the underlying
mortgages through approved swap transactions and investments of the underlying mortgage principal repayments in
permitted investments. Compared to NHA-MBS, the CMB program effectively converts the monthly and amortizing cash
flows of the NHA-MBS program into typical bond-like payments (i.e., semi-annual coupon payments and a final “bullet”
principal repayment). As a result, compared to market MBS, CMBs appeal to a broader base, are more investor friendly
and, therefore, funding via CMB can be achieved at lower relative costs.
CMHC reviews applications from financial institutions and other entities seeking to be an approved NHA-MBS
issuer or an approved CMB seller. An entity must be approved as an NHA-MBS issuer before being considered for
approval as a CMB seller. In determining if an entity qualifies as an NHA-MBS issuer and CMB seller, CMHC reviews,
among other things, the entity’s audited financial statements, levels of financial institution bond insurance coverage,
résumés of key employees involved in the issuance of NHA-MBS, agreements relating to the applicant’s principal and
interest trust account(s) and a history of the entity, its ownership structure and business operations. All MBS Sellers must
have the experience, management capability and facilities necessary to assure CMHC of its ability to originate, sell and
service eligible mortgage loans and NHA-MBS securities. The minimum net worth of an approved NHA-MBS issuer is the
sum of (i) $3 million plus (ii) 2% of (a) the aggregate principal amount of NHA-MBS outstanding plus (b) the principal
amount of NHA-MBS applied for but not yet issued. After issuing NHA-MBS, CMHC monitors arrears levels for each
issuer. See “Risk Factors – Reliance on Mortgage Insurance Companies and the Ability to Obtain Mortgage Default
Insurance” below for more information.
CMHC sets a limit on the amount of NHA-MBS that may be issued in a given year and the amount of CMB that
also may be issued in a given year. For 2014 and 2015, those limits were $80 billion and $40 billion, respectively. For
2016, CMHC is changing its allocation process with the effect that there will be $105 billion of NHA-MBS issued which
will include one-half of the year’s $40 billion CMB allocation and $5 billion that is specifically earmarked for NHA-MBS
that will be issued as a permitted security to be invested in new CMB pools. Each quarter, every NHA-MBS applicant who
applies can be allocated an equal share of one-quarter of the annual approved issuance. Any amounts approved but not
used in any given quarter are added to the following quarter’s total allocation until the end of the year. Using this
methodology, smaller lenders and large lenders are each entitled to the same amount. This methodology could result in
reduced allocations to individual entities (including MCAP) if more entities are approved as NHA-MBS issuers or if
existing approved NHA-MBS issuers increase the amount of NHA-MBS for which they apply each quarter.
Upon the maturity of mortgages securitized by MCAP through these programs, MCAP is obliged to offer a
borrower in good standing a mortgage renewal at market rates. Under new regulations enacted in February 2016, effective
July 1, 2016 such renewal must then be re-securitized through these programs within six months, otherwise the portfolio
mortgage default insurance on such mortgages will lapse. See “Industry Overview – Changes to the Regulatory
Environment” above. The re-securitization would lead to additional earnings potential in the future.
MSC has been an approved NHA-MBS issuer since 2009 and an approved CMB seller since 2010. The ability to
issue NHA-MBS pools gives MCAP access to an independent, historically low-cost funding source.
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In August 2013, MCAP completed its first syndicated NHA-MBS with a pool of approximately $315 million of
mortgages. Subsequent to this initial transaction, MCAP has continued to issue syndicated NHA-MBS pools, including
over $500 million of mortgages in the most recent pool issued in April 2016. Other than syndicated NHA-MBS, MCAP’s
NHA-MBS pools are typically smaller in size and are sold to a single investor.
ABCP
MCAP currently participates in ABCP securitization programs through several ABCP securitization vehicles,
which are sponsored and supported by Canada’s large Schedule I Banks. New regulations were enacted in February 2016
that will result in ABCP securitization vehicles no longer being able to hold insured mortgages after December 31, 2021
(i.e. a 5½ year transition period). See “Industry Overview - Changes to the Regulatory Environment” above. Subject to
reaching mutually acceptable agreements with the administrators of the ABCP securitization programs, MCAP plans to
continue to use ABCP securitization vehicles for insured mortgages up until that time. MCAP has already put other credit
facilities in place as a substitute for ABCP securitization vehicles and plans on continuing to work with its partners to
develop other alternatives to ABCP.
Most of MCAP’s ABCP programs are committed facilities for which MCAP pays fees to the banks to ensure their
ongoing availability. MCAP finances mortgages through these securitization vehicles and is responsible for the servicing of
these mortgages. Each securitization vehicle has a maximum program size and MCAP can finance mortgages through the
securitization vehicle up to specific limits. Only eligible mortgages may be financed through the securitization vehicle,
with criteria that are determined for each program at both the individual loan level and the portfolio level. In addition,
MCAP is required to post cash collateral for credit enhancement purposes, which is calculated based on a specified formula
with each securitization vehicle. The cash collateral is funded as a direct deduction from the proceeds of mortgage
financing and is returned to MCAP as the mortgages are repaid. Once a month, a waterfall amount is remitted from each
securitization vehicle to MCAP. The waterfall payment is comprised of mortgage interest paid by borrowers, less interest
expense paid to ABCP investors and other program related fees and may also include a portion of the cash collateral.
MCAP receives multiple advantages from securitization using ABCP securitization vehicles. Most importantly,
this allows MCAP to diversify its funding options with multiple access points to the commercial paper market, which is
designed to reduce the impact of potential business disruptions to MCAP should any other source of funding be eliminated
or become unprofitable.
Liquidity is one of the key risks MCAP faces when it finances mortgages. See “Risk Factors – Funding and
Liquidity Risk, Including MCAP’s Timely Payment Guarantee Obligations on Mortgages Sold into CMHC-sponsored
Securitization Programs” below for more information. MCAP uses committed bank-sponsored ABCP securitization
programs to help manage this risk. The securitization vehicles through which MCAP finances mortgages have full liquidity
lines available from the sponsoring banks, thus mitigating this risk. In addition, MCAP is charged standby fees on several
ABCP securitization programs (based on the unused portion of the facility) to ensure that these facilities are available to
MCAP until the facility expires, regardless of market conditions. Financing mortgages through ABCP securitization
programs offers greater flexibility than financing mortgages through NHA-MBS and CMB as ABCP securitization
programs finance mortgages with varying maturity dates and interest rates whereas NHA-MBS and CMB programs
generally require mortgages to have similar maturity dates and interest rates.
RMBS
In June 2014, MCAP completed its first RMBS transaction consisting of a pool of approximately $200 million of
uninsured conventional prime single-family mortgages. MCAP is the only company to be an issuer of RMBS since 2009
and is working on further developing this market. Access to the RMBS market complements MCAP’s already deep and
diversified funding sources for its prime residential mortgage business.
CMBS
MCAP is one of only four CMBS issuers in Canada since 2007. In December 2014, MCAP completed its first
CMBS transaction with a pool of commercial mortgages of approximately $224 million. The mortgages were secured by
retail, office, industrial and multi-unit properties. MCAP participates in the CMBS market through a participation
agreement with an Institutional Investor and a private investor increasing the certainty of execution (subject to market
conditions) and reducing warehousing risk. Depending on market conditions, the CMBS market can provide MCAP with a
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competitive funding source for originating conventional commercial mortgages. MCAP services all of the loans that it
originates under its CMBS program and is a rated CMBS servicer by S&P and Fitch.
Securitization risk management
MCAP’s exposure to borrower defaults on mortgages securitized through CMB, NHA-MBS or ABCP programs is
limited, as 99.4% of such securitized mortgages are insured as at the end of MCAP’s 2015 fiscal year. See “Risk Factors –
Repurchase or Indemnity Obligations and Breach of Representations and Warranties on Mortgage Sales” below for more
information. MCAP also has an interest rate risk management program in place for all mortgages committed and originated
for future securitization that is designed to mitigate MCAP’s interest rate risk exposure related to such mortgages, where
possible, prior to securitization. In addition, interest rate swaps are used to hedge certain interest rate risks relating to CMB
and ABCP programs after mortgages have been securitized. See Notes 19, 20 and 21 to MCAP’s 2015 consolidated
financial statements included elsewhere in this prospectus.
The future income from mortgages securitized through CMB, NHA-MBS and ABCP programs is subject to
changes in the actual prepayment rate of the mortgages in any pool and, in the case of the CMB, the reinvestment rate
achieved in the principal reinvestment account (“PRA”). For example, unexpectedly higher levels of prepayments in a
CMB single-family pool may result in a larger than expected PRA balance that, because of the conservative nature of
permitted investments in the PRA, will generally result in lower spread income (compared to the spread income based on
the interest rates previously being paid by the borrowers on the prepaid mortgages), thus reducing the economic benefit of
the program to MCAP.
For ABCP securitization programs, MCAP posts cash collateral primarily to cover a portion of the securitization
vehicle’s potential losses from defaulted mortgages. The cash collateral posted for insured mortgages is significantly less
than the cash collateral posted for uninsured mortgages reflecting the additional loss protection that the securitization
vehicle receives on account of the mortgage default insurance. Losses from defaults on uninsured mortgages securitized
through ABCP securitization vehicles are recoverable by the securitization vehicle from the cash collateral (see “MCAP’s
Business Model - Credit (Borrower Default) Risk in MCAP’s Business Model” above). The cash collateral is also available
to the securitization vehicle to cover negative interest spread. For example, if the mortgage interest collected on all of the
mortgages in the pool minus the securitization vehicle’s cost of funds (i.e. the amount paid to the ABCP holders) turned
negative, the securitization vehicle would use the cash collateral to recover such loss in order to make the required
payments to the ABCP holders. If the cash collateral posted is not sufficient to cover all such losses (i.e. from borrower
default or from negative interest spread), the securitization vehicle has no recourse back to MCAP for the excess losses.
The maximum exposure to MCAP in these scenarios therefore, is the amount of cash collateral posted by MCAP. MCAP
manages the risk of losing its cash collateral on account of borrower default by maintaining strong underwriting
fundamentals and a robust default management process. In addition to the foregoing, MCAP may also have certain
indemnity obligations to the securitization vehicle and to other specified parties, including an indemnity to cover increased
costs arising from certain regulatory capital, accounting or tax requirements. If required, MCAP would generally deposit
such amounts into the collection account for the securitization vehicle. MCAP monitors market interest rates and situations
that may give rise to increased costs to securitization vehicles and, if a negative interest rate scenario arose or if a
securitization vehicle were to incur significant increased costs that would be the responsibility of MCAP, MCAP would
endeavour to move its securitized mortgages into other funding programs or to Institutional Investors where possible.
In order to aggregate mortgages for securitization pools (and also for sale to Institutional Investors), MCAP must
fund and warehouse loans until a pool of mortgages is created to be financed through these programs. MCAP reduces its
interest rate risk during this period by hedging (using interest rate swaps or bonds sold short, which are borrowed under
reverse repurchase contracts) all funded fixed-rate loans and that portion of mortgage commitments expected to actually be
funded. Unanticipated significant interest rate changes may impact the overall economics of certain hedging activities as
well as impacting MCAP’s liquidity position if it has to post additional security for bonds that were sold short. MCAP’s
capital and liquidity management plans contemplate such anomalies, and MCAP has access to short-term credit facilities to
maintain its liquidity requirements in such scenarios. See “Risk Factors – Interest Rate, Hedging and Basis Risk” below for
more information.
Under the NHA-MBS and CMB programs, participants such as MCAP are obligated to make timely payment of
principal and interest to the MBS investors (or to CHT for CMB) both during the term of the MBS security and at its
maturity. This includes payment of the outstanding principal balance upon the maturity of the underlying mortgages. These
payments must be made by MCAP regardless of whether or not MCAP has actually collected the corresponding payments
46
from the borrowers under the mortgages thereby creating a liquidity risk to MCAP rather than a credit risk as the mortgages
are all insured. MCAP has dedicated collections and default management teams that operate in a manner that is designed to
ensure that defaults are quickly remedied thereby reducing MCAP’s exposure to the timely payment guarantee. See “Risk
Factors – Funding and Liquidity Risk, Including MCAP’s Timely Payment Guarantee Obligations on Mortgages Sold into
CMHC-sponsored Securitization Programs” and “Risk Factors – Reliance on Mortgage Insurance Companies and the
Ability to Obtain Mortgage Default Insurance” below for more information.
Under the NHA-MBS and CMB programs, participants such as MCAP are obligated to offer a renewal of insured
loans to borrowers in good standing at their maturity. It is generally in MCAP’s reputational and financial best interest to
renew maturing loans, as control of such renewals, with substantially lower cost than new originations, is part of MCAP’s
business plan. MCAP must therefore manage its total current and future funding capacity to match the blend of MCAPcontrolled renewals as they mature and projected new originations.
Risk Management
The Issuer’s Board of Directors has adopted the Risk Management Framework (“RMF”) developed by MCLP.
The RMF is the documentation of the risk management processes in place throughout MCAP. The framework is
operationalized through, but not limited to, MCAP’s strategic planning process, monthly financial reporting process
including budget review, weekly management level operational committee meetings (e.g. Loan Allocation and Pricing
Committee and Executive Committee) and quarterly oversight processes (e.g. Risk Oversight Committee meetings and risk
dashboard reporting).
The RMF formally documents the risks to which MCAP is exposed and the key controls and processes to ensure
effective enterprise-wide risk management. It is reviewed and approved by the Board at least annually. These key controls
and processes have been defined by the RMF below and are outlined in the following schematic:
MCAP Risk Management Framework Overview
Major Categories of Risk Faced by MCAP
Consistent with the OSFI approved “three lines of defense” approach, MCAP’s risk governance structure was
designed to ensure risk is managed at three levels within MCAP. The Board retains ultimate responsibility and in this
regard is responsible for assessing and approving an appropriate risk appetite for MCAP’s business model, strategy, and
methods of execution. It has delegated various risk functions to the Chief Risk Officer (“CRO”), management committees
(such as the Risk Oversight Committee (“ROC”)) and has created the Risk & Compliance Committee of the Board of
Directors (the “Risk & Compliance Committee”). See “Corporate Governance – Risk & Compliance Committee” below.
The ROC is comprised of all business unit leaders including department heads for corporate services functions and
is chaired by the CRO.
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The first line of defense is provided by the business units, operating groups and some support function areas.
These are the “owners of the risk” who, as such, are accountable for the day-to-day and strategic management of risk. This
includes:

risk identification;

risk assessment;

risk mitigation; and

reporting of risk against approved policies and appetite.
The second line of defense is risk oversight. This is provided by the ROC, the CRO and the corporate support
areas including Finance and Legal and Compliance. They are accountable for:

establishing risk management practices and providing risk guidance;

independent oversight of risk management practices; and

monitoring risk levels and independently reporting to the Board.
The CRO’s function includes gathering and consolidating information from all lines of business and reporting to
the Board on risk issues being reviewed by the Executive and the ROC. The CRO also reports on compliance matters (both
regulatory and contractual), litigation, anti-money laundering, anti-terrorist financing, privacy, security, business continuity
and environmental matters and provides an assessment of risks on new strategic initiatives presented to the Board for
approval. The CRO also prepares a quarterly report on MCAP’s most significant residual risks as well as a report on the
current effectiveness and maturity of MCAP’s risk management processes for review by the Board. The ROC meets
quarterly, and is responsible for ensuring that:

business units are identifying and reliably reporting the material risks to the key objectives identified in their
annual strategic plans and core objectives necessary for sustained success;

future risks, risks of new initiatives, and the changes in existing risks brought on by changes in the business
environment are identified and assessed;

material risks being accepted across MCAP are consistent with the risk appetite, tolerance and RMF;

there is assigned responsibility for risk issues; and

the results of risk monitoring tools are reviewed.
The third line of defense is independent assurance. This is provided primarily by MCAP’s internal audit function,
which reports independently on the effectiveness of risk management practices to management and the Board.
Further risk governance is also achieved through MCAP’s group-wide policies within which all employees are
required to operate. These are reviewed annually by management and recommended to the Board for approval along with
any necessary revisions thereto.
The RMF incorporates the “three lines of defense” model, six guiding principles for use in risk management
decisions, and the risk management principles of ISO 31000.
The risk management policy outlines MCAP’s:

risk assessment methodology and risk assessment approach;

governance structure and the roles and responsibilities of all parties;

inherent risks - identification, categorization and definition thereof; and
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
related group-wide policies that are designed to limit and guide MCAP’s assessment of risk.
MCAP’s risk appetite is derived from its capital and liquidity constraints and the detailed assumptions underlying
the Board-approved budget. The risk appetite statement is used to communicate how MCAP views risk and determines the
risk levels it is willing to take in pursuit of its corporate objectives. It is not intended to be a static document and will be
reviewed, changed and approved by the Board as required. It identifies MCAP’s most significant risks (being liquidity to
fund MCAP’s pipeline of committed but as yet unfunded mortgages; liquidity for all other financial obligations including
NHA-MBS and CMB timely payment guarantees; the operational risks related to information systems, people and quality
assurance processes to both originate and service mortgages at the targeted levels; risks related to having sufficient and
effective hedging facilities and processes; and the reputational risk of producing portfolios of mortgages that do not perform
at or above industry standards) as well as the specific mitigation treatments to be applied to bring them within its risk
appetite. It outlines:

MCAP’s business model;

the kinds of risks MCAP will take;

the activities that MCAP will not engage in; and

risk tolerances with specific statements for MCAP’s most significant risks.
MCAP uses various tools to review and monitor risk. These are designed to enable management to be diligent and
proactive in dealing with unacceptable trends or changes in its operations or business environment. The key goal is analysis
of risks to enable consensus and agreement on the appropriate actions to ensure that MCAP’s retained/residual risk position
remains within the approved risk appetite.
At the first line of defense, monitoring and evaluation is achieved by the business units/risk owners through:

various reports, many automatically generated by MCAP’s IT system, which provide management with
insight and early warnings of changing risks; and

various teams and management committees who review reports on daily/weekly/monthly cycles to identify
situations requiring remedial action or escalation.
At the oversight level, monitoring and evaluation will be achieved through the risk matrix and the risk dashboard
which indicates whether MCAP is operating within agreed risk tolerances, is trending outside of acceptable tolerances, and
if immediate corrective actions must be taken. The risk dashboard is maintained and monitored by the Finance Department,
the CRO and other senior business unit managers, and is a compilation of numerical information from various controls and
reports used within each of the lines of business (at the first line of defense) as part of the day-to-day risk management
process. It is updated quarterly and provided to the Board by the CRO. The goal is to allow MCAP to monitor its business
from a risk-based point of view, applying attention (enhanced monitoring, due diligence, and/or remedial action)
immediately to any unacceptable situation, to ensure that, subject to market conditions outside of MCAP’s control, all
aspects of the business remain within the established acceptable level of risk tolerance. The quarterly review provides an
opportunity for management and the Board to determine whether changes are required to pre-established tolerance levels
and/or if other adjustments are required to reflect changes in operations, laws and regulations, the competitive environment
and/or the overall state of the economy.
Corporate Operations
As of November 30, 2015, MCAP employed 176 employees in various corporate roles (described below) to
support its operations.
Information Technology
As a mortgage finance company involved in the origination, underwriting, funding and servicing of residential
mortgages, commercial mortgages and construction loans, MCAP’s operations depend on a large and robust IT platform
that meets or exceeds the standards of its Institutional Investors. MCAP employs approximately 90 IT professionals to
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support the various systems and applications that it uses. MCAP owns or has direct source code access for its key systems
and software used in origination, servicing and reporting. MCAP’s systems are supported in-house by a department of
highly qualified IT professionals and meet the standards set forth by MCAP’s Institutional Investors, rating agencies, OSFI
and other third parties. This allows MCAP to provide quality, uninterrupted and confidential services to borrowers,
Institutional Investors and securitization vehicles. As well, it allows MCAP to remain flexible in order to meet changing
regulatory or compliance needs.
MCAP has invested significantly in developing and customizing software that enables data to flow between
multiple applications to provide timely and reliable reporting for both internal and external users and to provide the
information required to meet the customer service requirements related to administering over 206,000 mortgages. MCAP
continually invests in its IT platform to support the development of new products, the changing requirements of new and
existing Institutional Investors, new regulatory requirements and the use of emerging technologies. MCAP’s systems
reliably manage the current daily processing requirements and also have significant capacity for additional origination and
servicing volumes.
MCAP has stringent controls around its automated systems. Annually, MCAP obtains independent auditor’s
reports under Canadian Standard on Assurance Engagements 3416, Reporting on Controls at a Service Organization as
issued by the Canadian Auditing and Assurance Standards Board. MCAP’s IT controls include detailed business continuity
and disaster recovery procedures. MCAP validates its disaster recovery procedures each year through full-scale recovery
exercises covering all critical systems.
Capital Markets
MCAP’s capital markets team includes a group that is focused on MCAP’s mortgage placement and hedging
activities and a group that focuses on reporting for Institutional Investors and securitization vehicles. Mortgage placement
is an essential element of MCAP’s overall business operations as financial markets and interest rates change constantly.
MCAP’s ability to stay abreast of and understand the impacts of these changes and to optimize the profits from mortgage
placement, while at the same time meeting the demand from MCAP’s Institutional Investors, is an important factor
contributing to MCAP’s long-term viability. The same group also uses its knowledge and understanding of financial
markets and interest rates to manage MCAP’s hedging requirements and positions. Given the large volume of mortgages
used as collateral for MCAP’s warehouse loan facilities and mortgage commitments that are being managed at any point in
time, MCAP has significant interest rate exposure. Effective and proactive hedging strategies are required to mitigate this
exposure.
A senior management committee meets weekly (or more frequently if markets require) to review all elements that
are required to be considered in order to match up single-family and commercial mortgage origination with funding
capacity and the economics of sales to MCAP’s various funding sources as well as Institutional Investor demand. The
results of these meetings are communicated to the mortgage placement and hedging team, which is ultimately responsible
for the allocation of approximately $16 billion of mortgage product annually (based on 2015 originations and renewals).
The mortgage placement and hedging team works very closely with the single-family residential mortgage and commercial
mortgage origination teams to ensure that Institutional Investor requirements are satisfied and MCAP’s profit targets are
met. Once the mortgages are sold to Institutional Investors or financed through securitization vehicles, the investor
reporting group works very closely with the finance and mortgage servicing teams to ensure that reporting to Institutional
Investors and securitization vehicles is timely and accurate. Both the mortgage placement and hedging team and the
investor reporting group rely heavily on automation to fulfill their respective roles.
Finance and Treasury
With over $14 billion of new mortgage origination in 2015 and MUA of approximately $53 billion, MCAP
manages cash receipts and disbursements of well over $1.5 billion per month. In order to ensure that this flow of funds is
accurately recorded and allocated, MCAP employs a treasury department comprised of highly qualified and experienced
individuals. A dedicated team within the treasury department focuses on regularly reporting to MCAP’s Institutional
Investors on the activity in their mortgage portfolios that are serviced by MCAP.
MCAP’s corporate structure includes multiple reporting entities whose external financial reporting requirements
are the responsibility of the MCAP finance and accounting group. This group is also responsible for working closely with
the rest of MCAP to provide management reporting. With the high volume of securitization transactions, MCAP uses a
50
middle office as a liaison between the finance team and the capital markets team whose responsibilities include monitoring
MCAP’s exposure to different types of funding to ensure that MCAP is not overly exposed to any particular funding
segment.
Legal and Compliance
MCAP has a team dedicated to regulatory anti-money laundering and anti-terrorist financing compliance with
Financial Transactions and Reports Analysis Centre of Canada-mandated requirements relating to the PCMLTFA as well as
corporate privacy obligations under the Personal Information Protection and Electronic Documents Act (Canada)
(“PIPEDA”). In accordance with the PCMLTFA, MCAP’s database of borrowers and prospective borrowers is checked
against a master list provided by the Federal Government of Canada on a daily basis in order to allow MCAP to follow up
on any potential issues.
MCAP also has a legal team that reviews and oversees the management of all significant contracts and all required
corporate registrations as well as assisting with general legal issues. The regulatory compliance team and the legal team
report to MCAP’s CRO who is also responsible for MCAP’s corporate governance initiatives and reports to the Board of
Directors on such matters on a regular basis and who also chairs MCAP’s ROC. The ROC includes senior managers from
all parts of the business and meets quarterly to discuss all types of risk that affect MCAP and its operations.
Internal Audit
MCAP has an independent internal audit group that is responsible for evaluating the effectiveness of MCAP’s risk
management, control and governance processes. Internal audit represents the third pillar under the “three lines of defense”
risk management model. The Chief Audit Officer reports directly to the Audit Committee of the Board of Directors (the
“Audit Committee”). Internal audits are conducted on MCAP’s operations based on a risk-based audit plan that is
approved by the Audit Committee on an annual basis. The Chief Audit Officer also meets regularly with the CRO to ensure
that there is a consistent understanding of the risks faced by MCAP.
Investor Relations
After the Closing Date, MCAP will have a team responsible for ensuring that all required public-company
disclosures and reporting are completed and filed as required. This group will also be responsible for all communication
with shareholders, analysts and other interested parties including through MCAP’s website.
Both before and after the Closing Date, a separate team is and will continue to be responsible for managing
MCAP’s relationships with its Institutional Investors including regularly meeting with the Institutional Investors to confirm
their appetite for MCAP-originated mortgage products and working with Institutional Investors towards designing and
implementing MCAP offerings that meet their needs.
Human Resources (“HR”) and Facilities
MCAP has a dedicated team of HR professionals that look after all elements of managing MCAP’s human capital,
including payroll processing, the design and oversight of compensation programs and the development and oversight of a
comprehensive enterprise-wide talent management model. Compliance by MCAP with various labour laws is the
responsibility of the HR team. One of MCAP’s key objectives is to be viewed as an “Employer of Choice” in the Canadian
mortgage finance industry. As a result, MCAP invests considerable resources into the hiring, training and retention of staff
while promoting a high-performance culture.
MCAP’s almost 145,000 square feet of leased office space in nine offices across Canada is managed by an internal
facilities team.
Marketing & Communications
MCAP has a team responsible for ensuring that the MCAP brand is protected and promoted in a consistent and
professional manner across all lines of business. This group supports all of MCAP’s marketing initiatives.
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Business Continuity Plan
MCAP’s business continuity plan has been designed to provide a timely response to any unplanned business
interruption that encompasses technology, facilities or resources. Examples of these interruptions can include such things as
the loss of a utility service, building evacuation, pandemic or a catastrophic event. In the event of a disaster, MCAP’s
objective is to maintain an acceptable level of service to MCAP’s customers until operations have been restored to normal.
To achieve this goal, business continuity plans are developed and maintained by MCAP’s technology, facility and business
areas to allow for continuity of MCAP’s critical functions. These plans outline the necessary steps to take to restore
MCAP’s critical services in a disaster.
MCAP uses two fully operational colocation data centres that are geographically dispersed. MCAP’s Intel servers
are virtualized and have bi-directional synchronous storage between both data centres. MCAP also has two IBM iSeries
platforms in each of its data centres with asynchronous replication every five minutes. MCAP’s disaster recovery
architecture is designed to enable MCAP to react on a timely basis to any type of disaster scenario, with a targeted recovery
time of six hours or less. In the event of a branch office disaster, MCAP has the ability to relocate displaced critical
employees to temporary local offices in multiple cities across Canada. MCAP’s largest site is west of Toronto and can seat
up to 150 team members.
MCAP’s business continuity team and response teams are comprised of key members of MCAP’s organization
who are aware of their responsibilities and are prepared to act during a crisis. Responsibility for declaration lies with
MCAP’s executive team. MCAP’s business continuity team is responsible for coordinating response efforts. Responsibility
for developing and maintaining the plans is assigned to the leaders of the critical business functions. The plans are then
reviewed and updated on a regular basis and documentation is made available to all applicable personnel. In addition, the
business continuity team facilitates annual exercises to allow response teams to practice the recovery process.
Regulatory Framework
MCAP has rigorous processes in place to ensure that its controls meet applicable legal and regulatory rules,
including OSFI’s Guidelines B-20 and B-21 (each discussed above), Guideline B-8: Deterring and Detecting Money
Laundering and Terrorist Financing and Guideline B-10: Outsourcing of Business Activities, Functions and Processes, the
PCMLTFA and the regulations thereunder, cost of borrowing disclosure as required pursuant to the regulations of the Bank
Act, and the applicable provincial and federal legislation governing the use and privacy of personal information, including
the PIPEDA. MFC and MSC are also regulated under various provincial mortgage brokerage legislation and regulations.
Each of MFC and MSC are registered where required as brokerages and as mortgage administrators, and their respective
individual employees are registered or licensed as required, under those provincial regulations.
Q2-2016 Key Operating Data
As at May 31, 2016, (“Q2-2016”) MCAP’s MUA totaled $56 billion representing a 6% increase over the
November 30, 2015 MUA balance. The Q2- 2016 MUA is made up of $51 billion of single-family residential MUA and $5
billion of commercial and construction MUA.
MCAP originated $4.4 billion of mortgages in Q2-2016, comprised of $3.6 billion of single-family residential
mortgages and $0.8 billion of commercial mortgages and construction loan commitments. Total originations in Q2-2016
were up 25% compared to the second quarter of 2015. Q2-2016 single-family originations were up 17% over the second
quarter of 2015 and commercial mortgage originations and construction loan commitments were up 76% over the second
quarter of 2015. For the 6 months ended May 31, 2016, MCAP originated $6.7 billion of mortgages, comprised of $5.3
billion of single-family residential mortgages and $1.4 billion of commercial mortgages and construction loan
commitments. Total originations in the first half of fiscal 2016 were up 7% over the first half of 2015 with single-family
originations being flat while commercial mortgage originations and construction loan commitments increased by 57% over
the noted period.
Single-family renewals were $956 million in Q2-2016 representing a decrease of 14% compared to the second
quarter of 2015. For the six months ended May 31, 2016, single-family renewals were $1.86 billion, virtually the same
amount as over the same period in 2015.
The Q2-2016 MUA and origination totals noted above were consistent with MCAP’s operating plan for the period.
Final income calculations for Q2-2016 have yet to be completed, reviewed and approved.
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CORPORATE STRUCTURE AND REORGANIZATION
Incorporation and Office
The Issuer was incorporated under the Canada Business Corporations Act on December 15, 2015. The Issuer’s
registered and head office is located at 200 King Street West, Toronto, Ontario M5H 3T4.
Intercorporate Relationships
As at the date of this prospectus, the Issuer is a wholly-owned subsidiary of MCLP, a partnership formed under the
laws of Ontario, with three limited partners, being Otéra, MCAN and Management LP and MCLP GP as its general partner.
Immediately prior to Closing, the Issuer will effect the Reorganization to facilitate the Offering, whereby the
Issuer will acquire, directly and indirectly, all of the partnership interests of MCLP, and MCLP will become a whollyowned subsidiary of the Issuer.
Reorganization
The principal steps of the Reorganization will be effected immediately prior to Closing and will include the
following: (i) Otéra and MCAN will transfer the limited partnership units that each holds in MCLP in exchange for 1.25
newly-issued Common Shares of the Issuer per unit and Otéra will transfer the shares it holds in MCLP GP to the Issuer;
(ii) certain participants in MCLP’s key personnel unit purchase plan (the “Key Personnel Unit Purchase Plan”) holding
units of Management LP through holding companies (“Employee Holdcos”) will transfer their Employee Holdcos that
hold their interests in Management LP to the Issuer in exchange for 1.25 newly-issued Common Shares of the Issuer per
unit; (iii) the remaining participants in the Key Personnel Unit Purchase Plan will cause their Employee Holdcos to transfer
their direct interests in Management LP to the Issuer in exchange for 1.25 newly-issued Common Shares of the Issuer per
MCLP unit indirectly held; (iv) the Issuer will purchase MFC’s general partnership interest in Management LP; (v) the
Issuer will then terminate the Key Personnel Unit Purchase Plan, and the Employee Holdcos acquired by the Issuer will be
amalgamated and wound up into the Issuer; and (vi) Management LP will be wound up and terminated, and the units of
MCLP held by Management LP will be distributed to the Issuer. Following the completion of these steps, all of the units of
MCLP will be owned by the Issuer.
Upon Closing of the Offering, the Issuer will become the sole limited partner of MCLP. Given that the Issuer is a
taxable corporation, all income earned in MCLP and subsidiary partnerships will be subject to income tax in the hands of
the Issuer. This will result in a one-time adjustment upon Closing to record a deferred tax liability in the accounts of the
Issuer in an amount to be determined at that time. As at February 29, 2016, the amount of the adjustment would have been
$6.7 million.
Unless otherwise noted, all information in this prospectus gives effect to the Reorganization.
The Issuer has not conducted any business prior to the Reorganization and has nominal assets and equity.
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The following organizational chart sets out the principal equityholders and the material operating subsidiaries of
MCAP after giving effect to the Reorganization:
54
USE OF PROCEEDS
The estimated net proceeds to the Issuer from the Treasury Offering will be approximately $94.75 million after
deducting fees payable by MCAP to the Underwriters in connection with the Treasury Offering but before deducting the
estimated expenses relating to the Offering (excluding the expenses of the Selling Shareholders, which will be borne by the
Selling Shareholders).
The Issuer expects to invest the net proceeds of the Treasury Offering to support the growth of its mortgage
funding channels, including but not limited to CMHC-sponsored programs, bank-sponsored programs and term structures,
and other programs with Institutional Investors, all of which are intended, in turn, to facilitate the growth of its mortgage
originations, MUA and mortgage renewals, key drivers of the Issuer’s earnings and long-term value.
The aggregate net proceeds to be received by the Selling Shareholders from the sale of the Offered Shares
pursuant to the Secondary Offering are estimated to be $165.81 million ($204.90 million if the Over-Allotment Option is
exercised in full), after deducting the Underwriters’ commission related to the Secondary Offering and payable by the
Selling Shareholders, but before deducting the expenses of the Selling Shareholders, which will be borne by the Selling
Shareholders. The Issuer will not receive any proceeds from the Secondary Offering. See “Principal and Selling
Shareholders” below.
55
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The consolidated statements of financial position data and consolidated statements of income and comprehensive income
data included below for each of the years ended November 30, 2015, November 30, 2014, and November 30, 2013, and as at
November 30, 2015 and 2014 has been prepared by management of MCAP based on the audited consolidated financial statements
of MCAP for those years included elsewhere in this prospectus. The selected financial data for MCAP as at November 30, 2013
and as at February 28, 2015 are derived from financial statements of MCAP that are not included in this prospectus. The
consolidated statements of financial position data and consolidated statements of income and comprehensive income data included
below as at February 29, 2016 and for the three month periods ending February 29, 2016 and February 28, 2015 has been prepared
by management of MCAP based on the unaudited condensed consolidated financial statements of MCAP for those periods
You should review the following information together with MCAP’s consolidated financial statements included
elsewhere in this prospectus and Management’s Discussion and Analysis of Financial Condition and Results of Operations
Key Operating Data:
As at February 29,
As at February 28,
2016
2015
As at November 30,
2015
(in $ thousands)
Mortgages Under Administration
48,683,402
43,864,844
4,636,841
3,779,202
Total MUA1 .................................................................................................................
53,320,243
47,644,046
Sub-serviced MUA ......................................................................................................
7,314,434
6,467,165
MCAP-issued NHA-MBS and CMB securitized
2
mortgages ...................................................................................................................
15,656,354
10,844,919
Three months
ended February 29,
Three months
ended February 28,
2016
2015
2013
48,417,830
4,268,576
52,686,407
7,320,110
42,532,996
3,611,184
46,144,180
6,309,675
37,403,036
2,934,916
40,337,952
5,532,328
14,569,115
9,162,318
4,112,527
2015
(in $ thousands)
Mortgage Origination Volumes
1,696,193
2,278,068
592,575
431,005
Total origination volumes3 ...........................................................................................
2,288,768
2,709,073
Single-family residential renewals ...............................................................................
907,648
762,683
1
2014
(in $ thousands)
2014
2013
(in $ thousands)
11,251,990
3,058,205
14,310,195
3,961,667
9,480,201
1,992,478
11,472,679
2,700,657
8,181,687
2,280,909
10,462,596
2,852,380
Includes sub-serviced MUA and NHA-MBS and CMB securitized mortgages. As at November 30, 2012, total MUA was $36.1 billion, of which sub-serviced
mortgages represented $5.0 billion.
2
MCAP-issued NHA-MBS and CMB outstanding as at November 30, 2012 was $1.902 billion.
3
Renewals, which occur at the maturity of a mortgage loan, are not included in “total origination volumes”.
56
Three months
ended February 29,
Three months
ended February 28,
2016
2015
2015
2014
47,937
33,613
169,014
Servicing and administration income..................................................................................
19,549
17,963
89,743
Mortgage origination fees ...................................................................................................
23,210
15,666
108,619
Other income4.....................................................................................................................
(8,372)
13,630
51,783
Total revenue ......................................................................................................................
82,324
80,872
419,159
21,745
34,299
165,673
11,303
9,849
43,214
5
Operating expenses ...........................................................................................................
28,766
29,305
119,487
3,787
4
22,125
16,723
7,415
68,660
Net income .........................................................................................................................
Per Unit Highlights
Weighted average number of basic and diluted units6 ........................................................
29,250
29,162
0.57
0.25
29,215
2.35
2013
105,018
76,854
67,811
70,629
320,312
140,658
23,916
105,324
9,855
40,559
80,454
68,872
89,434
29,644
268,404
113,353
17,037
109,821
919
27,274
29,019
1.40
20,444
1.33
As at February 29,
As at February 28,
2016
2015
As at November 30,
2015
(in $ thousands)
Total assets .........................................................................................................................
22,010,341
16,494,830
Long-term debt ...................................................................................................................
204,295
152,869
321,600
292,383
4
5
6
2014
2013
(in $ thousands)
21,081,191
202,370
332,688
14,938,012
151,220
294,868
8,907,023
296,925
Other income includes investment income, securitization and other financial (losses)/gains and leasing fees.
Each unit of MCLP will be exchanged for 1.25 Common Shares prior to Closing pursuant to the Reorganization. See “Corporate Structure and Reorganization”
and “Prior Issuances” below.
57
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following management’s discussion and analysis of financial condition and results of operations (“MD&A”)
is prepared as of the date of this prospectus. This MD&A should also be read in conjunction with the audited consolidated
financial statements of MCAP as at and for the years ended November 30, 2015, 2014 and 2013 and the notes thereto and
the unaudited consolidated financial statements of MCAP as at and for the three months ended February 29, 2016 and the
notes thereto. The consolidated financial statements of MCAP referred to above were prepared in accordance with IFRS.
Some of the information contained in this MD&A contains forward-looking statements that involve risks and
uncertainties. See “Forward-Looking Information”, “Market Data and Industry Data”, “Business” and “Risk Factors”
for a discussion of the uncertainties, risks and assumptions associated with those statements. Actual results may differ
materially from those discussed in the forward-looking statements as a result of various factors, including those described
in “Risk Factors” and elsewhere in this prospectus.
Unless otherwise noted, tabular amounts are in thousands of Canadian dollars. Amounts are stated in Canadian
dollars unless otherwise indicated.
Unless otherwise noted or the context indicates otherwise, “MCLP” refers to MCAP Commercial LP and
“MCAP”, “we”, “us” and “our” refer to MCAP Corporation and its subsidiaries, collectively (or prior to the closing of
the Reorganization (as defined above), to MCLP and its subsidiaries, collectively). See “Corporate Structure and
Reorganization.” Certain capitalized terms and phrases used in this prospectus are defined in the “Glossary of Terms”
beginning on page 144.
General Description of MCAP
MUA. MCAP focuses on prime, insured mortgage products across the country. As of May 31, 2016, MCAP’s MUA was
approximately $56 billion, and in its 2015 fiscal year MCAP had $14.3 billion of mortgage originations plus $4 billion of
mortgage renewals. MCAP’s business model is to originate and underwrite mortgages, fund them by selling them to
Institutional Investors or a securitization vehicle, and then provide ongoing mortgage servicing back to that Institutional
Investor or securitization vehicle. MCAP is exposed to the direct credit risk of most of its originated mortgages only
vehicle. MCAP’s exposure is thereafter limited to certain retained obligations, such as the obligation to service the
mortgages and timely payment guarantees under CMHC-sponsored programs. MCAP had direct credit exposure to
mortgages representing only 0.04% of MCAP’s MUA (excluding warehouse loans) as of its 2015 fiscal year end. MCAP
operates under two operating segments: (1) single-family mortgages (92% of MUA as of MCAP’s 2015 fiscal year end), of
which 98% are prime mortgages that are insured or insurable by Mortgage Insurance Companies; and (2) commercial
mortgages and construction loans (8% of MUA as of MCAP’s 2015 fiscal year end).
MCAP’s predominant business is in mortgages secured by single-family residential properties that are either (i)
insured for principal and interest by one of the Mortgage Insurance Companies or (ii) to MCAP’s knowledge, generally in
conformance with the mortgage underwriting standards of Canadian Schedule I Banks at the time each mortgage is
underwritten (“prime single-family mortgages”). In addition to its single-family mortgage product lines, MCAP also
originates a small amount of single-family Alt-A residential mortgages, commercial mortgages secured by real property
used for commercial purposes, including retail, industrial, office or multi-unit residential, including multi-unit mortgages
insured by CMHC (“commercial mortgages”) as well as construction loans secured by real property to fund the
construction of single-family and multi-unit residential properties and commercial properties (“construction loans”).
MCAP’s business model is structured such that, except for the short periods of time during which mortgages are
funded using its own capital or borrowings under its warehouse loan facilities, the mortgages underwritten by MCAP are
ultimately owned by the funding sources.
MCAP has long-standing relationships with over 25 Institutional Investors, including several of Canada’s
Schedule I Banks, life insurance companies, credit unions and pension funds, to provide funding for a wide variety of
residential and commercial mortgage and construction loan products. These Institutional Investors regularly purchase
58
MCAP’s mortgage products, with several of them purchasing multiple products. Single-family mortgages are purchased by
certain Institutional Investors on either a committed basis or a whole-loan purchase basis. For Institutional Investors
purchasing on a committed basis, the investor commits to fund the mortgage when MCAP commits to the borrower and
then provides the funds to MCAP at the time of closing, thereby eliminating the requirement for MCAP to hedge and
warehouse the mortgage. For Institutional Investors funding on a whole-loan basis, the Institutional Investor purchases a
pool of mortgages that were initially funded by MCAP, and, as a result, MCAP has to temporarily fund and warehouse the
mortgages in order to create the pool to be sold.
The majority of MCAP’s warehoused mortgages are insured or insurable prime single-family mortgages. MCAP
only issues commitments for commercial mortgages (other than insured multi-unit mortgages) and construction loans after
they have been approved for funding by the ultimate institutional investor, and as a result, MCAP does not warehouse these
mortgage products. MCAP may warehouse insured multi-unit mortgages prior to sale to an Institutional Investor or to
securitization vehicles.
MCAP uses two general types of securitization being (i) the CMHC-sponsored NHA-MBS and CMB
securitizations, and (ii) private securitization vehicles such as bank-sponsored ABCP, RMBS and CMBS. MCAP
strategically determines whether to securitize mortgages, and with which program, based on economics and relevant
regulatory and contractual restrictions or guidelines. In all of the programs that MCAP utilizes for this purpose, MCAP
retains the spread between the mortgage interest paid by borrowers and the interest paid to securitization investors, certain
mortgagor and ancillary fees collected on the securitized mortgages, the mortgage renewal rights and certain obligations
associated with these loans including the obligation to service the mortgages. MCAP remains responsible for costs
associated with the securitization such as, and not limited to, hedging costs while mortgages are warehoused, rating agency
fees, initial CMHC fees, mortgage default insurance costs and ongoing program fees.
Key drivers of MCAP’s historical growth were the acquisition in 2012 of the Canadian mortgage operations of
ResMor and the 80% of MSC that MCAP did not previously own and the successful integration of these operations.
Secondly, the injection of additional equity in MCAP of approximately $100 million in 2013 and the raising of $200
million of long-term debt in 2014 and 2015 enabled MSC to increase its participation levels in the NHA-MBS and CMB
programs.
First Quarter 2016 Results Summary
MCAP’s net income for the first quarter (“Q1”) of 2016 was $16.7 million compared with $7.4 million for the first
quarter of 2015, an increase of 126%. MCAP’s net income growth from 2015 to 2016 was primarily due to four key
factors: (i) a 43% increase in net interest income on previously securitized mortgages through MCAP’s growing portfolio
of securitized mortgages, (ii) a 12% increase in MUA resulting in higher servicing and administration fees, (iii) higher
whole-loan sales and lower securitization activity in the first quarter of 2016 compared to the first quarter of 2015, and (iv)
certain cost reduction initiatives.
Single-family residential MUA was $48.7 billion as at the end of the first quarter of 2016, up approximately 11%
compared with the same time in 2015. Commercial and construction MUA was $4.6 billion as at the end of the first quarter
of 2016, up approximately 23% compared with the same time in 2015. MCAP continues to build MUA, which generates a
stable and recurring revenue source.
New single-family residential mortgage originations were $1.7 billion in the first quarter of 2016, down
approximately 26% compared with the same period in 2015, while commercial and construction originations were $0.6
billion, up approximately 37% compared with the same period in 2015. Single-family renewals in the first quarter of 2016
were $0.9 billion, up approximately 19% from the same period in 2015.
MCAP securitized $1.6 billion of mortgages in the first quarter of 2016, a 21% decrease compared with the same
period in 2015. Sales to Institutional Investors in the first quarter of 2016 were $1.5 billion, an increase of 64% over the
same period in 2015.
59
2015 Results Summary
MCAP’s net income for 2015 was $68.7 million compared with $40.6 million for 2014, an increase of 69%.
MCAP’s net income growth from 2014 to 2015 was primarily due to three key factors: (i) a 61% increase in net interest
income on previously securitized mortgages through MCAP’s growing portfolio of securitized mortgages, (ii) a 15%
increase in MUA resulting in higher servicing and administration fees, and (iii) higher origination fees earned on improved
selling spreads and due to a 25% increase in originations.
Single-family residential MUA was $48.4 billion as of November 30, 2015, up approximately 14% from the end
of the 2014 fiscal year. Commercial and construction MUA was $4.3 billion as at November 30, 2015, up approximately
18% from the end of the 2014 fiscal year. MCAP continues to build MUA, which generates a stable and recurring revenue
source.
New single-family mortgage originations were $11.25 billion in fiscal 2015, up approximately 19%, compared
with fiscal 2014 while commercial and construction originations were $3.06 billion in fiscal 2015, up approximately 53%
compared with fiscal 2014.
MCAP securitized $7.7 billion of funded loans in fiscal 2015, a 25% increase over fiscal 2014. Approximately
$6.4 billion of securitized mortgages went into the NHA-MBS securitization program in fiscal 2015 and $1.1 billion of
securitized mortgages went into the CMB program in fiscal 2015, an increase over fiscal 2014 combined levels for NHAMBS and CMB of approximately $1.5 billion. In addition, $0.2 billion was securitized into the CMBS program in fiscal
2015, consistent with the level of the RMBS program in fiscal 2014.
MCAP issued an additional $50 million of Senior Secured Notes in April 2015 increasing the aggregate principal
amount of the Senior Secured Notes outstanding to $200 million. The Senior Secured Notes have a maturity date of March
11, 2019. The additional Senior Secured Notes issued in 2015 were issued at an interest rate slightly less than the posted
interest rate of 3.955%. This debt offering will help MCAP achieve its business plan going forward.
Selected Financial Information for MCAP’s First Quarter 2016 and the Years Ended November 30, 2015, 2014 and
2013
Three months
ended February
29,
Three months
ended February
28,
2016
2015
2015
2014
47,937
33,613
169,014
105,018
Servicing and administration income .................................................................................
19,549
17,963
89,743
76,854
Mortgage origination fees...................................................................................................
23,210
15,666
108,619
67,811
Other income1.....................................................................................................................
(8,372)
13,630
51,783
70,629
Total revenue......................................................................................................................
82,324
80,872
419,159
320,312
21,745
34,299
165,673
140,658
11,303
9,849
43,214
23,916
28,766
29,305
Operating expenses2 ...........................................................................................................
119,487
105,324
3,787
4
16,723
7,415
Net income .........................................................................................................................
22,125
68,660
9,855
40,559
2013
80,454
68,872
89,434
29,644
268,404
113,353
17,037
109,821
919
27,274
Distributions Paid ..............................................................................................................
26,599
9,900
32,152
44,639
2,108
Per Unit Highlights
Distributions per unit ..........................................................................................................
0.91
0.34
0.57
0.25
1.10
2.35
1.58
1.40
0.10
1.33
1
2
Other income includes investment income, securitization and other financial gains and leasing fees.
60
As at February 29,
As at February 28,
2016
2015
As at November 30,
2015
(in $ thousands)
Total assets .........................................................................................................................
22,010,341
16,494,830
Long-term debt ...................................................................................................................
204,295
152,869
321,600
292,383
2014
2013
(in $ thousands)
21,081,191
14,938,012
8,907,023
202,370
151,220
NIL
332,688
294,868
296,925
Key Performance Drivers
MCAP’s results of operations are primarily driven by the following factors:

mortgage origination;

mortgage funding through sales and securitization;

mortgages under administration; and

operating expenses.
Mortgage origination
Mortgage origination is important to MCAP as it leads to a multitude of current and future revenues. Mortgages
can be funded through direct sales to Institutional Investors or through securitization vehicles. When mortgages are sold to
Institutional Investors, MCAP earns origination fee revenue in the period that the mortgages are sold. When mortgages are
funded using securitization vehicles, MCAP does not earn any origination fee revenue, however, securitized mortgages
produce net interest income over the term of the securitization. Mortgages that are either sold or securitized form part of
MCAP’s MUA that creates recurring servicing and administration fee income. When mortgages come up for renewal,
MCAP endeavours to renew such mortgages so that they may be subsequently re-securitized or re-sold to Institutional
Investors.
Mortgage funding through sales and securitization
The ability to access various funding sources not only allows MCAP to strategically improve profitability, but also
helps MCAP weather economic downturns. MCAP endeavours to minimize its funding costs by employing its capital and
warehouse loan facilities to strategically time when it will place mortgages in the most cost-effective long-term funding
channel. MCAP has a group of high-quality Institutional Investors that regularly purchase mortgages from MCAP for their
own investment purposes. In addition, MCAP has access to significant capital markets facilities that allow it to securitize
mortgages. MCAP, through MSC, is an approved NHA-MBS issuer and a seller into the CMB program. As well, MCAP
has access to various ABCP securitization vehicles, RMBS and CMBS. Access to these securitization vehicles (NHAMBS, CMB, ABCP, RMBS and CMBS) provides MCAP with diverse and independent funding that is expected to allow
MCAP to continually offer competitive mortgage products to its borrowers and brokers.
Mortgages under administration
MUA is a key component to the long-term success and viability of MCAP. Virtually all MCAP-originated
mortgages are serviced by MCAP and are expected to generate recurring servicing and administration income in the future.
Securitizations and sales to Institutional Investors are instrumental in continuing the growth in MUA. MUA are also
generated from mortgage portfolio acquisitions or through third-party servicing contracts (“sub-servicing”). As noted
above, one of MCAP’s objectives is to control the renewal of the mortgages that it manages as renewals represent a lowcost opportunity to maintain the portfolio of MUA which results in continued servicing and administration income from
such mortgages.
As MUA increases, servicing and administration income also increases. Servicing and administration income are
considered to be long-term recurring revenue for MCAP. Growing long-term sustainable revenue is a key strategy of
MCAP.
61
Operating expenses
The ability to manage operating expenses is an important factor for the success of MCAP. As MCAP’s
originations and MUA continue to grow, so will some of its operating expenses. Volume-related expenses such as, but not
limited to, communication costs with borrowers, certain information technology costs and certain salaries and benefits will
increase along with the growth of originations and MUA. However, it is important that MCAP carefully monitors its nonvolume related expense such as, but not limited to, occupancy costs, certain salaries and benefits, marketing, certain
information technology costs and other general and administrative expenses. These costs are typically impacted by general
inflation. Prudently managing costs is necessary in order for MCAP to leverage its operating efficiencies to maximize
long-term value and drive higher profitability.
Revenue
Net interest income on securitized mortgages
Net interest income on securitized mortgages consists of interest revenue collected on MCAP’s portfolio of
securitized loans, offset by interest expense paid to investors in various securitization programs. Interest revenue is
dependent on the outstanding mortgage principal and the interest rate applicable to each individual mortgage. Interest
expense is a function of outstanding securitization debt and the interest rate attached to each securitization issuance or
program.
Mortgage origination fees
Mortgage origination fees are generated when mortgages are sold to Institutional Investors. This revenue is
derived from an investor-specific contractual rate, which is typically based on the term, rate and principal of each individual
mortgage sold. Also included in mortgage origination fees are commitment fees paid to MCAP by commercial and
construction borrowers. These fees are typically a function of the amount of the mortgage commitment and are paid by the
borrower upon their acceptance of the commitment.
Servicing and administration income
Servicing and administration income represents revenue from servicing MCAP’s mortgage portfolio. This
portfolio includes both mortgages originated by MCAP as well as mortgages from third-party sub-servicing contracts.
Servicing revenue is predictable and recurring in nature, and is primarily dependent on the volume of MUA and servicing
rates charged to investors and sub-servicing lenders as stipulated in each servicing agreement or at market rates for
securitized mortgages.
Also included in mortgage servicing and administration fees are mortgagor fees. These include ancillary fees
earned from borrowers or investors from the portfolio of mortgages. Some of these fees include, but are not limited to,
discharge fees, renewal fees and returned payment fees. Fees received are typically calculated either as a percentage of
outstanding mortgage principal or as a flat fee and are generally correlated to MUA.
Investment income and leasing fees
Investment income represents the interest revenue earned on mortgages originated using MCAP’s resources for the
period of time prior to when such mortgages are sold or securitized as well as interest income earned on funds held in trust.
Investment income is affected by the interest rate, mortgage principal and amounts held in trust and the amount of time that
such mortgages and funds held in trust are held by MCAP. Leasing fees include interest income and ancillary charges from
the administration of MCAP’s remaining portfolio of commercial equipment leases, and are affected by the value of leases
remaining in MCAP’s portfolio.
Securitization and other financial instrument gains
Securitization and other financial instrument gains comprise three main components:
mortgages; (ii) fair value adjustment of financial instruments; and (iii) hedge gains or losses.
(i) gain on sales of
Gain on sales of mortgages. Gain on sales of mortgages is recognized when MCAP securitizes mortgages when
such securitizations are treated as sales for accounting purposes. The gain is calculated using both observable market data
62
and valuation techniques, which are subject to certain assumptions. Observable market data include, but are not limited to,
the selling spread and the interest rate paid to the securitization investor. Examples of valuation assumptions include, but
are not limited to, liquidation rates, discount rates on assets and future interest rates. Gain on sale is affected by the abovementioned data and assumptions, as well as the volume of securitized loans.
Fair value adjustment of financial instruments. Financial instruments include NHA-MBS securities, securitized
and non-securitized mortgages, deferred purchase price (“DPP”) from off-balance sheet securitized assets, derivative
assets, debt related to securitized mortgages and derivative liabilities. These financial instruments are recorded at fair value
and any periodic change in value is reflected as a fair value adjustment.
Securitized and non-securitized mortgages are measured based on market rates for mortgages with similar
characteristics and, as mortgage interest rates or selling spreads move, MCAP records fair value gains or losses. Similarly,
MCAP’s debt related to its securitized mortgages is measured based on market interest rates for comparable debt
instruments and as those interest rates move, MCAP records fair value gains or losses. Generally, if interest rates go down,
MCAP will record a fair value gain related to the change in value of its mortgages and a fair value loss related to the change
in value of its debt related to securitized mortgages (and vice versa if interest rates go up). However, the gains and losses
will not necessarily offset each other as market rates may move by different amounts as between mortgages and debt related
to securitized mortgages.
The fair value adjustment for financial instruments is affected by market interest rates and the volume of the
underlying financial instruments on MCAP’s balance sheet.
Hedge gains or losses. Hedging activities can result in significant gains or losses depending on the timing, the
amount and the direction of the interest rate movement and the value of funded and committed mortgages (i.e. mortgages
that have not yet been funded) that are hedged. Hedge gains and losses are designed to be offset by corresponding amounts
on the subsequent funding and securitization or sale of the committed mortgages.
MCAP hedges its interest rate risk by selling Government of Canada (“GOC”) bonds or CMBs using reverse
repurchase agreements and investing the cash with the same financial institution that bought the securities under the reverse
repurchase agreement as well as by using interest rate swaps. The value of these financial instruments is affected by change
in market interest rates and the amount of hedge positions entered into by MCAP.
Expenses
Interest expense
Interest expense consists primarily of costs related to the usage of MCAP’s credit facilities including the Senior
Secured Notes. It is driven by the amount borrowed by MCAP to finance its operations and warehousing needs, and by
market interest rates related thereto as well as the interest rate on the Senior Secured Notes.
Origination expense
Origination expense primarily includes commissions paid to mortgage brokers, electronic processing fees,
appraisal costs, title insurance costs and mortgage default insurance costs and costs incurred related to mortgagor fees.
Mortgage broker commissions are based on mortgage principal and term as well as the annual origination volume of each
individual mortgage broker. Electronic processing fees are based on the volume of originated mortgages that are processed
through specific third-party software applications. Appraisal costs and title insurance costs are incurred on most singlefamily initial mortgage fundings at standard rates. Mortgage default insurance cost is based on the volume of loans that are
portfolio-insured and the rate charged by the Mortgage Insurance Companies, which is typically dependent on loan
attributes within the portfolio of mortgages being insured.
Salaries and benefits
Salaries and benefits expense consists primarily of regular and variable compensation paid to employees,
severance costs, employee benefit costs and fees paid to employee recruiting agencies. Variable compensation is based on
individual and company performance, and is subject to senior management discretion and approval from the Board of
Directors. Employee-related costs are largely based on the number of employees.
63
Other operating costs
Other operating costs consist primarily of information systems expenses, occupancy costs, general and
administrative expenses and other operating expenses.
Information systems expenses include costs incurred for the maintenance of existing technology assets and
computer hardware and software depreciation. Except for depreciation, information systems costs are affected by the rates
charged by third party vendors for licenses and maintenance as well as fees charged by consultants related to ongoing
systems maintenance and development. Hardware depreciation is based on the estimated useful life of each individual class
of asset and software depreciation is based on the expected benefit period.
Occupancy costs consist primarily of rent, ongoing maintenance costs and depreciation of assets such as leasehold
improvements, furniture and equipment. Occupancy costs are primarily affected by the number of employees.
General and administration expenses include marketing, business development and office supply and
communication expenses. Other operating expenses include professional fees and MCAP’s non-refundable portion of
GST/HST. Professional fees are affected by the number and complexity of special projects that MCAP works on such as
acquisitions or complex financing and funding arrangements. GST/HST expenses are a function of all non-salary related
costs, which incur GST/HST, as MCAP is only entitled to a partial recovery of the GST and HST that it pays.
Income tax expense
MCLP is a partnership and its net income, as adjusted for income tax purposes, constitutes income of the
individual partners and is subject to income tax in their hands. As a result, income earned directly in the partnership does
not result in an income tax provision in MCLP’s consolidated financial statements. Certain subsidiaries of MCLP are
taxable corporations. MCLP uses the asset and liability method in accounting for income taxes for these subsidiaries,
whereby deferred income tax assets and liabilities are recognized for future tax consequences attributable to temporary
differences between financial statement carrying amounts and amounts used for taxation purposes.
Current income tax is the expected tax payable or recoverable on the taxable income or loss for the current year
from the subsidiaries that are taxable corporations, using tax rates enacted or substantially enacted at the reporting date, and
any adjustment in respect of previous years.
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or
loss except to the extent that they relate to items recognized directly in equity or in other comprehensive income.
64
Results of Operations
The following table shows the volume of mortgages originated by MCAP, certain mortgage sale and
securitization activities and MUA for the three-month periods indicated:
Three month period ended ($ million)
February 29,
February 28,
2016
2015
Mortgage Originations by Segment
Single-family residential
Commercial and construction
Total
1,696
593
2,289
2,278
431
2,709
Mortgage Sales by Source
Institutional Investors – single-family residential
Institutional Investors – commercial and construction
NHA-MBS/CMB/ABCP/CMBS securitization
890
631
1,593
594
336
1,904
48,683
4,637
53,320
43,865
3,779
47,644
Mortgages Under Administration(1)
Total
(1)
At period end.
The following table shows the volume of mortgages originated by MCAP, certain mortgage sale and
securitization activities and MUA for the years indicated:
Year ended ($ million)
November 30,
November 30,
November 30,
2015
2014
2013
Mortgage Originations by Segment
Total
Mortgage Sales by Source
Institutional Investors – single-family residential
Institutional Investors – commercial and construction
NHA-MBS/CMB/ABCP/RMBS/CMBS securitization
Mortgages Under Administration(1)
Total
(1)
At period end.
65
11,252
3,058
14,310
9,480
1,992
11,472
8,182
2,281
10,463
4,631
2,630
7,687
3,916
1,566
6,168
5,946
2,229
2,842
48,418
4,268
52,686
42,533
3,611
46,144
37,403
2,935
40,338
Summary of Quarterly Results
The following table sets forth a selected summary of unaudited quarterly information for each of the eight quarters
from the quarter ended May 31, 2014 through to February 29, 2016. This information has been derived from MCAP’s
unaudited interim consolidated financial statements.
Quarter Ended
2016
Feb. 29
2015
Nov. 30
Aug. 31
2014
May 31
Feb. 28
($thousands)
Nov. 30
Aug. 31
May 31
Total revenue ......................................................................................................................
82,324
108,973
104,149
125,165
80,872
95,306
125,001
34,637
Net income .........................................................................................................................
16,723
14,331
13,534
33,380
7,415
11,823
5,556
9,971
Weighted average number of basic
29,250
29,250
29,250
and diluted units (1) ..............................................................................................................
Net income per unit ............................................................................................................
0.57
0.49
0.46
29,197
29,162
29,019
29,019
29,019
1.14
Total assets .........................................................................................................................
22,010,341
21,081,191
21,371,123
(1)
19,405,662
0.25
16,494,830
0.41
14,938,012
0.19
13,348,237
0.34
11,327,650
Each unit of MCLP will be exchanged for 1.25 Common Shares prior to Closing pursuant to the Reorganization. See “Corporate
Structure and Reorganization” and “Prior Issuances” below.
Quarter Ended February 29, 2016 Compared to Quarter Ended February 28, 2015
Net interest income on securitization
Net interest income on securitization increased by approximately 43% from $33.6 million in Q1 2015 to $47.9
million in Q1 2016. The increase is attributed to MCAP’s portfolio of securitized loans, which increased by 36% from
February 28, 2015 to February 29, 2016. The weighted average mortgage rate for MCAP’s securitization portfolio was
2.6% in Q1 2016 compared to 2.87% in Q1 2015, while the weighted average coupon for securitized debt was 1.53% in Q1
2016 compared to 1.63% in Q1 2015.
Servicing and administration income increased by approximately 9% from $18.0 million in Q1 2015 to $19.5
million in Q1 2016. The increase was mainly attributed to higher MUA. MUA increased by 12% from $47.6 billion at the
end of Q1 2015 to $53.3 billion at the end of Q1 2016. Income related to mortgage life-insurance activity declined by $0.9
million from Q1 2015 to Q1 2016. Factoring those figures out of the totals, results in an increase of 15% from Q1 2015 to
Q1 2016, consistent with the growth of MUA.
Mortgage origination fees increased 48% from $15.7 million in the first quarter of 2015 to $23.2 million in the
first quarter of 2016. The increase is due to a higher volume of single-family mortgages sold to Institutional Investors,
partially offset by lower average selling prices. The volume of single-family whole-loan mortgage sales increased by 50%
from Q1 2015 to Q1 2016 while the average selling price for single-family whole-loan mortgage sales decreased by 10%
over the same period. During the first quarter of 2015, the Bank of Canada announced a surprise interest rate cut, thereby
causing GOC bond yields to fall and improving MCAP’s whole-loan mortgage selling price. Also contributing to the
higher mortgage origination fees are the volume of commercial and construction whole-loan sales, which increased by 88%
from the first quarter of 2015 to the first quarter of 2016.
Investment income and leasing fees increased 48% from $8.7 million in the first quarter of 2015 to $12.9 million
in 2016. The increase in investment income is attributed to the increase in mortgage interest income earned during the
warehousing period prior to sale or securitization. The average month-end balance of mortgages originated using MCAP’s
66
resources increased by 53% from 2015 to 2016 contributing to the increase in mortgage interest income. Partially offsetting
this is lower leasing fees earned by MCAP as its leasing portfolio continues to wind down. Leasing fees decreased from
$0.3 million in the first quarter of 2015 to $0.1 million in 2016.
Securitization and other financial instrument (losses)/gains (in $thousands) were as follows:
Q1 2016
Gain on sale from securitizations
Q1 2015
$1,033
$745
Fair value adjustment (losses)/gains
(10,475)
51,025
Hedging losses
(11,785)
(46,828)
($21,227)
$4,942
Net Securitization and other financial instrument (losses)/gains
Securitization and other financial instrument (losses)/gains decreased from a gain of $4.9 million in the first
quarter of 2015 to a loss of $21.2 million in 2016. The loss was driven by lower market valuation of MCAP’s nonsecuritized mortgages and higher securitization-related transaction costs, offset by slightly higher gains on MCAP’s multifamily securitization transactions and lower hedge losses and costs when compared to the prior year. The lower market
valuation on MCAP’s non-securitized mortgages is due to lower market selling spreads at the end of the first quarter of
2016 offset somewhat by a higher balance of non-securitized mortgages at the end of the first quarter of 2016 compared to
2015. Market selling spreads were higher in the first quarter of 2015 due to the Bank of Canada’s unexpected rate cut, but
were at more normalized levels at the end of February 2016. The lower hedge losses and costs are attributed to less
unfavourable movement of the GOC bond yields during the first quarter of 2016 and a lower volume of hedging
transactions during the first quarter of 2016 compared to 2015.
Interest expense
Interest expense increased 15% from $9.8 million in the first quarter of 2015 to $11.3 million in Q1 2016. MCAP
uses its warehouse facilities, repurchase facilities and certain ABCP securitization vehicles to temporarily fund its
mortgages that are intended to be securitized or sold as whole loans. The average monthly usage of MCAP’s warehouse
loan facilities increased by 70% offset by lower pricing on the warehouse loan facilities. The increase in interest expense is
consistent with the increase in investment income, as both are correlated to warehouse loan facility usage. In addition,
MCAP issued an additional $50 million of Senior Secured Notes in the second quarter of 2015, bringing the total amount
outstanding to $200 million. MCAP recorded $1.9 million of interest expense related to the Senior Secured Notes in the
first quarter of 2016 compared to $1.5 million in 2015.
Origination expense
Origination expense decreased 37% from $34.3 million in the first quarter of 2015 to $21.7 million in Q1 2016.
The decrease is due to both lower brokerage fees paid related to reduced levels of single-family mortgage originations and
lower portfolio insurance costs. Fees paid to mortgage brokers decreased 28% quarter-over-quarter compared to a 16%
decline in origination volume. In addition, MCAP continued to portfolio-insure conventional single-family mortgages in
order to participate in various securitization programs. Portfolio insurance costs decreased 57%, both as a result of lower
portfolio insurance volumes and slightly more favourable portfolio insurance pricing.
Salaries and benefits remained constant from the first quarter of 2015 to Q1 2016, declining slightly from $19.4
million to $19.3 million. As at February 29, 2016, MCAP had 725 full-time equivalent employees (“FTEs”), compared to
699 FTEs as at February 28, 2015. Increases in salaries and benefits related to the increase in headcount were substantially
offset by reductions in temporary contract costs and variable compensation.
67
Other operating costs decreased 4% from $9.9 million in the first quarter of 2015 to $9.5 million in Q1 2016. This
decrease is primarily due to lower information systems costs and lower professional and legal fees that were incurred in
2015 as a result of MCAP’s first CMBS issuance.
Income tax expense
Income tax expense increased from $0.004 million in the first quarter of 2015 to $3.8 million in Q1 2016. This
increase is attributed to a significantly greater proportion of MCAP’s pre-tax income being earned in its tax-paying
subsidiaries in 2016 compared to 2015.
Operating Segment Review – Three Months Ended February 29, 2016 Compared to the Three Months Ended February
28, 2015
The chart below summarizes the financial performance and operational data of each business segment:
Single-family
residential
Commercial and
construction(1)
Total
Three months ended February 29/28,
2016
2015
2016
2015
2016
2015
Originations (in $million)
1,696
2,278
593
431
2,289
2,709
75,990
18,052
76,011
7,318
6,334
2,458
4,861
101
82,324
20,510
80,872
7,419
48,683,402
43,864,844
4,636,841
3,779,202
53,320,243
47,644,046
Revenue (in $thousands)
Income before taxes (in $thousands)
As at February 29/28,
MUA (in $thousands)
(1)
Commercial leasing results are recorded under the Commercial and construction segment.
Single-family residential mortgages
The single-family residential mortgage segment income before taxes increased 148% from $7.3 million in the first
quarter of 2015 to $18.1 million in 2016. The increase is attributed to higher net interest income on securitized mortgages,
servicing and administration income, mortgage origination fees, investment income and lower operating expenses. The
increase in income is primarily driven from the growth of MCAP’s outstanding securitization portfolio, MUA and sales of
mortgages to Institutional Investors.
Net interest income on securitized mortgages increased 43% from $33.2 million in the first quarter of 2015 to
$47.6 million in 2016, primarily from a larger portfolio of securitized loans. The single-family securitized mortgage
portfolio increased 34% from $13.6 billion as February 28, 2015 to $18.2 billion as at February 29, 2016. Servicing and
administration income increased by 10% from $16.2 million in the first quarter of 2014 to $17.8 million in 2015, primarily
due to MUA growth but offset by lower revenue related to MCAP’s mortgage life insurance offerings. MUA increased
11% from $43.9 billion as at February 28, 2015 to $48.7 billion as at February 29, 2016. Mortgage origination fees
increased 44% from $14.5 million in the first quarter of 2015 to $20.9 million in 2016, which was a result of higher volume
of loans sold to Institutional Investors, offset by lower selling prices. Operating expense decreased by 16% from $68.7
million in the first quarter of 2015 to $57.9 million in 2016. The decrease is mainly attributed to lower origination
expenses, which resulted from 26% lower origination volume in Q1 2016 compared to Q1 2015.
Offsetting the increases noted above are securitization and other financial instruments losses. Securitization and
other financial instruments loss of $22.2 million in the first quarter of 2016, which declined from a gain of $4.2 million in
2015, was mainly attributed to unfavourable fair value adjustments of MCAP’s financial instruments compared to the first
quarter of 2015, primarily related to MCAP’s portfolio of non-securitized mortgages. This was offset by lower hedge
losses in Q1 2016 compared to Q1 2015. In Q1 2015, both the fair value adjustment gain and the hedging losses were
impacted by the unexpected interest rate cut by the Bank of Canada in Q1 2015.
68
The commercial and construction segment continues to contribute to the diversification of earnings at MCAP. The
overall performance of this segment during the first quarter of 2016 far exceeded that of 2015, with higher production
volume, MUA, total revenue and income before taxes. The key drivers to the successful first quarter of 2016 were higher
origination fees and lower operating expenses. Mortgage origination fees, which increased by 89% in Q1 2016 compared
to Q1 of 2015, resulted from higher production volume of 37% and a change in investor mix. Operating expense decreased
19% and is attributed to the reversal of a provision in origination expense and better cost management of other operating
expenses.
Discussion of Annual Financial Results
Fiscal 2015 Compared to Fiscal 2014
Net interest income on securitized mortgages increased 61% from $105.0 million in 2014 to $169.0 million in
2015. The increase is attributed to MCAP’s portfolio of securitized loans, which increased by 43% from November 30,
2014 to November 30, 2015. The weighted average mortgage rate for MCAP’s securitization portfolio was 2.65% in 2015
compared to 2.97% in 2014, while the weighted average coupon for securitized debt was 1.46% in 2015 compared to
1.77% in 2014.
Servicing and administration income increased by 17% from $76.9 million in 2014 to $89.7 million in 2015. The
increase was mainly attributed to higher MUA. MUA increased by 14% from $46.1 billion at the end of 2014 to $52.7
billion at the end of 2015. The bulk of the MUA increase was for securitized and warehoused mortgages, which increased
49% from $13.0 billion as at November 30, 2014 to $19.4 billion as at November 30, 2015. Third-party MUA slightly
increased from $33.1 billion as at November 30, 2014 to $33.3 billion as at November 30, 2015.
Mortgage origination fees increased 60% from $67.8 million in 2014 to $108.6 million in 2015. The increase is
primarily due to a higher volume of single-family mortgages sold on a whole-loan basis at better selling prices. The volume
of single-family whole-loan mortgage sales increased by 87% from 2014 to 2015 and the average selling price for wholeloan mortgage sales increased by 104% from 2014 to 2015. The increase in selling price was due to enhanced mortgage
spreads as GOC bond yields declined more than corresponding mortgage rates during 2015. Commercial and construction
whole-loan sales increased by 68% from 2014 to 2015. Offsetting the increases from whole-loan sales was a lower volume
of single-family mortgages sold at the time of commitment to Institutional Investors, which decreased by 13% from 2014 to
2015.
Investment income and leasing fees increased 82% from $27.0 million in 2014 to $49.3 million in 2015. During
fiscal 2015, MCAP expanded its mortgage warehouse facilities and added several mortgage repurchase facilities in order to
support higher mortgage origination volumes. The increase in investment income is mainly attributed to the increase in
mortgage interest income earned during the warehousing period prior to sale or securitization. The average month-end
balance of mortgages originated using MCAP’s resources increased by 184% from 2014 to 2015 contributing to the
increase in mortgage interest income. Offsetting this is lower leasing fees earned by MCAP as its leasing portfolio
continues to wind down. Leasing fees decreased from $1.9 million in 2014 to $1.1 million in 2015.
Securitization and other financial instrument gains decreased from $43.6 million in 2014 to $2.5 million in 2015.
The components of this figure for each of 2015 and 2014 were as follows (in $thousands):
69
2015
2014
$2,289
$2,276
Fair value adjustment gains
56,583
67,738
(56,382)
(26,431)
$2,490
$43,583
Hedging losses
Net Securitization and other financial instrument gains
Securitization and other financial instrument gains decreased from a $43.6 million in 2014 to $2.5 million in 2015.
The lower gain was mainly attributable to lower market valuation of MCAP’s non-securitized mortgages and higher hedge
losses. The lower market valuation on MCAP’s non-securitized mortgages is due to lower market selling spreads, offset by
a higher volume of non-securitized mortgages on the balance sheet at the end of 2015 compared to 2014. The higher hedge
losses and costs are attributed to the unfavourable movement of the GOC bond yields, which declined from 1.46% as at
November 2014 to 0.92% as at November 2015 and higher volume of hedges used during the year resulting from increased
securitization transactions.
Gain on sale from securitizations, which relate to the securitization of multi-unit residential mortgages, was flat
from 2014 to 2015. This was attributed to an 8% increase to securitization volume, offset by a 7% decrease in
securitization spread.
Interest expense
Interest expense increased 81% from $23.9 million in 2014 to $43.2 million in 2015. MCAP uses its warehouse
facilities, repurchase facilities and certain ABCP securitization vehicles to temporarily fund its mortgages that are intended
to be securitized or sold as whole loans. The average monthly usage of MCAP’s warehouse facilities increased by 60% and
the average annual interest cost related to these borrowings reduced by 0.41% from 2014 to 2015. The increase in interest
expense is consistent with the increase in investment income, as both are correlated to warehouse usage. In addition,
MCAP issued an additional $50 million of Senior Secured Notes in the second quarter of 2015, bringing the total amount
outstanding to $200 million by the end of 2015. MCAP recorded $7.2 million of interest expense related to the Senior
Secured Notes in 2015 compared to $4.2 million in 2014.
Origination expense
Origination expense increased 18% from $140.7 million in 2014 to $165.7 million in 2015. The increase is due to
higher brokerage fees paid related to increased single-family mortgage originations and higher portfolio insurance costs.
Fees paid to mortgage brokers increased 26% year-over-year, partly due to the 19% increase in single-family origination
volume as well as higher rates paid to mortgage brokers. MCAP also continued to portfolio-insure conventional singlefamily mortgages in order to participate in various securitization programs. The increase in portfolio insurance costs is
driven by a 65% year-over-year increase in insurance volume, offset by lower insurance premium rates.
Salaries and benefits increased 13% from $71.3 million in 2014 to $80.8 million in 2015. The increase is mainly
due to higher headcount in 2015. As at November 30, 2015, MCAP had 724 FTEs, compared to 689 FTEs as at November
30, 2014. The bulk of the increase is in the single-family segment. Single-family headcount increased by 4% as a direct
result of higher production volume and MUA, which increased 19% and 14% from 2014 to 2015, respectively. This
continues to demonstrate MCAP’s ability to leverage its economies of scale by growing origination volume and MUA at a
faster pace than headcount.
Other operating costs increased 14% from $34.0 million in 2014 to $38.7 million in 2015. This increase is
primarily due to higher information systems costs and communication costs resulting from higher business volume, offset
by lower occupancy costs from a reduction of office space.
70
Income tax expense
Income tax expense increased 125% from $9.9 million in 2014 to $22.1 million in 2015. This is attributable to the
80% increase in pre-tax income from 2014 to 2015 and the fact that a greater percentage of MCAP’s pre-tax income was
earned in its tax-paying subsidiaries in 2015 compared to 2014.
Operating Segment Review – Year Ended November 30, 2015 Compared to the Year Ended November 30, 2014
Single-family
residential
Commercial and
construction(1)
Total
2015
2014
2015
2014
2015
2014
11,252
9,480
3,058
1,992
14,310
11,472
390,189
82,029
299,051
43,903
28,970
8,756
21,261
6,511
419,159
90,785
320,312
50,414
As at November 30,
MUA (in $million)
48,418
42,533
4,268
3,611
52,686
46,144
(1)
Income from single-family residential mortgages before taxes increased 87% from $43.9 million in 2014 to $82.0
million in 2015. The increase is due to higher net interest income from securitized mortgages, servicing and administration
income, mortgage origination fees and investment income. The increase in income is primarily driven from the growth of
MCAP’s origination volume, MUA and outstanding securitization portfolio.
Net interest income on securitized mortgages increased 62% from $103.4 million in 2014 to $167.5 million in
2015, primarily from a larger portfolio of securitized loans. The single-family securitized mortgage portfolio increased
42% from $12.5 billion as at November 30, 2014 to $17.8 billion as at November 30, 2015. Servicing and administration
income increased by 18% from $70.8 million in 2014 to $83.3 million in 2015, primarily due to growth in MUA. MUA
increased 14% from $42.5 billion as at November 30, 2014 to $48.4 billion as at November 30, 2015. Mortgage origination
fees increased 63% from $59.2 million in 2014 to $96.4 million in 2015, which was a result of higher production and better
selling spreads in 2015. Total originations sold directly to Institutional Investors and as whole loans increased 18% from
2014 to 2015. Whole loan spreads more than doubled from 2014 to 2015, mainly attributable to the drop in GOC bond
rates.
Offsetting the increases noted above are securitization and other financial instruments losses and higher expenses.
Securitization and other financial instruments losses relate to hedge losses and costs incurred during the year, which is a
byproduct of higher originations and interest rate volatility during the year. The increase in expenses, which includes an
increase of 75% in interest expense, 17% in origination expense and 12% in salaries and benefits, are all directly related to
the 19% growth in originations, 14% growth in MUA and 13% growth in securitization volume.
Commercial and construction income before taxes increased from $6.5 million in 2014 to $8.8 million in 2015.
The increase is primarily due to a 53% increase in originations and an 18% increase in MUA from November 30, 2014 to
November 30, 2015 offset by a reduction in income of $0.8 million from the commercial leasing operations that are
winding down.
Fiscal 2014 Compared to Fiscal 2013
71
Net interest income on securitized mortgages increased 31% from $80.5 million in 2013 to $105.0 million in 2014.
The increase is attributed to MCAP’s portfolio of securitized loans, which increased 58% year-over-year. The weighted
average mortgage rate for MCAP’s securitization portfolio was 2.97% in 2014 compared to 3.11% in 2013, while the
weighted average coupon for securitized debt was 1.77% in 2014 versus 1.84% in 2013.
Servicing and administration income increased by 12% from $68.9 million in 2013 to $76.9 million in 2014. The
increase was mainly attributed to higher MUA. MUA increased by 14% from $40.3 billion as at November 30, 2013 to
$46.1 billion as at November 30, 2014. The bulk of the increase in MUA was for securitized and warehoused mortgages,
which increased 58% from $8.3 billion as at November 30, 2013 to $13.0 billion as at November 30, 2014. Third-party
MUA increased 3% from $32.0 billion as at November 30, 2013 to $33.1 billion as at November 30, 2014.
Mortgage origination fees decreased 24% from $89.4 million in 2013 to $67.8 million in 2014. While total
mortgage originations increased 10% from $10.5 billion in 2013 to $11.5 billion in 2014, origination fees decreased as
MCAP increased its securitization volume from 2013 to 2014 which had the impact of reducing sales to Institutional
Investors by 33%. In addition, the average selling price for whole-loan sales of single-family mortgages was higher in 2013
compared to 2014.
Investment income increased from $18.8 million in 2013 to $25.1 million in 2014. The increase is mainly
attributed to the increase in mortgage interest income earned during the warehousing period prior to sale or securitization.
The average month-end balance of mortgages originated using MCAP’s resources increased by 43% from 2013 to 2014
contributing to the increase in mortgage interest income. Leasing fees decreased from $3.2 million in 2013 to $1.9 million
in 2014. The decrease in leasing fees is due to the winding down of the leasing portfolio as MCAP’s leasing operation was
sold in 2010.
Securitization and other financial instrument gains increased from $7.7 million in 2013 to $43.6 million in 2014.
The components of this figure for each of 2014 and 2013 (in $thousands) were as follows:
2014
2013
$2,276
$3,450
Fair value adjustment gains
67,738
1,535
Hedging (losses)/gains
(26,431)
2,672
Net Securitization and other financial instrument gains
$43,583
$7,657
Securitization and other financial instrument gains increased from a $7.7 million in 2013 to $43.6 million in 2014.
The higher gain was driven by higher market valuation of MCAP’s securitized and non-securitized mortgages, offset by
higher hedge losses and lower gain on sale from securitizations. The higher market valuation on MCAP’s securitized and
non-securitized mortgages is due to overall favourable market selling spreads and a higher volume of mortgages on
MCAP’s balance sheet. The higher hedge losses and costs are attributed to the unfavourable movement of the GOC bond
yields, which declined from 1.73% as at November 2013 to 1.46% as at November 2014, as well as higher volume of
hedges used during the year resulting from increased securitization transactions.
Gain on sale from securitizations, which relates to the securitization of multi-unit residential mortgages, decreased
from $3.5 million to $2.3 million. This was attributed to lower securitization and lower spreads, which decreased 13% and
24%, respectively from 2013 to 2014.
Interest expense
72
Interest expense increased 40% from $17.0 million in 2013 to $23.9 million in 2014. MCAP uses its warehouse
facilities, repurchase facilities and certain ABCP securitization vehicles to temporarily fund its mortgages that are intended
to be securitized or sold as whole loans to Institutional Investors. The average monthly usage of MCAP’s warehouse
facilities increased by 6% and the average annual interest cost related to these borrowings increased by 0.08% from 2013 to
2014. In addition, MCAP issued $150 million of Senior Secured Notes during 2014, which contributed to the year-overyear increase in interest expense. MCAP recorded $4.2 million of interest expense related to the Senior Secured Notes in
2014.
Origination expense
Origination expense increased 24% from $113.4 million in 2013 to $140.7 million in 2014. The increase is due to
higher brokerage fees paid related to single-family mortgage originations, which increased 13% resulting from higher
volumes while offset by lower average rates. The remaining variance is attributed to higher portfolio-insurance costs. As
only insured mortgages can be sold into certain securitization vehicles, MCAP portfolio-insures conventional mortgages to
meet these insurance requirements. The volume of portfolio-insured loans increased 54% from 2013 to 2014 due to higher
securitization volumes. In addition, the cost of insurance increased by 5%, which is caused by higher insurance premiums
charged by the Mortgage Insurance Companies and the mix of insured mortgages.
Salaries and benefits increased 5% from $68.1 million in 2013 to $71.3 million in 2014. The increase is mainly
due to higher headcount in 2014. As at November 30, 2014, MCAP had 689 FTEs, compared to 648 FTEs as at November
30, 2013. The bulk of the increase is in the single-family segment. Single-family headcount increased by 8% as a direct
result of higher production volume and MUA, which increased 16% and 14% from 2013 to 2014, respectively. Offsetting
the increase in salaries and benefits was a reduction of severance costs. Upon the completion of the RMG and MSC
acquisitions in 2012, MCAP went through a restructuring process. This process was completed in 2013, leading to a
decrease in severance costs in 2014.
Other operating costs decreased 18% from $41.7 million in 2013 to $34.0 million in 2014. This decrease is
primarily due to lower occupancy and information systems costs resulting from the reduction of office space and lower
spending on IT projects, offset by higher marketing and communication costs resulting from higher business volume.
Income tax expense
Income tax expense increased eleven-fold from $0.9 million in 2013 to $9.9 million in 2014. This is attributable to
the 79% increase in pre-tax income from 2013 to 2014 and the fact that a much greater percentage of MCAP’s pre-tax
income was earned in its tax-paying subsidiaries in 2014 compared to 2013.
Operating Segment Review – Year Ended November 30, 2014 Compared to the Year Ended November 30, 2013
Single-family
residential
Commercial and
construction(1)
Total
2014
2013
2014
2013
2014
2013
9,480
8,182
1,992
2,281
11,472
10,463
299,051
244,794
21,261
23,610
320,312
268,404
43,903
19,713
6,511
8,480
50,414
28,193
As at November 30
MUA (in $million)
42,533
37,403
3,611
2,935
46,144
40,338
(1)
73
Single-family income before taxes increased 123% from $19.7 million in 2013 to $43.9 million in 2014. The
increase is due to higher net interest income from securitized mortgages, servicing and administration income and
investment income. The increase in income is primarily driven from the growth of MCAP’s origination volume, MUA and
outstanding securitization portfolio.
Commercial and construction income before taxes decreased 24% from $8.5 million in 2013 to $6.5 million in
2014. The decrease is due to lower construction originations, offset by higher commercial originations compared to 2013
and higher MUA generating higher servicing income as well as a reduction in income of $1.25 million from the commercial
leasing operations that are winding down.
Liquidity and capital resources
MCAP’s strategy is to originate prime and Alt-A single-family residential mortgages, insured multi-unit
residential mortgages, term commercial mortgages and construction loans within Canada. Management believes that these
mortgages are of high-quality and that substantially all of these mortgages are liquid and can be easily sold or securitized.
MCAP has in place several credit facilities with various FRFIs. MCAP draws on these credit facilities as required to fund
and aggregate mortgages in order to securitize or sell these mortgages. Some single-family mortgages are sold to
Institutional Investors on a daily basis so MCAP does not need to utilize its short-term credit facilities in order to fund such
mortgages. Similarly, all construction loans (other than a small amount invested by MCAP in such loans jointly with certain
of its major Institutional Investors) and certain commercial mortgages are also sold to investors under terms that result in
the investor immediately reimbursing MCAP.
At November 30, 2015, MCAP had $3.0 billion of short-term credit facilities, and mortgage repurchase facilities
with various FRFIs (see chart below) and had drawn $1.5 billion. Under certain conditions, the warehouse component of
the credit facilities can be increased by $150 million, subject to a borrowing base calculation. MCAP was in full
compliance with all loan covenants (including various debt, equity level, interest coverage and income-based covenants) in
2014 and 2015. For additional details relating to MCAP’s debt facilities, see “Description of Material Indebtedness” below.
Warehouse & Repurchase Facilities
Up to a maximum of
$1,020,000,000
1,900,000,000
80,000,000
$3,000,000,000
Warehouse facilities
Repurchase facilities
Operating line
MCAP also uses several ABCP securitization vehicles administered by Schedule I Canadian banks as a flexible
funding source for both short-term and longer-term placement of mortgages. The securitization vehicles have differing
mortgage eligibility criteria but, typically, will take mortgages of varying maturities, which distinguishes them from the
NHA-MBS and CMB programs that require mortgages with similar maturity dates being 5-years or 10-years from the date
of issuance. MCAP is required to post cash collateral as a means of credit enhancement for the ABCP securitization
vehicles. As of November 30, 2015, MCAP has posted cash collateral of $64 million (2014 - $63 million) in respect of its
ABCP securitization programs.
In March 2014, MCAP raised $150 million through the issuance of Senior Secured Notes. MCAP issued an
additional $50 million of Senior Secured Notes in April 2015 bringing the total value of the Senior Secured Notes to $200
million. The combined debt has a maturity date of March 11, 2019. The new debt issued in 2015 was issued at an interest
rate slightly less than the posted interest rate of 3.955%. The proceeds were used to invest in financial assets derived from
MCAP’s mortgage operations, to fund growth initiatives and for general corporate purposes.
MCAP’s ongoing operations require ongoing capital expenditures in order to grow and maintain MCAP’s
technology platform and office space. Annual expenditures for such items are expected to roughly equal the annual
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depreciation charge for those classes of assets at approximately $3.5 million per year. The funds required for these capital
expenditures are expected to be provided from operational cash flow.
MCAP historically has paid distributions to its unitholders, subject to approval by the Board of Directors. MCAP’s
current policy is to distribute 50% of its net income to its unitholders with third quarter and fourth quarter distributions
deferred until the first quarter of the following year. The funds required to pay such distributions are expected to be
provided from operational cash flow.
Transactions with Related Parties
MCAP provides mortgage origination, servicing and administration and certain corporate services to MCAN. As
at February 29, 2016, MCAN Holdings LP (a wholly-owned subsidiary of MCAN) held a 14.74% interest in MCAP.
MCAP also provides mortgage origination, servicing and administration services to Otéra Capital Inc., which is an affiliate
of Otéra. As at February 29, 2016, Otéra held a 78.04% interest in MCAP.
MCAP established the Key Personnel Unit Purchase Plan, whereby the Board of Directors of MCAP approved
loans to the benefit of key management personnel for the purpose of purchasing B units in MCLP. During each of 2013,
2014 and 2015, loans were advanced to unit-holders of Management LP to purchase partnership units in the amounts as
described in note 4 to the consolidated financial statements. These loans have an interest rate equal to prime rate and are
secured by the units. See “Indebtedness of Directors and Executive Officers” below for a discussion on the effect of the
Offering on the Key Personnel Unit Purchase Plan and the related loans.
All related party transactions have been recorded at their exchange amounts which are disclosed in note 4 to the
2015 consolidated financial statements.
Financial Instruments
The majority of MCAP’s consolidated balance sheet consists of financial instruments and the majority of net
income is derived from the related income, expenses, gains and losses. Financial instruments include securitized and nonsecuritized mortgages, finance lease receivables, securitization and other investments, derivative assets, obligations related
to assets sold under reverse repurchase agreements, debt related to securitized mortgages and derivative liabilities. These
assets and liabilities are designated as fair value through profit or loss (“FVTPL”). Financial instruments classified as
FVTPL are recognized at fair value, with any gains or losses arising on re-measurement recognized immediately in profit or
loss.
The use of financial instruments exposes MCAP to various types of risks. A high-level discussion of how these
risks are managed by MCAP is found in the “Risk Management” section of this MD&A. See also “Risk Factors” elsewhere
in this prospectus.
Information on the determination of the fair market value of financial instruments is located in the “Critical
Accounting Estimates and Judgements” section of this MD&A.
People
As at November 30, 2015, MCAP had 724 FTEs, comprised of 481 FTEs in the single-family segment, 67 FTEs in
the commercial and construction segment and 176 FTEs in corporate services. Total headcount increased by 5% from
November 30, 2014. MCAP continues to benefit from operating efficiencies, as single-family and corporate headcount
only increased 4% year-over-year to support the 14% growth in single-family MUA and 19% growth in single-family
annual production volume and the corresponding higher volumes of securitization and sale transactions. Commercial and
construction headcount increased by 9 FTEs in 2015 as MCAP ramped up its commercial and construction teams which
produced a 54% increase in originations in 2015 compared to 2014 and an 18% increase in commercial and construction
MUA.
Risk Management
MCAP is very focused on credit risk and the credit quality of its loan portfolios, but unlike most institutional
lenders who hold pools of mortgages for their own account for the full term of the loans, MCAP’s primary business model
is to originate mortgages, fund them and then warehouse them only long enough to sell them to an Institutional Investor or
75
securitization vehicle, and then provide ongoing mortgage servicing back to that Institutional Investor or securitization
vehicle. MCAP is exposed to the direct credit risk of most of its originated mortgages only temporarily (typically
exposure is thereafter limited to certain retained obligations, such as the obligation to service the mortgages and timely
payment guarantees under CMHC-sponsored programs. Other than a small amount invested by MCAP in construction
loans jointly with certain of its major Institutional Investors, MCAP does not take direct credit risk on its construction loans
or uninsured commercial mortgages, as those loans are approved and funded directly by the investors. Like its single-family
mortgages, MCAP takes the credit risk on insured and funded, multi-unit mortgages, until they are sold or securitized, but
the mortgage default insurance ensures repayment of principal and interest.
During the period from issuance of a commitment for a single-family fixed-rate mortgage until the sale of the
funded fixed-rate loan, MCAP has interest rate risk. MCAP manages that exposure by hedging a portion of its committed
but not yet funded mortgage portfolio risk based on historic experience in terms of percentage of commitments that actually
fund to become mortgages. In determining that percentage, MCAP takes into account that borrowers are more likely to
close on their commitments if interest rates are higher at the time of closing/funding than at the time of commitment.
MCAP also hedges all of its funded fixed-rate loans that it warehouses until sale, including both multi-unit and singlefamily mortgage products.
MCAP’s overall enterprise risk management framework is founded on a documented “three lines of defense”
governance model similar to those of OSFI-regulated institutions. It is based on applying established processes applicable
to risk management including an established governance structure, documented risk management principles, a risk
management policy setting out individual and group responsibilities, an articulated risk appetite statement, entrenched
review and approval regimes, and constant monitoring. This risk management framework is designed to ensure that
MCAP’s operations and financial stability are maintained within MCAP’s board-approved risk appetite. Risks of various
kinds are identified, analyzed, mitigated and monitored, using industry best practices. MCAP employs a series of processes,
policies, control mechanisms and exposure limits to keep the risks that it must incur to run its businesses at a tolerable
level.
MCAP has established a specific Risk Oversight Committee (comprised of senior managers representing all
departments and lines of business), which meets quarterly to help provide oversight of risk-related issues and has also
established an Executive Committee, which meets weekly and a Loan Allocation and Pricing Committee which also meets
weekly. Each of these management committees continuously examines and receives reports on risk-related issues, and
reviews mitigation actions related to the identified risks that MCAP faces. MCAP has established a number of reports and
monitoring tools for this purpose.
See “Risk Factors” below for a comprehensive discussion of the risks to MCAP’s business.
Summary of Contractual Obligations
MCAP’s long-term obligations as of November 30, 2015 include accounts payable, debt related to securitized
mortgages, loans payable, derivative liabilities and premises leases for its offices across Canada as set out in the
following table:
Payments Due by Period
($thousands)
Accounts payable, accrued charges and
other liabilities ...................................
Debt related to securitized mortgages
Loans payable ....................................
Derivative liabilities ...........................
Lease Obligations ..............................
Total Contractual Obligations ...........
Total
0 - 1 Years
1 - 3 Years
3 - 5 Years
After 5 Years
43,788
17,670,398
1,673,752
8,619
37,808
19,434,365
41,482
776,988
1,473,127
2,631
6,302
2,300,530
–
3,632,820
–
–
12,423
3,645,243
2,191
13,053,408
200,625
–
7,580
13,263,804
115
207,182
–
5,988
11,503
224,788
MCAP also has a legal obligation for the ongoing servicing of mortgages sold to Institutional Investors and
securitization vehicles and mortgages related to purchased servicing rights. MCAP sells mortgages to securitization
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vehicles on a fully-serviced basis, and is responsible for the collection of the principal and interest payments on behalf of
the securitization vehicles, including the management and collection of mortgages in arrears.
Off-Balance Sheet Arrangements
MCAP’s off-balance sheet arrangements include securitization transactions that meet derecognition requirements
under IFRS and outstanding letters of credit.
While most of MCAP’s securitization transactions remain on its balance sheet, there are certain securitization
transactions that meet derecognition requirements. On the date of such a securitization, MCAP records a gain equivalent to
the present value of net future cash flows, which are to be collected over the life of the securitization transaction. This
retained interest is fair valued at each reporting period and any fair value adjustments are recorded as income or loss in the
period. The maximum credit exposure to these securitized mortgages is limited to the retained interest and the collateral
position as these mortgages are all insured. See “Business - Sources of Long-Term Funding – Securitization of Mortgages”
above. The outstanding mortgage principal balance related to these off-balance sheet securitization transactions is $1.7
billion as of November 30, 2015.
MCAP also has a revolving letter of credit facility outstanding with a FRFI. The purpose of this facility is to
secure the performance and completion of borrower obligations in conjunction with construction mortgages. The facility
requires the pledging of cash and/or bank investments to secure the letters of credit issued. The borrower provides this cash
to MCAP for these letters of credit. As of November 30, 2015, $2.8 million was issued and outstanding under this facility.
Critical Accounting Estimates and Judgements
The preparation of MCAP’s financial statements requires management to make judgements, estimates and
assumptions that affect the reported amounts of revenues and expenses during the reporting period and assets, liabilities,
and the disclosure of contingent liabilities, at the end of the reporting period. Estimates are considered carefully and
reviewed at an appropriate level within MCAP on a regular basis. Management bases its estimates on historical experience
and other information and assumptions that it believes to be reasonable under the circumstances. However, uncertainty
about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of
an affected asset or liability in future periods.
Critical Accounting Estimates
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded in the consolidated financial statements
cannot be derived from active markets, MCAP uses valuation methods to estimate fair values including discounted cash
flow models and comparison with similar instruments for which observable market prices exist. Key assumptions and
inputs used in valuation methods include risk-free and benchmark interest rates and credit spreads used in estimating
discount rates and prepayment rates. Risk-free and benchmark interest rates are generally available while credit spreads
may have to be estimated based on comparable market transactions reflecting similar credit parameters.
Mortgage prepayment rates
In calculating the rate at which borrowers prepay their mortgages, MCAP makes estimates based on its historical
experience. For valuing MCAP’s DPP as at November 30, 2015, MCAP estimates prepayment rates of 0% for multifamily mortgages (2014 – 0%). There was no DPP relating to single-family mortgages as of November 30, 2015. The
estimated prepayment rate as of November 30, 2014 for single-family mortgages was approximately 31%, primarily
reflecting a very small pool of mortgages that were very close to their maturity dates. Single-family borrower prepayment
levels are historically driven largely by borrowers’ expectations relating to mortgage interest rates with prepayments
generally accelerating if mortgage interest rates are believed to be declining and slowing if mortgage interest rates are
believed to be increasing. Single-family borrowers may also be inclined to renew their mortgage shortly before its
scheduled maturity in order to lock in an attractive interest rate for the renewal term and a lender may forgive or reduce
prepayment penalties as an incentive to the borrower to renew. Multi-family borrowers are much less inclined to prepay
their mortgages as the penalties can be significant because of the typically much higher mortgage amount. In many cases,
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the mortgages do not allow for prepayment (which gives the borrower a lower interest rate through the term). The main
reason that a multi-family borrower would prepay the mortgage would be the sale of the property.
Critical Accounting Judgements
Derecognition of financial assets
Management applies its judgement with respect to derecognition of mortgages under securitization transactions
or sale transaction in determining whether the risks and rewards of ownership of the securitized assets have been
substantially transferred, substantially retained or neither substantially transferred nor retained, notwithstanding that, for
legal purposes, securitization transactions are recognized as sale transactions. Certain securitized mortgages sold in
partnership with MCAN were recognized only to the extent of MCAP’s continuing involvement, based on management’s
judgement that MCAP had neither transferred nor retained substantially all of the risks and rewards of ownership of the
mortgages as MCAP continued to retain a specific proportion of the ongoing economics related to the assets. Certain
securitized mortgages sold to third-party investors and to one repurchase facility are derecognized based on management’s
judgement that MCAP transferred substantially all of the risks and rewards of ownership of the mortgages as MCAP has
minimal exposure to variability in cash flows from these assets once sold. Due to the retention of certain risks and
rewards such as obligations under timely payment guarantees or principal reinvestment requirements, the remaining
securitized mortgages are not derecognized.
Control over structured entities
A structured entity is an entity in which voting or similar rights are not the dominant factor in deciding control.
Structured entities are generally created to achieve a narrow and well defined objective with restrictions around their
ongoing activities. MCAP is involved with structured entities through the securitization of financial assets to these
structured entities. These structured entities generally finance the purchase of financial assets by issuing debt or equity
securities which are collateralized by the assets held by the structured entities. The debt and equity securities issued by the
structured entities may include tranches with varying level of subordination.
Management applies its judgement in assessing whether MCAP exercises control over the structured entities with
which it is involved. As part of this assessment, management considers the key activities of the entity, whether these
activities are solely for MCAP, whether MCAP makes decisions over these activities, and MCAP’s exposure to the
variability of returns to the entity. If management judges that MCAP exercises control over a structured entity, that entity
will be consolidated with MCAP for financial statement purposes. For further details, refer to Note 23 to the 2015
consolidated financial statements.
Accounting Standards Issued but not yet Effective
Accounting standards issued but not yet effective up to the date of issuance of the 2015 consolidated financial
statements are listed below. This listing includes standards and interpretations issued that MCAP reasonably expects will
be applicable at a future date. MCAP intends to adopt those standards when they become effective.
IFRS 9, Financial Instruments (“IFRS 9”)
IFRS 9, including revised models for classification, measurement and impairment of financial assets and a
reformed approach to hedge accounting, is effective for annual periods beginning on or after January 1, 2018. The new
general hedge accounting principles under IFRS 9 are intended to align hedge accounting more closely with risk
management. While the new standard does not fundamentally change the types of hedging relationships currently utilized
or the requirement to measure and recognize their effectiveness, it is expected to include in hedge accounting other hedging
strategies that are used for risk management and also to introduce more judgement to assess the effectiveness of a hedging
relationship. MCAP will be required to adopt IFRS 9 on December 1, 2018. Management is in the process of evaluating the
potential impact of IFRS 9 on MCAP’s consolidated financial statements.
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)
IFRS 15, which provides a single principle-based revenue framework that applies to contracts with customers, is
effective for annual reporting periods beginning on or after January 1, 2018. MCAP intends to adopt IFRS 15 in its
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consolidated financial statements for the annual period beginning on December 1, 2018. Management is in the process of
evaluating the potential impact of IFRS 15 on MCAP’s consolidated financial statements.
Amendments to IAS 1, Presentation of Financial Statements (“IAS 1”)
The IAS 1 amendment was issued in December 2014, effective for annual periods beginning on or after January 1,
2016, with earlier adoption permitted. The amendment clarifies IAS 1 to address perceived impediments to preparers
exercising their judgement in presenting their financial reports. Management is in the process of evaluating the impact of
the amendment on MCAP’s consolidated financial statements.
IFRS 16 Leases (“IFRS 16”)
IFRS 16 specifies the recognition, measurement, presentation and disclosure of leases. The standard provides a
single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12
months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with
IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17. IFRS 16 was issued in
January 2016 and applies to annual reporting periods beginning on or after January 1, 2019. Management is in the process
of evaluating the potential impact of IFRS 16 on MCAP’s consolidated financial statements.
Disclosure Controls and Internal Controls over Financial Reporting
Certain companies are required to annually certify under National Instrument 52-109 - Certification of Disclosure
in Issuers’ Annual and Interim Filings (“NI 52-109”), which requires the design of disclosure controls and procedures to
provide reasonable assurance that information required to be disclosed by each such company in its annual filings, interim
filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported
within the time periods specified in the securities legislation and include disclosure controls and procedures designed to
ensure that information required to be disclosed by each such company in its annual filings, interim filings or other reports
filed or submitted under securities legislation is accumulated and communicated to the company’s management, including
its certifying officers, as appropriate to allow timely decisions regarding required disclosure.
Management of MCAP is responsible for establishing and maintaining adequate internal controls over financial
reporting. Internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of
financial reporting in accordance with such reporting standards. Inherent limitations in such internal control systems may,
however, result in misstatements not being prevented or detected in a timely manner.
While NI 52-109 does not currently apply to MCAP, MCAP has disclosure controls and procedures in place to ensure
reliability of financial reporting. In reporting periods subsequent to the Offering, MCAP intends to file the required interim
and annual certifications as required by the regulators.
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DIVIDEND POLICY
Subject to financial results, capital requirements, available cash flow and any other factors that the Board of
Directors may consider relevant, it is the intention of the Board of Directors following Closing to declare quarterly cash
dividends. It is expected that future cash dividend payments will be made to shareholders of record as of the close of
business on the last business day of each fiscal quarter (being the last business day of February, May, August and
November in each year). All dividends expected to be paid by the Issuer, unless otherwise indicated, will be designated as
eligible dividends in accordance with subsection 89(14) of the Tax Act and any applicable corresponding provincial or
territorial provisions. See “Risk Factors — Risks Related to the Offering – Payments of Dividends” below.
The Issuer expects the first quarterly dividend would be equal to approximately $0.20 per Common Share,
representing an annualized yield of approximately ●%, based on the Offering Price. Dividends will be declared and paid in
arrears. The Issuer expects the first dividend payment on the Common Shares will be declared in October 2016 following
the announcement of the Issuer’s results for the three-month period ended August 31, 2016 and paid in November 2016.
The amount and timing of the payment of any dividends are not guaranteed and are subject to the discretion of the Board of
Directors. See “Risk Factors — Risks Related to the Offering – Payments of Dividends” below.
The following summarizes the aggregate distributions paid to the unitholders of MCLP in the last three fiscal
years. Historical cash distributions are not necessarily indicative of future cash distributions.
2015
2014
2013
Cash distributions to MCLP unitholders
$32,151,660
$44,639,090
$2,108,212
Weighted average # of MCLP units
outstanding(1)
29,214,939
29,018,921
20,444,441
(1)
Each unit of MCLP will be exchanged for 1.25 Common Shares prior to Closing pursuant to the Reorganization. See “Corporate
Structure and Reorganization” above and “Prior Issuances” below.
In addition to the distributions noted above, the unitholders of MCLP have received or expect to receive
distributions for the period ending May 31, 2016. The total amount expected to be paid out as distributions during this
period is approximately $• million, of which $10.2 million was paid in December 2015, $16.5 million was paid in February
2016, $8.4 million was paid in April 2016, and $● that will be paid in July, 2016.
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DESCRIPTION OF SHARE CAPITAL
The following description may not be complete and is subject to, and qualified in its entirety by reference to, the
terms and provisions of the Issuer’s articles of incorporation, as they may be amended from time to time. Immediately
following Closing, the Issuer’s authorized share capital will consist of an unlimited number of Common Shares and an
unlimited number of preference shares, issuable in series. Immediately following the Closing, there will be  Common
Shares and no preference shares issued and outstanding.
Common Shares
Holders of Common Shares are entitled to receive notice of and to attend all meetings of shareholders, except
meetings at which only the holders of another class or series of shares are entitled to vote separately as a class or series.
Holders of Common Shares are entitled to one vote per Common Share at all such meetings of shareholders. Subject to the
rights attaching to any other class or series of shares, holders of Common Shares are entitled to receive dividends if, as, and
when declared by the Board of Directors. Subject to the rights attaching to any other class or series of shares, holders of
Common Shares are also entitled to receive the remaining property of the Issuer upon the liquidation, dissolution or
winding-up of the Issuer, whether voluntary or involuntary. For a description of the Issuer’s dividend policy, see “Dividend
Policy” above.
Preference Shares
The Issuer may from time to time issue preference shares in one or more series. Prior to issuing preference shares
in a series, the Board may fix the number of preference shares in the series and determine the designation, rights, privileges,
restrictions and conditions attaching to that series of preference shares, provided that no preference shares of any series of
preference shares shall in any circumstance be entitled to more than one vote per preference share. The preference shares of
each series shall, with respect to payment of dividends and the distribution of assets in the event of liquidation, dissolution
or winding up of the Issuer, whether voluntary or involuntary, rank on par with every other series of preference shares. The
preference shares are entitled to a preference over the Common Shares with respect to payments of dividends and the
distribution of assets in the event of liquidation, dissolution or winding up of the Issuer, whether voluntary or involuntary.
If any amount of cumulative dividends (whether or not declared) or declared non-cumulative dividends, or any amount
payable on any distribution of assets that constitutes a return of capital in respect of any series of preference shares, is not
paid in full, the preference shares of such series shall participate rateably with the preference shares of every other series in
respect of all such dividends and amounts.
Advance Notice Requirements for Director Nominations
The Issuer has adopted an advance notice by-law pertaining to shareholders (who meet the necessary qualifications
outlined in the by-laws) seeking to nominate candidates for election as directors (a “Nominating Shareholder”) at any
annual meeting of shareholders, or for any special meeting of shareholders if one of the purposes for which the special
meeting was called was the election of directors (the “Advance Notice Provisions”). The following description is a
summary only and is qualified in its entirety by the full text of the applicable provisions of the by-laws which will be made
available on SEDAR at www.sedar.com under the Issuer’s profile.
In addition to any other applicable requirements, for a nomination to be made by a Nominating Shareholder, the
Nominating Shareholder must have given timely notice thereof in proper written form to the corporate secretary of the
Issuer. To be timely, a Nominating Shareholder’s notice to the corporate secretary must be made: (i) in the case of an
annual meeting of shareholders, not less than 30 days prior to the date of the annual meeting of shareholders; provided,
however, that in the event that the annual meeting of shareholders is to be held on a date that is less than 50 days after the
date (the “Notice Date”) on which the first public announcement of the date of the annual meeting was made, notice by the
Nominating Shareholder may be made not later than the close of business on the 10th day following the Notice Date; and
(ii) in the case of a special meeting of shareholders (which is not also an annual meeting) called for the purpose of electing
directors (whether or not called for other purposes as well), not later than the close of business on the 15th day following
the day on which the first public announcement of the date of the special meeting of shareholders was made. The Issuer’s
by-laws also prescribe the proper written form for a Nominating Shareholder’s notice.
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The chairperson of the meeting shall have the power and duty to determine whether a nomination was made in
accordance with the notice procedures set forth in the by-laws and, if any proposed nomination is not in compliance with
such provisions, the discretion to declare that such defective nomination will be disregarded.
Notwithstanding the foregoing, the directors of the Issuer may, in their sole discretion, waive any requirement in
the Advance Notice Provisions.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table shows the names of the persons or companies who, as at the Closing Date, will own of record,
or who, to our knowledge, will own beneficially, directly or indirectly, more than 10% of the Common Shares or who are
Selling Shareholders.
Name
Otéra Capital CADCAP Inc.(1)
MCAN Mortgage Corporation
Number of Common
Shares Owned before
the Offering
28,467,385
5,375,000
Number of Common
Shares Sold in the
Secondary Offering
(2)

Number of
Common Shares
Owned after the
Offering
(3)

Percentage of
Outstanding
Common Shares
after the Offering
%(4)
%
Notes
__________
(1) Otéra Capital CADCAP Inc. is an indirect subsidiary of Caisse de dépôt et placement du Québec.
(2) If the Over-Allotment Option is exercised in full, the number of Common Shares to be sold by Otéra would be .
(3) If the Over-Allotment Option is exercised in full, the number of Common Shares owned after the Offering by Otéra would be .
(4) If the Over-Allotment Option is exercised in full, the percentage of Common Shares owned after the Offering by Otéra would be %.
As indicated in the table above, immediately prior to the Closing of the Offering, the Selling Shareholders will
own or control, directly or indirectly, an aggregate of 33,842,385 Common Shares, representing approximately 93% of the
issued and outstanding Common Shares. After giving effect to the Offering (but assuming the Over-Allotment Option is not
exercised), the Selling Shareholders will own or control, directly or indirectly, an aggregate of  Common Shares,
representing approximately  % of the outstanding Common Shares (an aggregate of  Common Shares, representing
approximately  % of the outstanding Common Shares, if the Over-Allotment Option is exercised in full).
Immediately prior to the Closing of the Offering, certain members of management of the Issuer will own or
control, directly or indirectly, an aggregate of 2,633,147 Common Shares, representing approximately 7% of the issued and
outstanding Common Shares. Such members of the Issuer’s management are not offering any of their Common Shares
pursuant to the Offering. After giving effect to the Offering, such members of the Issuer’s management will own or control,
directly or indirectly, an aggregate of 2,633,147 Common Shares, representing approximately  % of the outstanding
Common Shares.
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SECURITYHOLDERS’ AGREEMENTS
Nomination Rights Agreement
Concurrently with the Closing, the Issuer, MCLP GP and Otéra will enter into a nomination rights agreement (the
“Nomination Rights Agreement”). The following is a summary of certain material rights and obligations of the parties
under the Nomination Rights Agreement, which summary is not intended to be complete. Reference is made to the
Nomination Rights Agreement for a complete description and the full text of its provisions, which will be filed with the
Canadian securities regulatory authorities on the SEDAR website at www.sedar.com under the Issuer’s profile.
Pursuant to the Nomination Rights Agreement, immediately upon completion of the Offering, the Board of
Directors will consist of a total of nine directors, with three directors initially designated by Otéra. Further, for so long as
Otéra or any of its affiliates directly or indirectly beneficially owns a specified percentage of the Common Shares, Otéra
will be entitled to nominate for election to the Board of Directors a specified percentage of directors (where that calculation
does not result in a whole number, each number of directors equal to or greater than 0.5 being rounded up to the nearest
whole number and each number less than 0.5 being rounded down to the nearest whole number, as applicable) at any
meeting of the shareholders of the Issuer at which directors are to be elected, as set out in the table below:
Percentage of Common Shares
Percentage of Directors
Greater than or equal to 30% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 1/3%
Less than 30% but not less than 20% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25%
Less than 20% but not less than 10% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10%
Less than 10% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
For so long as an Otéra nominee is a director of the Issuer, the Issuer shall nominate for election and include in any
proxy circular such Otéra nominee and take all steps reasonably necessary to enforce and comply with Otéra’s rights under
the Nomination Rights Agreement, including recommending to shareholders of the Issuer that they vote in favour of such
Otéra nominee and using its best efforts to obtain all necessary regulatory approvals in connection with the election of such
Otéra nominee.
Pursuant to the Nomination Rights Agreement, Otéra shall be entitled to designate a replacement nominee director
if, prior to his or her election to the Board of Directors, an Otéra nominee is unable or unwilling to serve as a director. Otéra
shall also be entitled to designate to the Board of Directors a replacement director for any Otéra nominee that resigns, is
removed or is unable to serve following such Otéra nominee`s election to the Board of Directors, provided Otéra remains,
at that time, entitled to appoint such director.
Pursuant to the Nomination Rights Agreement, at any time when the Issuer controls MCLP’s general partner,
MCLP GP, and an Otéra nominee is a director of the Issuer, the Issuer shall cause the board of directors of MCLP GP to be
the same size as the Board of Directors and to be comprised of the same individuals as the Board of Directors.
To the fullest extent permitted by law, the Issuer will indemnify and hold harmless all current and former
nominees of Otéra appointed to the Board of Directors and/or the board of directors of each of MCAP’s entities and his or
her heirs and legal representatives, against all costs, charges and expenses, including any amount paid to settle any action or
satisfy a judgment, incurred by him or her in respect of any civil, criminal, administrative, investigative, arbitral or other
proceeding in which the individual is involved because of that association with MCAP if he or she: (i) acted honestly and in
good faith with a view to the best interests of MCAP; and (ii) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, had reasonable grounds for believing that his or her conduct was lawful.
Registration Rights Agreement
Concurrently with the Closing, the Issuer and Otéra will enter into a registration rights agreement (the
“Registration Rights Agreement”). The following is a summary of certain material rights and obligations of the parties
under the Registration Rights Agreement, which summary is not intended to be complete. Reference is made to the
Registration Rights Agreement for a complete description and the full text of its provisions, which will be filed with the
Canadian securities regulatory authorities on the SEDAR website at www.sedar.com under the Issuer’s profile.
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Demand Registrations
Pursuant to the Registration Rights Agreement, Otéra will be granted certain demand registration rights such that,
at any time from and after 365 days from the Closing, Otéra may request that the Issuer qualify by prospectus all or a
portion of the voting securities of the Issuer (including the Common Shares) held by Otéra for a distribution to the public in
Canada (a “Demand Registration”), provided such Demand Registration will result in a minimum offering size of $50
million. Should Otéra request a Demand Registration, the Issuer shall be entitled to qualify for distribution to the public in
Canada, Common Shares from treasury under such a Demand Registration on the same terms, subject to limitations,
including that the Issuer will not be permitted to include any such Common Shares in any such Demand Registration if
Otéra is advised by the lead underwriter for the offering that in its good faith opinion the inclusion of such securities may
materially and adversely affect the price or success of the offering or otherwise limit the number of shares Otéra is able to
sell in connection with such offering. The Issuer will not be required to effect more than two Demand Registrations in any
12-month period.
The Issuer will be entitled to postpone a Demand Registration for up to a maximum of 90 days if a majority of the
Board determines, in their reasonable judgment, that the qualification or sale of Common Shares by Otéra pursuant to a
request for a Demand Registration would have a material adverse effect on the Issuer or its securityholders because such
action would: (i) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction
involving the Issuer; (ii) require premature disclosure of material non-public information that the Issuer has a bona fide
business purpose for preserving as confidential; or (iii) render the Issuer unable to comply with requirements under
securities laws. Notwithstanding the foregoing, the Issuer will not be entitled to postpone a Demand Registration for more
than 120 days in the aggregate during any 12-month period.
The Issuer will not be required to comply with a request for a Demand Registration for a period of 180 days from
the time a request for a Demand Registration is received if, at the time such a request is received, the Issuer is engaged in a
firm commitment underwritten public offering in which Otéra is entitled to include Common Shares for sale pursuant to an
Incidental Registration (as defined below), or for a period of 180 days following the completion of such an offering. The
Issuer will also not be required to comply with a request for a Demand Registration for any period ending on the earlier of:
(i) 150 days following the date on which the Issuer gives notice to Otéra (a “Standstill Notice”) that it is in the course of an
offering of Common Shares or carrying out a reorganization, recapitalization, merger or similar transaction involving the
Issuer in which securities of the Issuer will be issued to one or more of the parties to such transaction, or that it intends to
do so within 60 days of such notice; (ii) 90 days following the completion of an offering described in (i); and (iii) 45 days
after the Issuer provides a Standstill Notice to Otéra if, in an offering by way of prospectus or by way of private placement,
no preliminary prospectus has been filed or no binding subscription agreement has been entered into, respectively, by the
end of the 45-day period, subject to the good faith opinion of the underwriters acting in connection with such a Demand
Registration, the sale of securities pursuant to such an offering would have a material adverse effect on the offering of
Common Shares (or securities convertible therein) or the transaction undertaken or to be undertaken by the Issuer.
Incidental Registration Offerings
Pursuant to the Registration Rights Agreement, Otéra will be granted certain incidental registration rights
permitting Otéra to require that the Issuer include the voting securities of the Issuer (including the Common Shares) held by
Otéra in a proposed offering of any of its securities by the Issuer (an “Incidental Registration”), subject to certain
limitations, including that the Issuer will not be required to include any such Common Shares in any such proposed
distribution if the Issuer is advised by the lead underwriter for the offering that in its good faith opinion the inclusion of
such securities may materially and adversely affect the price or success of the offering or otherwise limit the number of
shares the Issuer is able to sell in connection with such offering.
Fees, Expenses and Other Rights
With respect to a Demand Registration, if the Issuer does not participate in a Demand Registration, Otéra will pay
all fees and expenses (including underwriting fees) incurred in connection with the offering. If the Issuer does participate in
a Demand Registration, the Issuer and Otéra will bear the fees and expenses incurred in connection with the offering
(including underwriting fees) pro rata on the basis of their respective proceeds received pursuant to the offering. With
respect to an Incidental Registration, the Issuer and Otéra will bear the fees and expenses incurred in connection with the
offering (including underwriting fees) pro rata on the basis of their respective proceeds received pursuant to the offering.
The Registration Rights Agreement permits the Issuer to grant certain registration rights to third parties in certain
circumstances.
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The Registration Rights Agreement will terminate if Otéra ceases to hold 10% or more of the voting rights
attached to any securities of the Issuer.
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DESCRIPTION OF MATERIAL INDEBTEDNESS
Operating Lines
MCLP Operating Line
Under the MCLP Credit Agreement (as described under “Warehouse Lines - MCLP Warehouse”), MCLP has a
$50 million secured revolving operating line available for working capital purposes (the “MCLP Operating Line”). The
MCLP Operating Line expires on March, 9, 2019. MCAP intends to renew the MCLP Operating Line on or prior to expiry,
as it has done in the past. The MCLP Operating Line is guaranteed and secured as described under the heading “MCLP
Warehouse” below.
MSC Operating Line
Under the MSC Credit Agreement (as described under “Warehouse Lines - MSC Warehouse”), MSC has a $50
million secured revolving operating line subject to borrowing base calculations that MSC uses from time to time to manage
its cash flow requirements or to issue letters of credit (the “MSC Operating Line”). The MSC Operating Line expires on
January 19, 2020. MCAP intends to renew the MSC Operating Line on or prior to expiry, as it has done in the past. The
MSC Operating Line is secured as described under the heading “MSC Warehouse” below.
Warehouse Lines
MCLP Warehouse
Under a credit agreement with a Canadian Schedule I Bank, as administrative agent for a syndicate of lenders (the
“MCLP Credit Agreement”), MCLP has two secured revolving warehouse lines (the “MCLP Warehouse Lines”), a
$275 million facility available to warehouse insured or insurable single-family and multi-unit residential mortgages
(“Tranche I”) and a $50 million facility available to warehouse uninsured single-family residential mortgages (“Tranche
II”), in each case subject to borrowing base calculations. The MCLP Warehouse Lines expire on March 9, 2019. MCAP
intends to renew the MCLP Warehouse Lines on or prior to expiry, as it has done in the past. The MCLP Credit Agreement
includes three facilities in total: the two warehouse lines described immediately above, and the MCLP Operating Line
described further above. As security for the MCLP Credit Agreement, MCLP and the credit parties thereto (consisting of
MFLP, MCLP GP and MFC) have granted the lenders a general security interest over all of their assets (subject to certain
exceptions). As additional security for the MCLP Credit Agreement, MCAP Leasing Inc. and MCAP Leasing Limited
Partnership have provided guarantees, and each of them has also granted a general security interest over all of their
respective assets (subject to certain exceptions) as security for their guarantees. The assets securing the MCLP Credit
Agreement (other than assets constituting certain excluded assets which excluded assets consist of, in part, mortgage loans
secured by the MCLP Warehouse Lines and proceeds thereof) also constitute collateral securing the Senior Secured Notes
and the Noteholder Guarantees (see “3.955% Senior Secured Notes due 2019”) on an equal-priority basis.
MSC Warehouse
Under a credit agreement with a Canadian Schedule I Bank as syndication agent and administrative agent for a
syndicate of Canadian Schedule I Banks (the “MSC Credit Agreement”), MSC has a $700 million secured revolving
warehouse line (the “MSC Warehouse Line”), which is available to warehouse insured single-family and multi-unit
residential mortgages, subject to a borrowing base calculation. Under certain conditions, the MSC Warehouse Line may be
increased by an additional amount of up to $150 million, providing for a total warehouse commitment of $850 million,
subject to a borrowing base calculation. The MSC Warehouse Line expires on January 19, 2020. MCAP intends to renew
the MSC Warehouse Line on or prior to expiry, as it has done in the past. As security for the MSC Credit Agreement, MSC
has granted general security over all of its assets.
MCLP Warehouse for Insured Mortgage Loans
MCLP has a $15 million secured revolving warehouse line (the “Insured Mortgage Warehouse Line”) with a
syndicate of banks, which is available to warehouse insured single-family and multi-unit residential mortgages that are in
arrears of payment or otherwise in default. The Insured Mortgage Warehouse Line expires on December 19, 2016. MCAP
intends to renew the Insured Mortgage Warehouse Line on or prior to expiry, as it has done in the past. As security for this
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facility, MCLP has granted a security interest over the mortgages financed under the Insured Mortgage Warehouse Line,
which security ranks ahead of security granted to the lenders under the MCLP Credit Agreement up to an aggregate amount
of $55 million. The mortgages financed under the Insured Mortgage Warehouse Line are excluded from the collateral
securing the Senior Secured Notes and the Noteholder Guarantees.
Change of Control Covenants
Under each of the MCLP Credit Agreement and the MSC Credit Agreement, there are conditions related to
minimum levels of Otéra ownership of MCAP. Prior to an initial public offering (“IPO”), the minimum ownership level is
662/3% of MCAP’s voting equity interests. At the time of an IPO and for two years following an IPO, the minimum
ownership level is 25% of MCAP’s capital stock (excluding preference shares) based on the issued and outstanding capital
stock at the time of such IPO. From the end of two years after an IPO until four years after an IPO, the minimum ownership
level is 15% of MCAP’s capital stock (excluding preference shares) based on the issued and outstanding capital stock at the
time of such IPO, unless (i) under the MCLP Credit Agreement, MCAP’s consolidated tangible shareholders’ equity
(excluding deductions for certain advances, investments in affiliates, goodwill and intangible assets) exceeds $400 million,
in which case the minimum ownership level is 0% and (ii) under the MSC Credit Agreement, MSC’s shareholder’s equity
exceeds $500 million (calculated in accordance with Part II of the Chartered Professional Accountants of Canada
Handbook – Accounting Standards for Private Enterprises), in which case the minimum ownership level is 0%.
The Insured Mortgage Warehouse Line also has a negative covenant that no change of control of MCLP shall
occur. MCAP intends to either amend the language concerning the change of control or obtain a waiver prior to the
completion of the Offering hereunder.
Mortgage Repurchase Agreement Facilities
MFLP has established two mortgage repurchase agreements with one institutional lender. Under each mortgage
repurchase agreement, MFLP may, from time to time up to the facility expiry, sell residential mortgage loans to a special
purpose trust, which finances its acquired interests in such mortgage loans by borrowing money from the institutional
lender. In respect of each sale, and on an agreed upon date, MFLP will repurchase such mortgage loans from the special
purpose trust, with the proceeds of such repurchase repaying the loan to the institutional lender. One mortgage repurchase
agreement facility has a $500 million commitment amount, subject to a borrowing base test, and is for insured residential
mortgage loans. The other mortgage repurchase facility has a $200 million commitment amount, subject to a borrowing
base test, and is for insurable residential mortgage loans. Each of these two facilities expires in 2016. Subject to the
lender’s consent, MCAP intends to renew these facilities on or prior to expiry. Under each of these facilities, MCLP has
provided a performance guarantee (which performance guarantee primarily arises in relation to MFLP`s obligations as a
seller and MSC`s obligation as servicer).
MSC has also established two mortgage repurchase facilities with two different institutions as lending
counterparties. The first mortgage repurchase facility is with a Canadian Schedule I Bank. The facility has a program limit
as set out in a term sheet as delivered from time to time by the Canadian Schedule I Bank (currently $200 million) and is
for insured residential mortgage loans. The second mortgage repurchase facility is with another Canadian Schedule I Bank.
The latter facility has a program limit of $1 billion and is for insured residential mortgage loans. MCLP has provided a
performance guarantee (which performance guarantee primarily arises in relation to MSC`s role as a seller and servicer).
This facility will expire in April 2017 and MCAP intends to renew it prior to or on expiry.
Securitization Facilities
CMHC-sponsored Programs
MCAP, through its subsidiary MSC, is a CMHC-approved NHA-MBS issuer and CMB seller. This allows MCAP
to create NHA-MBS pools of mortgages which MSC can then sell directly to capital markets investors (market NHA-MBS)
or into the CMB program. Due to the retention of certain risks and rewards such as obligations under timely payment
guarantees or principal reinvestment requirements, the mortgages sold under the CMHC-sponsored programs do not
qualify for de-recognition under IFRS resulting in the funding for such securitized mortgages being classified as debt
related to securitized mortgages on the consolidated statements of financial position. For a detailed description of these
programs, see “Business – Sources of Long-Term Funding – Securitization of Mortgages – CMHC-sponsored securitization
programs” above.
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The maximum annual amount of NHA-MBS and CMB that MCAP may create and sell is restricted through the
annual allocation process. For 2016, the annual allocation of market NHA-MBS was set at $105 billion and for CMB, it
was set at $40 billion (although $20 billion of that amount is included in the $105 billion of market NHA-MBS). The
amount of NHA-MBS that will be allocated to MCAP in any given year is a function of the number of approved NHAMBS issuers, how many of them apply for an allocation and the aggregate amount of all amounts applied for by such NHAMBS issuers. CMHC charges NHA-MBS issuers guarantee fees to participate in the program. Effective July 1, 2016 the fee
structure will be adjusted with the result that the threshold for an issuer’s annual NHA-MBS guarantees will be increased
from the current level of $6.0 billion per annum to $7.5 billion per annum. While issuers may exceed that threshold, the
level of guarantee fees increases by 33% for such excess amounts.
CMHC also imposes an overall limit on how much an NHA-MBS issuer may have outstanding in any year. This
amount is based on the issuer’s audited financial statements and is approximately equal to 50 times the amount of the
issuer’s tangible net worth in excess of $3 million. For MCAP, this is determined based on the financial statements of
MSC, the approved NHA-MBS issuer. For 2016, MCAP’s maximum aggregate amount of NHA-MBS (including CMB) is
approximately $19.7 billion.
Bank-sponsored ABCP securitization programs
MFLP and MSC have established securitization programs under which MFLP or MSC, as applicable, may, from
time to time, sell insured, or both insured and uninsured, single-family residential mortgage loans and/or NHA-MBS
certificates to ABCP securitization vehicles administered by various Canadian Schedule I Banks. The aggregate maximum
principal amount of mortgage loans or NHA-MBS certificates that may be sold at any time pursuant to these facilities
varies, but there is a program limit for each ABCP securitization vehicle beyond which no further sales may occur without
the consent of the securitization facility. Each of the securitization facilities are offered for a period of time and mortgage
loans or NHA-MBS certificates may be sold to these securitization facilities up to the expiry of each such facility, after
which further new sales may not occur unless the applicable agreement is amended to extend this date or unless the
securitization vehicle, in its discretion, agrees to make further purchases. MCAP intends to renew the securitization
programs that it expects to continue to use on or prior to expiry, taking into account the changes in regulations as discussed
below. Under these facilities MCLP has guaranteed the obligations of MFLP (as a seller) and MSC (as a servicer and also
as a seller where MFLP is not the seller) which primarily arise from their roles as seller and servicer under these
securitization facilities. For additional information related to these programs, see “Business – Sources of Long-Term
Funding – Securitization of Mortgages – ABCP” above.
MCAP currently participates in six bank-sponsored ABCP securitization programs with an aggregate limit of
$4.05 billion. Insured mortgage loans are eligible under each of these programs and, as a result and for those securitization
programs which MCAP will renew, changes may be made to such securitization programs, including available program
amounts and the availability of such facilities in relation to insured mortgage loans, to conform to new regulations passed in
February 2016 pursuant to the National Housing Act and the Protection of Residential Mortgage or Hypothecary Insurance
Act with respect to mortgage loans insured by CHMC being placed in these non-CMHC sponsored securitization facilities.
See “Industry Overview - Changes to the Regulatory Environment” above. Since all of these securitization vehicles are
renewable on a periodic basis and since the impact of the new regulations were generally known in advance, MCAP has
been working with sponsoring banks to renew certain facilities on terms that will comply with the new regulations thereby
allowing MCAP continued access to this source of funding for certain insured mortgage loans until December 31, 2021.
Thereafter, the securitization vehicles will be restricted to only purchasing uninsured mortgage loans or NHA-MBS
certificates.
3.955% Senior Secured Notes due 2019
Pursuant to a trust indenture dated March 11, 2014, as supplemented (the “Trust Indenture”), MCLP issued $150
million aggregate principal amount of 3.955% senior secured notes due March 11, 2019 (the “Existing Notes”). On April
7, 2015, and pursuant to the Trust Indenture, MCLP issued a further $50 million aggregate principal amount of 3.955%
senior secured notes due March 11, 2019 (the “Additional Notes”) which, other than with respect to the date of issuance,
issue price and first interest payment date, have terms identical to the Existing Notes. The Existing Notes and the
Additional Notes (collectively, the “Senior Secured Notes”) are unconditionally guaranteed (the “Noteholder
Guarantees”) by MCLP GP, MFC, MFLP, MCAP Leasing Inc., and MCAP Leasing Limited Partnership (collectively, the
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“Noteholder Guarantors”) on a senior secured basis and are secured (together with the Notes, the Noteholder Guarantees,
and the indebtedness of MCLP under certain credit facilities) on a first-priority basis, subject to certain permitted liens, by
liens on substantially all of the assets of MCLP and the Noteholder Guarantors, including 100% of the outstanding common
shares of MSC, other than certain excluded assets. The assets securing the MCLP Warehouse Lines (other than assets
constituting excluded assets, which excluded assets include mortgage loans securing the MCLP Warehouse Lines and the
Insured Mortgage Warehouse Line and proceeds thereof) also constitute collateral securing the Senior Secured Notes and
the Noteholder Guarantees on an equal-priority basis. DBRS originally assigned a credit rating of BBB (low) with respect
to the Senior Secured Notes, which rating has remained unchanged to date. See “Credit Ratings” below.
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CONSOLIDATED CAPITALIZATION
The following table sets forth the cash and cash equivalents and the consolidated capitalization of the Issuer as at
February 29, 2016 on a historical basis and on an as-adjusted basis after giving effect to the Reorganization and the
Offering. The information in the table below should be read in conjunction with the consolidated financial statements
included elsewhere in this prospectus and the Management’s Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this prospectus.
Designation
As at February 29, 2016
(in $ thousands)
As at February 29, 2016 after giving effect to the
Reorganization and the Offering
Cash and Cash Equivalents
Long-term Debt(1)
Bank indebtedness
Senior secured notes
Partners’ Equity
Partners’ capital
Retained earnings(2)
Shareholders’ Equity(3)
Share capital
Retained earnings
Total Capitalization
3,820

1,323,946
204,295


249,469
72,131
-
1,849,841



(in $ thousands)
(1)
Long-term debt does not include debt related to securitized mortgages.
(2)
Upon Closing of the Offering, the Issuer will become the sole limited partner of MCLP. Given that Issuer is a taxable corporation, all
income earned in MCLP and subsidiary partnerships will be subject to income tax in the hands of the Issuer. This will result in a onetime adjustment upon Closing to record a deferred tax liability in the accounts of the Issuer in an amount to be determined at that time.
As at February 29, 2016, the amount of the adjustment would have been $6.7 million.
(3)
Upon closing, an additional payment will be due to a participant in the Key Personnel Unit Purchase Plan who retired in December,
2015. This payment will be treated as a reduction of retained earnings. See “Executive Officer and Director Compensation – Principal
Elements of Compensation” below.
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CREDIT RATINGS
As of the date of this prospectus, DBRS has assigned a long-term corporate credit rating of BBB (low) with
respect to the Senior Secured Notes and a rating of BBB (low) with respect to MCLP. DBRS rates long-term debt
instruments by rating categories ranging from “AAA” to “D”. All rating categories other than AAA and D also contain
subcategories “(high)” and “(low)”. The absence of either a “(high)” or “(low)” designation indicates the rating is in the
middle of the category. Long-term debt instruments which are rated in the BBB (low) category by DBRS are within the
fourth-highest category of ten categories and are considered to be of investment grade quality.
The credit ratings assigned by DBRS are not a recommendation to purchase, sell or hold the Senior Secured Notes
or the Common Shares and do not comment on market price or suitability for a particular investor. There can be no
assurance that the ratings will remain in effect for any given period of time or that the ratings will not be revised or
withdrawn entirely by DBRS at any time in the future if in its judgment circumstances so warrant. MCAP has made
payments to DBRS for ratings evaluation services in connection with the offering of the Senior Secured Notes.
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PRIOR ISSUANCES
On January 31, 2016, a single Common Share (the “Initial Common Share”) was issued to MCLP. On Closing,
an aggregate of 33,842,385 Common Shares will be issued to Otéra and MCAN as a result of the exchange of partnership
units of MCLP for Common Shares of the Issuer pursuant to the Reorganization and the Initial Common Share will be
cancelled. In addition, on Closing, an aggregate of 2,633,147 Common Shares will be issued to the benefit of employees of
the Issuer pursuant to the conversion of partnership units of MCLP that were granted to 27 employees pursuant to the
MCLP Key Personnel Unit Purchase Plan. See “Corporate Structure and Reorganization” above. No other Common Shares
of the Issuer were issued during the 12 months preceding the date hereof.
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DIRECTORS AND MANAGEMENT OF THE ISSUER
The following table sets out, for each of our directors, the person’s name, age, place of residence, position with us
and principal occupation. Derek Norton, Ken Teskey, and Gordon Herridge were appointed to the Board on December 15,
2015. While each of Derek Norton, Gordon Herridge and Ken Teskey is a director of the Issuer as at the date of this
amended and restated preliminary prospectus, prior to the Closing Date, Gordon Herridge and Ken Teskey will resign from
the Board, and Michel Deslauriers, Warren Goodman, Jamila Ladjimi, Raymond McManus, Douglas McPhie, Ian
Sutherland, Mary Turner and Janet Yale will be appointed to the Board of Directors. Directors are expected to hold office
until our next annual general meeting of shareholders. Directors are elected annually and, unless re-elected, retire from
office at the end of the next annual general meeting of shareholders. As a group, the directors and executive officers
beneficially own, or control or direct, directly or indirectly, a total of  Common Shares, representing % of the
Common Shares outstanding immediately prior to the Offering.
Directors of the Issuer
Name and Place of Residence
Age
Position with the Issuer
Principal Occupation
Michel Deslauriers(1)
Kirkland, Québec, Canada
52
Director
Executive Vice President and
Chief Financial Officer, Otéra
Capital Inc.
Warren Goodman (2)
Montréal, Québec, Canada
64
Director
Legal and business consultant
and mediator
Jamila Ladjimi(3)
Montréal, Québec, Canada
45
Director
Vice President, Risk,
Otéra Capital Inc.
Raymond McManus
Beaconsfield, Québec, Canada
74
Chairman of the Board
Chairman, Otéra Capital
Holding Inc.
Douglas McPhie (2)(3)
Oakville, Ontario, Canada
61
Director, Chair of Risk &
Compliance Committee
Business Consultant
Derek Norton
Toronto, Ontario, Canada
62
Director, Chief Executive Officer
Chief Executive Officer, MCAP
Ian Sutherland(2)
Oro-Medonte, Ontario, Canada
71
Director, Chair of Audit
Committee
Chairman
MCAN Mortgage Corporation
Mary Turner(1)(3)
Beamsville, Ontario, Canada
63
Director
President and Chief Executive
Officer, Canadian Tire Bank
Janet Yale(1)
Ottawa, Ontario, Canada
63
Director, Chair of Human
Resources & Governance
Committee
President and Chief Executive
Officer, The Arthritis Society.
________
Notes:
(1) Member of the Human Resources & Governance Committee
(2) Member of the Audit Committee
(3) Member of the Risk & Compliance Committee
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Biographies
The following are brief profiles of our directors:
Michel Deslauriers (Director)
Mr. Deslauriers is Executive Vice President and Chief Financial Officer of Otéra Capital Inc., an indirect
subsidiary of Caisse de dépôt et placement du Québec. Prior to joining Otéra Capital Inc. in 2008, he successively held the
positions of Director, Finance and Treasury, and Vice President, Finance, with a real estate subsidiary of Caisse de dépôt et
placement du Québec. He previously held various positions within Asea Brown Boveri and KPMG–Peat Marwick Thorne.
Mr. Deslauriers has a bachelor's degree in commerce from Concordia University, as well as a Graduate Diploma in Public
Accountancy from the Faculty of Graduate Studies and Research of McGill University. He is a member of the Ordre des
comptables professionnels agréés du Québec.
Warren Goodman (Director)
Mr. Goodman is a legal and business consultant, as well as an accredited mediator. Until his retirement in
December 2014, Mr. Goodman was General Counsel, Business Development and Strategic Projects at Rio Tinto
with global legal oversight for M&A, divestments, joint ventures and support to head office corporate functions (treasury,
tax, shareholder relations, controllers, corporate secretariat). Prior to joining Rio Tinto, Mr. Goodman was a Partner at
McCarthy Tétrault LLP for over 20 years where his experience and expertise were focused in the areas of mergers and
acquisitions, general commercial and corporate law, financing and governance, both domestic and international. Mr.
Goodman received his Bachelor of Commerce (BComm) at Concordia University, his Bachelor of Civil Law (BCL) and
Bachelor of Laws (LLB) at McGill University and was called to the Québec Bar in 1980.
Jamila Ladjimi (Director)
Ms. Ladjimi is Vice President, Risk of Otéra Capital Inc., an indirect subsidiary of Caisse de dépôt et placement du
Québec. Prior to joining Otéra Capital Inc. in 2012, Ms. Ladjimi held various positions in other real estate subsidiaries of
Caisse de dépôt et placement du Québec. She has close to 20 years of experience in real estate related investments, in the
Canadian and international markets. She has a solid background in project management, due diligence, market analysis and
management of partnership relations, as well as investment funds. Ms. Ladjimi holds a M.Sc. in Finance from HEC
Montréal.
Raymond McManus (Chairman of the Board)
Mr. McManus started his banking career in 1960 and became President and Chief Executive Officer of Laurentian
Bank of Canada in 2002. He retired in 2007. After having worked for more than 25 years at Royal Bank of Canada and
Mercantile Bank of Canada, Mr. McManus founded and led Cafa Financial Corporation, a private investment bank
specializing in mergers and acquisitions, corporate financing and real estate. Over the course of his career, Mr. McManus
acted as advisor on a number of large financial transactions. Mr. McManus has been a member of the board of directors of
Otéra Capital Holding Inc. since 2009 and assumed the position of President and Chief Executive Officer from 2011 to
2012. Mr. McManus was appointed Chairman of the board of directors of Otéra Capital Holding Inc. on January 1, 2013.
Mr. McManus holds a Bachelor in Commerce from McGill University and is member (Fellow) of the Institute of Canadian
Bankers.
Douglas McPhie (Director, Chair of Risk & Compliance Committee)
Mr. McPhie retired from Ernst & Young in June 2015 and has over 35 years of experience advising boards and
senior leaders of companies in financial services industries. He has extensive knowledge of Canadian and global financial
services industry and regulatory dynamics, financial reporting and controls, enterprise risk management, cyber-security and
SEC/CSA reporting. Mr. McPhie has also been a member and sat as Chair for several Boards throughout his career. He
received his Bachelor of Environmental Studies degree from the University of Waterloo. Mr. McPhie is a Chartered
Professional Accountant (CPA, CA), Certified Public Accountant, Illinois, a former Certified Information Systems Auditor
and holds a Fellow of the Chartered Professional Accountants (FCPA) designation.
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Derek Norton (Director, Chief Executive Officer)
Mr. Norton is the Chief Executive Officer and Chairman of the MCAP group of companies, including the Issuer.
He has worked at MCAP and its predecessor companies since 1988. He heads the executive committee of the MCAP group
of companies and is responsible for the overall strategic planning and operations. Prior to joining MCAP, he spent 11 years
with other major institutional commercial lenders in Canada and Australia. Mr. Norton’s background includes expertise in
single-family residential mortgages, commercial mortgages, residential construction financing, and Canadian loan
securitization. He has extensive knowledge of Canada’s regulatory environment, having held directorships for both public
and private lending institutions. He received his Bachelor of Commerce degree from the University of British Columbia.
Ian Sutherland (Director, Chair of Audit Committee)
Mr. Sutherland started his career in the financial services industry in 1969 and was one of the original founders of
MCAP. He is currently the Chairman of MCAN having held that position since 2006. After working directly in the MCAP
group of companies until 1993, Mr. Sutherland joined The North West Company as its President and, from 1997 to 2008,
its Chairman. Over the course of his career, Mr. Sutherland has been a Director or a Trustee for a number of entities
including MCAP, MCAN, The North West Company, Renasant Financial Partners Ltd., Teachers Retirement Annuity Fund
(Manitoba), Strongco Corporation and National Aboriginal Achievement Foundation. Mr. Sutherland holds a Bachelor of
Commerce from University of Manitoba, is a Chartered Professional Accountant (CPA, CA) and a Chartered Financial
Analyst.
Mary Turner (Director)
Mrs. Turner is the President and Chief Executive Officer of Canadian Tire Bank, a subsidiary of Canadian Tire
Corporation, and has over 25 years of experience dealing with financial services, payments, customer service, credit risk
management, enterprise risk management, operations, finance and information technology. She is currently leading the
transformation of the Finance function to ensure that Canadian Tire has the finance capabilities needed to drive its vision
and achieve its strategic objectives and was previously Vice President, Accounting and Financial Operations of Canadian
Tire since 2010. Throughout her career, Mrs. Turner has been a member of several Boards including the Mackenzie
Financial Corporation, a subsidiary of IGM Financial, where she chairs the Fund Oversight Committee. She is also a
member of the MasterCard Canada Advisory Board and the Canadian Bankers’ Association Executive Council. Mrs.
Turner has a B. Sc (Honours) and is a graduate of the Charter Director Program at McMaster University. Mrs. Turner is a
Chartered Professional Accountant (CPA, CA) and holds a Fellow of the Chartered Professional Accountants (FCPA)
designation. Prior to joining Canadian Tire, she was a partner at Deloitte & Touche from 1985 to 1992. Mrs. Turner was
recognized in 2015 as one of WXN Canada’s Top 100 Most Powerful Women.
Janet Yale (Director, Chair of Human Resources & Governance Committee)
Mrs. Yale currently serves as President and Chief Executive Officer of The Arthritis Society (since June 2012),
after years of providing results-oriented leadership in C-suite positions in the private, public and not-for-profit world (Chief
Executive Officer of Scouts Canada, September 2010 to November 2011 and Executive Vice-President, Telus Corp. from
August 2003 to June 2010). She has expertise with financial and business planning, performance management and
executive compensation, and information technology and systems. Mrs. Yale also has extensive experience in government
relations, corporate philanthropy and corporate social responsibility. Mrs. Yale holds a Certified Director Designation
(ICD.D) from the Institute of Corporate Directors. Mrs. Yale completed her Master of Economics and a Bachelor of Laws
(LLB) at the University of Toronto, and was called to the Ontario Bar in 1983.
Executive Officers
The executive officers of the Issuer are set out in the table below.
Position
Derek Norton (Toronto, ON)
Chief Executive Officer
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Mark Aldridge (Oakville, ON)
President and Chief Operating Officer
Brian Carey (Mississauga, ON)
Executive Vice President and Chief Financial Officer
Paul Bruce (Toronto, ON)
Executive Vice President, Single-Family
Jason Wright (Toronto, ON)
Executive Vice President, Capital Markets
Ken Teskey (Vancouver, BC)
Chief Risk Officer and Corporate Secretary
Gordon Herridge (Oakville, ON)
Senior Vice President, Shareholder Relations
Other executives working in the MCAP group of companies include:
Position
Mark Yhap (Richmond Hill, ON)
Managing Partner, Commercial Mortgages
Robert Balfour (Calgary, AB)
Managing Partner, Development Finance Group
Steven Delaney (Toronto, ON)
Chief Information Officer
Don Ross (Oakville, ON)
Senior Vice President, Investor Marketing
Lucy Lombardi (Mississauga, ON)
Senior Vice President, Human Resources
Heather Baker (Bolton, ON)
Chief Audit Officer
Biographies
The following are brief profiles of our non-director executive officers:
Mark Aldridge (President & Chief Operating Officer)
Mr. Aldridge joined MCAP in 2001 and was promoted to his current position in 2013. As MCAP’s President &
Chief Operating Officer, he is responsible for the planning, direction and overall profitability of all activities relating to the
operations of MCAP’s lines of business including capital markets, single-family, Commercial Mortgages and Construction
Financing. In this role, Mark prepares, executes and oversees MCAP’s annual business plan and long-term strategic plan in
order to optimize MCAP’s long-term sustainable earnings and value, while preserving its assets, capital and reputation.
Prior to becoming President & Chief Operating Officer, Mark was MCAP’s Executive Vice President & Chief Financial
Officer. Mr. Aldridge graduated from McMaster University with a Bachelor of Commerce (Honours) and is a Chartered
Professional Accountant (CPA, CA).
Brian Carey (Executive Vice President and Chief Financial Officer)
Mr. Carey joined MCAP in 2007 and was promoted to his current position in 2013. As MCAP’s Executive Vice
President & Chief Financial Officer, he is responsible for managing all aspects of MCAP’s finance and treasury groups.
This includes ensuring that financial controls are in place to safeguard the assets of MCAP and its clients, as well as
adhering to regulatory financial reporting requirements and corporate governance. Mr. Carey also advises the Board of
Directors on MCAP's financial affairs and results and supports the Chief Executive Officer on strategic initiatives including
acquisitions, divestitures and their impact on MCAP’s corporate structure. Mr. Carey received his Bachelor of Business
Administration from Wilfrid Laurier University, his MBA at the Rotman School of Management, University of Toronto
and is a Chartered Professional Accountant (CPA, CA).
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Paul Bruce (Executive Vice President, Single-Family)
Mr. Bruce joined MCAP in 1992 and is currently responsible for the strategic direction of MCAP’s single-family
residential mortgage operations. During his tenure with MCAP and predecessor companies, he has held various senior
positions with responsibilities for mortgage administration, “sub-servicing”, credit adjudication, default management and
mortgage investigations. Mr. Bruce has been an industry leader in mortgage fraud investigations, established the mortgage
fraud unit at MCAP and is a former member of the CMHC mortgage fraud task force.
Jason Wright (Executive Vice President, Capital Markets)
Mr. Wright joined MCAP in 1999 and is responsible for funding and securitization activities relating to MCAP’s
single-family and commercial mortgage originations. Mr. Wright leads the capital markets group which is responsible for
interest rate risk management activities, third-party mortgage sales, executing various securitization transactions including
CMB and NHA-MBS, managing certain third-party investor relationships and related reporting and compliance activities.
Mr. Wright earned his Bachelor of Business Administration (Honours) at Wilfrid Laurier University and is also a Chartered
Financial Analyst.
Ken Teskey (Chief Risk Officer & Corporate Secretary)
Mr. Teskey has been a part of MCAP team since 1988. As Chief Risk Officer, Mr. Teskey is responsible for
overseeing the management of risks to the business and ensuring the Board of Directors, senior executive and staff are
aware of their responsibilities in minimizing risk and ensuring compliance. Prior to joining the senior executive, Mr.
Teskey ran the origination program of MCAP’s British Columbia construction business. He also practiced law at a
prominent Vancouver firm which led him to be the original legal advisor for all MCAP business lines. Mr. Teskey received
both his Bachelor of Commerce and his LLB from the University of British Columbia.
Gordon Herridge (Senior Vice President, Shareholder Relations)
Mr. Herridge joined MCAP Leasing in 1991. Mr. Herridge was appointed Chief Financial Officer for MSC in
2002 and relinquished that position in 2006 when he returned full time to MCAP Leasing as Executive Vice President and
Chief Financial Officer. Upon the sale of the operations of MCAP Leasing in 2010, Mr. Herridge returned to MCAP’s
head office where he assumed the role as Senior Vice President, Corporate Services. Mr. Herridge is extensively involved
in the management of MCAP’s strategic plan, special projects and corporate initiatives. Mr. Herridge holds a Bachelor of
Arts (Economics) from the University of Waterloo and is a Chartered Professional Accountant (CPA, CA).
Mark Yhap (Managing Partner, Commercial Mortgages)
Mr. Yhap joined MCAP in 1989 and is responsible for the origination, underwriting, funding, and servicing of
commercial mortgages across the country. During his tenure with MCAP, he has had extensive mortgage experience in loan
origination, underwriting, funding, investor relations, securitization and structured finance. Mr. Yhap earned his Bachelor
of Business Administration (Honours) from Wilfrid Laurier University and is a Chartered Financial Analyst.
Robert Balfour (Managing Partner, Development Finance Group)
Mr. Balfour has been with MCAP since 1994. He leads a team of 35 professionals who provide Construction &
Development Financing for commercial properties and residential developments. Mr. Balfour has been active in real estate
finance in the Alberta market since 1975. His broad industry experience comes from time spent in the brokerage industry
and with trust and life insurance companies. He is a licensed mortgage and real estate broker with active community
affiliations and served as a Past President of the Alberta Mortgage & Loans Association. Mr. Balfour received his Bachelor
of Commerce in Finance from the University of Calgary.
Steven Delaney (Chief Information Officer)
Mr. Delaney joined MCAP as its Chief Information Officer in January, 2013. Mr. Delaney is responsible for
ensuring that technology effectively supports MCAP’s business operations across Canada. Mr. Delaney works closely with
MCAP’s executive and business unit leaders and leads a team of technology experts that manages all of MCAP’s mortgage
origination and servicing applications, finance and capital markets systems as well as all data centre and network
operations. Prior to joining MCAP, Mr. Delaney held executive positions with major government, financial institution and
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communications enterprises. Mr. Delaney holds a Bachelor of Science (Honours) from the University of Toronto and an
MBA from York University. Mr. Delaney also has his ICD.D from the Institute of Corporate Directors - Rotman School of
Management.
Don Ross (Senior Vice President, Investor Marketing)
Mr. Ross joined MCAP in 1989 and has held senior positions in commercial asset management, loan servicing,
investor relations, commercial lending, investment management, capital markets and structured finance. He is responsible
for providing Institutional Investors with the opportunity to participate and invest in one or more of MCAP’s chosen
product lines through managed mortgage funds, loan syndications or securitization structures. He is also responsible for
providing investors with access to MCAP’s other services including loan servicing and administration and asset
management. With more than 26 years of progressive experience in the real estate industry, Mr. Ross has developed
relationships with the majority of major financial institutions in Canada. Mr. Ross holds an Honours Bachelor of Business
Administration degree from Wilfrid Laurier University.
Lucy Lombardi (Senior Vice President, Human Resources)
Ms. Lombardi joined MCAP in 1998 and is responsible for the development and oversight of the Human
Resources Strategy in alignment with MCAP’s strategic plan. Ms. Lombardi leads the Human Resources function and with
her team, focuses on offering solutions that enable MCAP to attract, retain, motivate and align employees on the goals and
objectives of MCAP. This includes the development and implementation of strategies relating to organizational design,
talent management, performance management, employee training and development and total rewards in order to drive a
high performance culture. Ms. Lombardi graduated from York University with a Bachelor of Arts and Education and holds
a certificate in Human Resources.
Heather Baker (Chief Audit Officer)
Ms. Baker joined MCAP in 2002 and was appointed to the position of Chief Audit Officer in 2012. Ms. Baker and
her team are responsible for providing independent reviews and evaluations of MCAP’s internal controls relating to
business processes and information systems with a view to verifying and validating their compliance and strengths,
identifying weaknesses and providing recommendations to management and the Audit Committee on changes to mitigate
risk. Prior to her current role, Ms. Baker was Vice President, Finance of the Issuer from 2007 – 2012. Ms. Baker holds a
Bachelor of Business Administration from Wilfrid Laurier University and is a Chartered Professional Accountant (CPA,
CA).
Corporate Cease Trade Orders
None of our directors or executive officers has, within the 10 years prior to the date of this prospectus, been a
director, chief executive officer or chief financial officer of any company (including MCAP) that, while such person was
acting in that capacity (or after such person ceased to act in that capacity but resulting from an event that occurred while
that person was acting in such capacity) was the subject of a cease trade order, an order similar to a cease trade order, or an
order that denied the company access to any exemption under securities legislation, in each case for a period of more than
30 consecutive days.
Corporate Bankruptcies
None of our directors or executive officers has, within the 10 years prior to the date of this prospectus, become
bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any
proceedings, arrangement or comprise with creditors or had a receiver, receiver manager or trustee appointed to hold its
assets, nor have any of our directors or executive officers been a director or executive officer of any company, that, while
that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt,
made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings,
arrangement or comprise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets.
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Penalties or Sanctions
No director or executive officer of the Issuer or shareholder holding sufficient securities of the Issuer to affect
materially the control of the Issuer has:
 been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities
regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or
 been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be
considered important to a reasonable investor making an investment decision.
Conflicts of Interest
Other than as described elsewhere in this prospectus, to the best of our knowledge, there are no known existing or
potential conflicts of interest among us and our directors, officers or other members of management as a result of their
outside business interests except that certain of our directors and officers serve as directors and officers of other companies,
and therefore it is possible that a conflict may arise between their duties to us and their duties as a director or officer of such
other companies.
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CORPORATE GOVERNANCE
While each of Derek Norton, Gordon Herridge and Ken Teskey is a director of the Issuer as at the date of this
amended and restated preliminary prospectus, prior to the Closing Date, Gordon Herridge and Ken Teskey will resign from
the Board and Michel Deslauriers, Warren Goodman, Jamila Ladjimi, Raymond McManus, Douglas McPhie, Ian
Sutherland, Mary Turner and Janet Yale will be appointed to the Board of Directors.
Accordingly, while the following reflects the expectations of the current directors, following completion of the
Offering, the Board may ultimately determine to implement governance practices, policies, structures and mechanisms
which differ from those noted below.
Independence of Board of Directors
The Board of Directors consists of nine directors, eight of whom are considered “independent” for purposes of
National Instrument 58-101 - Disclosure of Corporate Governance Practices (“NI 58-101”). An independent director is
one who is free from any direct or indirect relationship which could, in the view of the Board of Directors, be reasonably
expected to interfere with a director’s independent judgment. The independent members of the Board are Michel
Deslauriers, Warren Goodman, Jamila Ladjimi, Raymond McManus, Douglas McPhie, Ian Sutherland, Mary Turner, and
Janet Yale. Derek Norton is not considered “independent” for purposes of NI 58-101. Derek Norton is the Chief Executive
Officer of the Issuer. As a result, he will not serve on the Audit Committee or the Human Resources & Governance
Committee of the Board of Directors (the “HR&G Committee”). See “Audit Committee” and “HR&G Committee” below.
The Issuer intends to hold regularly scheduled Board meetings at least five times per fiscal year. Each meeting will
include an in-camera session composed solely of independent directors, without the presence of non-independent directors
or management of the Issuer, to facilitate an open and candid discussion among the independent directors. The Chair is
responsible for chairing all meetings of the Board, providing leadership to the Board, managing the Board, acting as a
liaison between the Board and management, as well as the independent directors and the non-independent directors, and
representing the Issuer to external groups. A majority of the members of the Board of Directors are independent.
The following table provides details regarding directorships held by the Issuer’s directors in other reporting issuers
or the equivalent thereof in foreign jurisdictions. Michel Deslauriers, Warren Goodman, Jamila Ladjimi, Raymond
McManus, Douglas McPhie, Derek Norton, and Janet Yale are not currently directors of any other reporting issuer.
Name of Director
Name of Other Reporting Issuer
Stock Exchange
Ian Sutherland
CAN Mortgage Corporation
TSX
Mary Turner
Canadian Tire Corporation
Canadian Tire Bank
Glacier Credit Card Trust
TSX
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Nomination and Election of Directors
The Nomination Rights Agreement provides that Otéra is entitled to select 331/3% of the director nominees for
election (i.e. three of nine directors after Closing). The HR&G Committee is responsible for identifying the other
candidates for election to the Board of Directors. The number of director nominees which Otéra is entitled to select may
change based upon its shareholdings in the Issuer. For further information regarding the director nomination procedures
under the Nomination Rights Agreement see “Securityholders’ Agreements — Nomination Rights Agreement” above.
Subject to the provisions of the Nomination Rights Agreement, the HR&G Committee will identify the individuals
qualified to become new directors and recommend to the Board new nominees for election by shareholders or for
appointment by the Board to fill any vacancy on the Board. In making its recommendations to the Board, the committee
will consider: (i) the competencies and skills that the Board considers to be necessary for the Board, as a whole, to possess;
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(ii) the competencies and skills that the Board considers each existing director to possess; (iii) the competencies and skills
each new nominee would bring to the boardroom; and (iv) the Issuer’s policy on diversity. See “Diversity – Board” below.
The individuals serving as the Issuer’s directors effective immediately following completion of the Offering will
hold office for a term expiring at the conclusion of the first annual meeting of shareholders of the Issuer or until their
successors are elected or appointed and will be eligible for re-election.
Majority Voting Policy
In accordance with the requirements of the TSX, the Board has adopted a “Majority Voting Policy” to the effect
that a nominee for election as a director who does not receive a greater number of votes “for” than votes “withheld” with
respect to the election of directors by shareholders will be expected to offer to tender his or her resignation to the Chair
promptly following the meeting of shareholders at which the director was elected. The HR&G Committee will consider
such offer and make a recommendation to the Board whether to accept it or not. The Board will promptly accept the
resignation unless it determines, in consultation with the HR&G Committee, that there are exceptional circumstances that
should delay the acceptance of the resignation or justify rejecting it. The Board will make its decision and announce it in a
press release within 90 days following the meeting of shareholders. A director who tenders a resignation pursuant to the
Majority Voting Policy will not participate in any portion of a meeting of the Board or the HR&G Committee at which the
resignation is considered.
Term Limits
The Issuer has adopted a ten-year service limit for any individual director subject to the Board, on
recommendation from the HR&G Committee’s recommendation and after consideration of the circumstances relating to the
makeup of the Board and available nominees for election, electing to extend a director’s term beyond that limit.
Mandate of the Board of Directors
The Board of Directors has the duty to manage, or supervise the management of, the business and affairs of the
Issuer. The Board will discharge its responsibilities directly and through its committees, which consist of the Audit
Committee, the HR&G Committee and the Risk & Compliance Committee. Following Closing, the Board expects to meet
regularly to provide strategic direction for MCAP and to review the business operations, corporate governance and financial
results of MCAP. The Board has adopted a formal Mandate of the Board of Directors. See Appendix “A” – Board Mandate.
Position Descriptions
The Board has adopted a written position description for the chair of each of its committees providing that such
chair is responsible for generally overseeing the operations and affairs of the relevant committee, including responsibilities,
among others, relating to chairing meetings of the committee, promoting cohesiveness among members of the committee,
overseeing the orientation of new committee members, planning and organizing the quality, quantity and timeliness of
information provided to the committee, coordinating between, as applicable, the Chair, management and external advisors
to enhance the functioning of the committee and reporting to the Board on the activities of the committee.
Chair of the Board of Directors
The Chair of the Board of Directors is Raymond McManus. The Board has adopted a written position description
for the Chair, indicating that the Chair is responsible for, among other things, chairing all meetings of the Board, promoting
cohesiveness among the directors, ensuring the Board has adequate resources, including the appropriate flow of
information, monitoring Board committees in carrying out and reporting responsibilities delegated by the Board, facilitating
a candid and full discussion of all key matters that come before the Board and ensuring that the independent directors have
adequate opportunities to meet to discuss matters without management present and that decisions are made on a sound and
well-formed basis and presiding over meetings of the Issuer’s shareholders.
The Board has adopted an executive role profile for the Chief Executive Officer providing that his primary role is
to take overall strategic and operational responsibility for the day-to-day operations of MCAP in order to achieve the goals
and objectives determined by the Board in the context of MCAP’s strategic plan. The Chief Executive Officer’s role profile
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sets forth responsibilities including, but not limited to: (i) in consultation with the Board, leading senior management in
developing and implementing the strategic plan reflecting MCAP’s short and long-term objectives; (ii) developing and
recommending annual business plans and budgets to the Board that align with MCAP’s long-term strategic plan; (iii)
overseeing the achievement of approved annual business plans and budgets, and business unit strategic and operational
initiatives; (iv) overseeing strategy and implementation for major strategic initiatives including acquisitions, divestitures,
new funding programs and other new business initiatives; (v) leading, developing and retaining a high performance
management team that reflects MCAP’s values and culture and developing and managing succession plans for senior
management; (vi) overseeing the establishment and maintenance of MCAP’s internal controls and risk management
procedures; (vii) reporting to the Board of Directors on MCAP’s business and affairs and ensuring reliable processes are in
place to provide the Board with regular reports on the effectiveness of MCAP’s risk management procedures; (viii) serving
as the chief spokesperson for MCAP; (ix) optimizing MCAP’s long-term sustainable earnings within Board approved risk
parameters; and (x) preserving MCAP’s assets, capital, reputation and creating long-term value for MCAP’s shareholders.
Director Orientation and Continuing Education
The Issuer has established an orientation process for new directors and intends to develop a continuing education
program for all directors. New directors will be provided with a Board of Directors member’s manual that includes the
articles of incorporation, by-laws, minutes of meetings, significant corporate policies, list of Board committees and
mandates, the strategic plan, a list of Board members and their contact information, MCAP’s latest financial statements and
the current budget/forecast of MCAP. This material will be supplemented by meetings between the new directors and
management to discuss the nature and operations of MCAP. Before their first Board meeting, new directors will be
provided with a tour of MCAP’s head office facilities. Each new director will also be introduced to all of the then-current
members of Board. The Chair of the Board of Directors will be responsible for ensuring that each new director understands
his or her responsibilities as a member of the Board and any committees that they may join. The HR&G Committee will be
responsible for and ensuring that directors maintain the skill and knowledge necessary to meet their obligations as directors.
There will also be continuing education opportunities for all directors that will be provided internally and externally.
Ethical Business Conduct and Compliance
The Issuer has adopted a Code of Business Conduct (the “Code”) applicable to each director, officer, employee
and independent contractor and consultant of MCAP. The Code contains principles, standards and guidelines for
conducting the business and affairs of the Issuer with honesty, integrity and in accordance with high ethical and legal
standards. The Code will be made available on SEDAR at www.sedar.com under the Issuer’s profile.
As part of the Code, a member of the Board who has a material interest in a matter before the Board or any
committee of the Board on which he or she serves will be required to disclose such interest as soon as the member of the
Board becomes aware of it and may be required to absent himself or herself from the meeting while discussions and voting
with respect to the matter are taking place.
The HR&G Committee is responsible for at least annually reviewing and assessing the adequacy of the Code,
monitoring annual compliance with the Code and providing to the Board an annual report on such compliance including
recommendations to the Board for changes when necessary. Each person to which the Code applies is required to certify
his or her acknowledgement and acceptance of it upon, and periodically during, his or her employment or engagement.
Human Resources and Governance Committee
The HR&G Committee operates under the Mandate of the HR&G Committee, pursuant to which it assists the
Board in fulfilling its oversight responsibilities with respect to: (i) determining, recommending and reviewing the Issuer’s
executive compensation (including the compensation of directors); (ii) reviewing, recommending and approving executive
and non-executive employee compensation and benefit programs; (iii) reviewing and monitoring conflicts of interest (real
or perceived) of members of the Board and management of the Issuer; (iv) developing and recommending to the Board a set
of corporate governance guidelines of the Issuer; (v) developing and recommending to the Board the Issuer’s policies,
practices and processes concerning the management of human resources; (vi) overseeing the Board’s periodic evaluation of
its performance and the performance of directors, other Board committees, committee members and committee chairs; (vii)
advising the Board regarding membership and operations of the Board; (viii) recommending to the Board a succession plan
(long term and interim) for the chief executive officer and certain other high level executives, and approving the succession
plan (long term and interim) for all other executive positions; and (ix) subject to the terms of the Nomination Rights
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Agreement, overseeing the Issuer’s director nomination process, including, identifying individuals qualified to serve as
members of the Board.
The HR&G Committee is composed of Janet Yale, who is the Chair of the HR&G Committee, Michel Deslauriers
and Mary Turner. Each member is considered “independent” within the meaning of NI 58-101.
Audit Committee
The Audit Committee’s purpose is to assist the Board in fulfilling its oversight responsibilities with respect to: (i)
financial reporting and disclosure requirements; (ii) ensuring that an effective accounting, risk management and financial
control framework has been designed, implemented and tested by management of the Issuer; (iii) external audit processes;
(iv) helping directors meet their responsibilities regarding financial matters; (v) providing better communication between
directors and the external auditor; (vi) enhancing the independence of the external auditor; (vii) recommend and supervise
the establishment and operation of an internal audit process; (viii) increasing the credibility and objectivity of financial
reports; and (ix) strengthening the role of directors by facilitating in-depth discussions among directors, management and
the external auditor regarding significant issues involving judgment and impacting quality controls and reporting.
The Audit Committee is composed of Ian Sutherland, who is the Chair of the Audit Committee, Warren Goodman
and Douglas McPhie. Each of such member is considered “independent” and “financially literate” within the meaning of
National Instrument 52-110 - Audit Committees. For the education and experience relevant to the performance by each such
person of the responsibilities as a member of the Audit Committee. See “Directors and Management of the Issuer” above.
The Board has adopted a formal Mandate of the Audit Committee. See Appendix “B” – Audit Committee
Mandate.
Risk & Compliance Committee
The Risk & Compliance Committee operates under the Mandate of the Risk & Compliance Committee pursuant to
which it assists the Board in fulfilling its oversight responsibilities with respect to: (i) overseeing risk management of
MCAP and its business; (ii) reviewing and recommending Board approval of MCAP’s overall risk management framework
and its risk appetite, including risk limits; (iii) identifying, assessing and managing MCAP’s risk profile; (iv) reviewing the
effectiveness of MCAP’s risk practices; (v) reviewing and approving MCAP’s policies, processes and procedures in place
to manage the risks to which MCAP is exposed; (vi) reviewing MCAP’s adherence to internal risk policies and procedures
through timely management reporting; and (vii) overseeing compliance with laws and regulations, material third-party
contracts, and Board-approved policies.
The Risk & Compliance Committee is composed of Douglas McPhie who is the Chair of the Risk & Compliance
Committee, Jamila Ladjimi and Mary Turner. Each member is considered “independent” within the meaning of NI 58-101.
Policies and Procedures for the Engagement of Non-Audit Services
The Audit Committee is responsible for the pre-approval of all non-audit services to be provided to the Issuer or its
subsidiary entities by the external auditor. At least annually, the Audit Committee will review and confirm the
independence of the external auditor by obtaining statements from such auditor on relationships between the auditor and the
Issuer, including non-audit services.
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Auditor’s Fees
Deloitte LLP is the Issuer’s external auditor and has also served as MCLP’s external auditor continuously for the
past 3 years. Fees billed by Deloitte LLP to the Issuer for the fiscal years ended November 30, 2015 and November 30,
2014 were approximately $1,481,504 and $1,178,410, respectively, as detailed below:
Year ended November 30, Year ended November 30,
2015
2014
Audit fees ........................................................................................................
$759,710
$658,080
Audit-related fees ............................................................................................
$358,602
$304,136
Tax fees ...........................................................................................................
$21,400
$22,524
All other fees ...................................................................................................
$341,792
$193,670
Total ...............................................................................................................
$1,481,504
$1,178,410
Audit fees — Audit fees are for professional services rendered for the audit and review of the financial statements
of MCLP and its subsidiaries.
Audit-related fees — Audit-related fees are for assurance and related services that are reasonably related to the
performance of the audit or review of the financial statements and are not reported under audit fees listed above.
Tax fees— Tax fees are for tax compliance, tax advice and tax planning.
All other fees— All other fees are fees for financial advisory services.
Board of Directors Assessments
The Board is responsible for reviewing, on an annual basis, the requisite competencies, skills and diversity of
prospective members of the Board as well as the composition of the Board as a whole. The HR&G Committee is
responsible for implementing an assessment process which assessment will include each member’s contribution,
qualification as an independent director, as well as skills and experience in the context of the needs of the Board.
Diversity
The Board has approved a Diversity Policy (the “Diversity Policy”) that sets out MCAP’s approach to diversity on
the Board and in executive officer roles.
Board
MCAP believes that a diverse board enhances the decision making of the Board by utilizing the different skills,
experience and background, geographical and industry experience, ethnicity, gender, knowledge and length of services, and
other distinguishing qualities of the members of the Board. Diversity will be considered in determining the optimum
composition of the Board, and all appointments will be based on merit, having due regard to the overall effectiveness of the
Board.
Subject to the terms of the Nomination Rights Agreement, the HR&G Committee is responsible for reviewing and
assessing Board composition on behalf of the Board and will make recommendations to the Board on the appointment of
new directors.
In reviewing Board composition, the HR&G Committee will consider the benefits of all aspects of diversity
including, but not limited to, those described above, in order to enable it to discharge its duties and responsibilities
effectively.
In identifying suitable candidates for appointment to the Board, the HR&G Committee will consider candidates on
merit using objective criteria and with due regard for the benefits of diversity on the Board. In an effort to promote the
specific objectives of gender diversity and to move towards parity between male and female representation on the Board,
the Diversity Policy requires that the selection process for suitable candidates must involve the following steps:
105

a list identifying potential candidates for the appointment must be compiled; and

if, at the end of the selection process, a female candidate is not selected, the Board must be satisfied that there
are objective reasons to support its determination.
As part of the performance evaluation of the effectiveness of the Board, Board committees and individual
directors, the HR&G Committee will consider the balance of skills, experience, independence and knowledge of MCAP on
the Board and the diversity representation of the Board, including gender, how the Board works together as a unit, and
other factors relevant to its effectiveness. The HR&G Committee will discuss and agree periodically on all measurable
objectives for promoting diversity on the Board and recommend them to the Board for adoption.
The Board does not provide input into the selection of individuals nominated initially to be directors under the
Nomination Rights Agreement.
MCAP aspires to move towards parity between male and female representation on the Board, subject to there
always being at least 1/3 of female directors on the Board. Following completion of the Offering, 33.3% (3 of 9) of the
Board is made up of women.
Executive Officers
MCAP appreciates that diversity, including gender, age and ethnicity, are important and valuable considerations in
assessing executive officers. In addition to diversity considerations, other factors such as performance, qualifications,
capabilities and experience are considered when choosing and recruiting executive officers. Following the consideration of
all these factors, the best candidate whose portfolio of skills is most suited for the position is selected.
The HR&G Committee oversees management succession planning on behalf of the Board and will make
recommendations to the Board on the appointment of executive officers, taking into account other aspects of diversity,
including gender. In reviewing the succession plan for the executive officers, the HR&G Committee will consider the
benefits of all aspects of diversity, including, but not limited to, those described above.
The HR&G Committee will consider candidates on merit based on performance, qualifications, capabilities and
experience and with due regard for the benefits of diversity. MCAP is committed to selecting highly-qualified individuals
to fulfill management roles and considers the qualities and experiences of candidates, including their educational
background, business experience, expertise and integrity, in the selection and recruitment of its executive officers. MCAP
believes the presence of qualified and diverse individuals in executive positions is important to ensure that management
provides the necessary range of perspectives, experience and expertise. MCAP also recognizes the significant role that
women with appropriate and relevant skills and experience play in contributing to diversity of perspective in executive
management roles.
MCAP has not imposed quotas or targets regarding female representation in executive officer roles, on the grounds
that appropriate skills and experience must remain the primary criteria for such appointments. While MCAP believes that
executive officer diversity is a key to the organization’s success, MCAP does not currently view targets or quotas as the
most effective way of achieving the objectives of the Diversity Policy. Rather than instituting a target or quota for executive
officers, MCAP has emphasized the importance of developing its internal talent pipeline at both the management and
executive level. Following completion of the Offering, 15.4% (2 of 13) of the Issuer’s executive officers are women.
The HR&G Committee will monitor and implement the Diversity Policy and report to the Board thereon. In
addition, the HR&G Committee will review the Diversity Policy at least annually to discuss any revisions that may be
required and recommend any such revisions to the Board for approval.
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EXECUTIVE OFFICER AND DIRECTOR COMPENSATION
Compensation Governance
The following section outlines the significant elements of the Issuer’s anticipated executive compensation plan, the
process for determining compensation payable to the Issuer’s Named Executive Officers or NEOs (as defined below) and
the role of the Human Resources and Governance Committee.
Human Resources and Governance Committee
The HR&G Committee was established prior to the completion of the Offering. The HR&G Committee has
adopted a written mandate outlining its purpose and responsibilities, including assisting the Board in fulfilling its human
resources and governance oversight responsibilities. See “Corporate Governance – Human Resources and Governance
Committee” above for a description of the HR&G Committee mandate.
The HR&G Committee is composed of Janet Yale (Chair), Michel Deslauriers and Mary Turner. Each member is
independent within the meaning of NI 58-101. For disclosure of the skills and experience that enable the HR&G
Committee to make decisions on the Issuer’s compensation policies and practices, as well the direct experience that is
relevant to each committee member’s responsibilities relating to executive compensation, see “Directors and Management
of the Issuer” above.
Compensation Consultant
Hay Group (“Hay”) was retained by MCLP to assist in the development of the Issuer’s post-Offering
compensation structure and provide analysis of compensation practices of public companies within the Issuer’s peer group.
Hay has been retained since February 6, 2015 to provide executive compensation consulting services to management and
has:

assisted the Issuer with the development of a proposed formal public company executive and director
compensation philosophy;

proposed suitable compensation peer groups for benchmarking the Issuer’s executive compensation level and
mix;

reviewed the Issuer’s current executive compensation practices and competitiveness; and

provided advice regarding possible executive compensation structure design options.
Hay’s fees incurred during the 2015 fiscal year and during the period from December 1, 2015 to May 20, 2016,
regarding services provided were as follows:
Fiscal Year Ended
November 30, 2016(1)...
November 30, 2015……...
Executive Compensation Related Fees
$21,975
$85,404
All Other Fees
Nil
$19,600 (2)
____________
(1)
(2)
Fees incurred to May 20, 2016.
Fees incurred for pay equity review and other services.
In addition, the previous human resources committee of the board of directors of the general partner of MCLP
retained its own advisor, Perrault Consulting Inc. (“PCI”) effective October 29, 2015. PCI’s mandate was to review the
Issuer’s proposed:

total compensation mix including compensation elements, the Issuer’s comparator group and target market
positioning;

minimum share ownership requirements;
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
risk management framework for executive compensation;

regulatory compliance with governance and disclosure requirements; and

director compensation.
PCI’s fees incurred during the 2015 fiscal year and during the period from December 1, 2015 to May 20, 2016,
regarding services provided were as follows:
Fiscal Year Ended
November 30, 2016(1)...
November 30, 2015……...
____________
(1)
Executive Compensation Related Fees
$42,420
Nil
All Other Fees
Nil
Nil
Fees incurred to May 20, 2016.
Except as disclosed above, no other compensation consulting or advisory services have been provided to the
Issuer, affiliated or subsidiary entities, or to any of its directors or members of management.
Compensation Discussion and Analysis
Overview
On a going forward basis, the HR&G Committee will review and consider the analysis and design options
proposed by Hay and PCI and, at its discretion, will make executive compensation recommendations for approval of the
Board. The HR&G Committee may also from time to time retain the services of one or more separate advisors, in order to
enable it to complete its review and recommendations pertaining to executive compensation.
The following discussion describes the significant elements of the compensation of the Issuer’s Chief Executive
Officer, Executive Vice President & Chief Financial Officer, President & Chief Operating Officer, Executive Vice
President, Single-Family and Executive Vice President, Capital Markets (collectively, the “Named Executive Officers” or
“NEOs”), namely:
Derek Norton, Chief Executive Officer;
Brian Carey, Executive Vice President & Chief Financial Officer;
Mark Aldridge, President & Chief Operating Officer;
Paul Bruce, Executive Vice President, Single-Family; and
Jason Wright, Executive Vice President, Capital Markets.
Executive Compensation Philosophy
The Issuer’s executive compensation program will be designed to attract, retain and motivate high calibre
leadership talent, based on the following four guiding principles:

aligning the strategic objectives of shareholders and management;

linking compensation to performance targets that drive the achievement of business growth and profitability in
the short- and long-term;

encouraging a high-performance culture by rewarding exceptional individual contribution to achievement of
business strategies and objectives; and

implementing sound risk management practices that balance short- and long-term compensation elements in
order to mitigate against excessive risk-taking, encourage appropriate use of the Issuer’s capital and
encourage the growth of the Issuer’s long-term value.
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Benchmarking
On an ongoing basis, management of the Issuer will recommend to the HR&G Committee a suitable compensation
peer group for benchmarking the Issuer’s executive compensation level and mix. The selection criteria of the executive
compensation peer group are expected to provide that the selected organizations be:

from various Canadian financial industry segments (banks, other lenders, insurers or investors);

both business and talent competitors with the Issuer;

of either regional or national presence;

a minimum threshold size relative to the Issuer; and

publicly listed.
Recognizing the differences in organizational structures, size and complexity among possible peers the HR&G
Committee will develop an executive compensation plan that best suits the needs of the Issuer, while ensuring its
compensation plan is competitive in the market place. To assist in this regard the Issuer will work with an independent
advisor to complete an analysis that will allow the Issuer to compare its compensation practices to other financial
institutions that are the prime market for recruiting key talent to the Issuer.
Principal Elements of Compensation
It is expected that the compensation of the NEOs will include three principal elements: (i) base salary, (ii) annual
incentive compensation, and (iii) long-term incentive compensation. The compensation mix of these three elements will be
determined by the HR&G Committee from time to time to take into account market conditions, the Issuer’s annual strategic
plan and other factors. These elements tie to the Issuer’s philosophy to pay fair, reasonable and competitive total
compensation with an “at-risk” component in order to align the interests of the Issuer’s executive officers with those of its
shareholders. Perquisite allowances and benefits will not be a significant element of NEO compensation.
The HR&G Committee will work with an independent advisor to review and benchmark these three elements in
connection with determining the Issuer’s executive compensation structure post-Offering. This will include a review of the
transition from MCLP’s existing long-term incentive plan, the Key Personnel Unit Purchase Plan, introduced in 2005, to a
new long-term incentive plan. The Key Personnel Unit Purchase Plan has been a key source of alignment, retention and
motivation for the NEOs and all participants. The Key Personnel Unit Purchase Plan effectively gave MCLP the means to
allow the NEOs and other senior management the opportunity to accumulate a significant “at risk” ownership in MCLP.
This provided a strong alignment of interest between MCLP and management. The Key Personnel Unit Purchase Plan will
be wound up prior to the closing of the Offering and all partnership units held will be converted into Common Shares. See
“Corporate Structure and Reorganization” above. Upon Closing, each participant’s shares will be locked-up, subject to the
ability of the Joint Bookrunners to waive the lock-ups in accordance with the Underwriting Agreement, for a 365-day
period, which will contribute to the alignment of the interests of MCAP and its executives through this period. The Key
Personnel Unit Purchase Plan allows for any participant whose employment with MCAP was terminated within 1 year of
the Offering to be compensated for any adjustments in unit value from the date of termination to the date of the Offering. A
price adjustment calculation will be made for 1 participant who held 69,472 units prior to his retirement in December, 2015.
Details of expected shareholdings for each of the NEOs as of immediately after the closing of the Offering are outlined in
this section under the heading “Current Share Ownership by Executive Officers.”
The new long-term incentive plan is expected to be designed to create a similar alignment of interest between the
Issuer and management. It is expected that the new long-term incentive plan will include performance share units (“PSUs”),
restricted share units (“RSUs”), stock options (“SOs”) and minimum share ownership levels for the NEOs and other key
personnel as determined by the HR&G Committee. The number of Common Shares that are available to be issued under
any such future long-term incentive plan is not expected to exceed 5% of the issued and outstanding Common Shares, and
any such future plan may be subject to shareholder approval requirements under applicable securities laws. MCAP expects
that the amount of PSUs, RSUs and SOs granted each year will be determined by the HR&G Committee will be subject to
approval by the Board. It is also expected that the performance measures for the long-term incentive plan may include
growth in MUA, growth in market share (broker origination market), portfolio quality (arrears and losses), net income,
109
return on equity, continuously improving efficiency and productivity measures and growth in existing and new funding
programs.
Base salary
A primary element of the Issuer’s compensation program will be a competitive base salary that enables the Issuer
to attract and retain qualified executive officers. An executive officer’s base salary will be determined by the individual’s
competencies and relevant prior experience. Salary increases and the executive officer’s position within the salary structure
will be reviewed annually. Such review will consider the executive’s individual performance and contribution to meeting
company and business objectives.
Annual incentive compensation
The Issuer’s annual incentive compensation plan will be designed to motivate executive officers to meet the
Issuer’s business objectives, primarily by setting targets with respect to financial metrics such as origination volumes,
operating efficiency and net income. Secondary corporate metrics include assessing the executive officer’s leadership,
personal development (collectively, “individual objectives”) and contribution to the successful execution of the Issuer’s
key strategic initiatives as established in the annual approved strategic plan.
Currently, the annual incentive targets for officers of MCLP are set as a percentage of base salary and can increase
up to set limits if the maximum targeted financial metrics, individual objectives and contribution to key strategic initiatives
are achieved for the year. The current annual incentive for the NEOs is structured as follows:
% of base salary
at Target
Chief Executive
Officer
55%
% of base
salary at
Maximum
110%
President & Chief
Operating Officer
50%
100%
Executive Vice
President & Chief
Financial Officer
50%
100%
Executive Vice
President, Capital
Markets
50%
100%
Executive Vice
President, SingleFamily
50%
100%
Weighting of Metrics
100% Issuer performance
 75% Financial metrics
 25% Individual objectives and contribution to key
strategic initiatives
Issuer and single-family line of business performance
 75% Financial metrics (Financial metrics of the
Issuer and of the single-family line of business)
The structure of the current annual incentive plan will remain in force for the 2016 fiscal year. MCLP currently
makes these annual incentive payments in cash and it is expected that this practice will continue following completion of
the Offering.
When evaluating an NEO’s annual performance, it is expected that the HR&G Committee will review corporate
performance targets achieved relative to an assessment of the risks taken in order to achieve such performance targets and
may be permitted, in its discretion, to recommend that the Board approve an increase or decrease to the annual incentive
110
payment. The Board may also at its discretion award compensation absent attainment of the relevant performance goal or
similar condition or reduce or increase the size of any award or payout.
It is anticipated that the HR&G Committee will conduct the annual performance review of the Chief Executive
Officer, which it will submit to the full Board for finalization and approval. In addition, it is anticipated that the HR&G
Committee will review and provide a preliminary determination regarding the Chief Executive Officer’s compensation,
which will be recommended to the full Board for approval. The Chief Executive Officer will recommend to the HR&G
Committee both the annual performance review and compensation of the remaining NEOs. The HR&G Committee will
review the Chief Executive Officer’s recommendations and will, based upon such recommendations, make its own
recommendations to the full Board for it to approve.
Compensation Risk Management
In setting the HR&G Committee and Board mandates, the Issuer has considered the importance of compensation
policies and practices that meet standards for sound compensation. In reviewing the compensation policies and practices of
the Issuer each year, MCAP expects that the HR&G Committee will seek to ensure that the executive compensation plan
provides an appropriate balance of risk and reward consistent with the risk profile of the Issuer. The HR&G Committee
will also seek to ensure the Issuer’s compensation practices do not encourage excessive risk-taking behaviour by the
executive team.
The following risk management practices will be in place to effectively mitigate any excessive risks which may
result from the implementation of the executive compensation policies and practices:
Pay Mix


Capped Payouts

Effective Design of
Long-Term Incentive
Mix

Significant Portion of
Pay “At-Risk” and Pay
Subject to Performance

The variable component of the Issuer’s compensation program (which is based on
both financial and non-financial objectives) represents a sufficient percentage of ‘‘atrisk’’ compensation to motivate executives and other employees of the Issuer to focus
on both short-, and long-term results and performance criteria.
Elements of executive compensation, together, ensure a balance in the mix of fixed
and variable compensation and performance-based awards.
The maximum amount an executive can receive under the Issuer’s annual incentive
compensation structure is capped.
Non-financial objectives are primarily related to achievement of key strategic
initiatives that tend to be longer-term in nature.
A significant portion of the NEOs’, senior executive team’s and other executives’
compensation is ‘‘at-risk’’ which provides for a strong pay-for-performance
relationship.
It is expected that the HR&G Committee will seek to ensure that risk management practices will continue to be
implemented with any changes to the compensation elements such as with the design of any long-term incentive plans and
the inclusion of, among other things, varied performance measures and a balance of time and performance vesting features.
111
Summary Compensation Table
Based on the information available as of May 20, 2016, the following table sets out information concerning the
expected initial annualized compensation of the NEOs following closing of the Offering.
Name and Principal Position
Base
Salary(1)
($)
Non-Equity Incentive Plan
Compensation
($)
Long-Term
Annual Incentive
Incentive
(2)
Plans
Plans
257,757
Nil
All Other
Compensation(4)
($)
Total
Compensation
($)
61,435
787,842
Derek Norton(3)
468,650
Brian Carey
Executive Vice President &
Chief Financial Officer
265,000
132,500
Nil
30,005
427,505
Mark Aldridge
President &
Chief Operating Officer
350,000
175,000
Nil
30,064
555,064
Jason Wright
Executive Vice President,
Capital Markets
265,000
132,500
Nil
30,005
427,505
Paul Bruce
Single-Family
265,000
132,500
Nil
32,630
430,130
(1) Represents annualized post-Offering base salaries expected to be paid for the year ending November 30, 2016.
(2) Amounts shown are the potential annual incentive compensation assuming all conditional targets were met pursuant to the terms and
conditions of the executive compensation plan. Actual incentive compensation payments will be made on February 28 th of the
following year.
(3) Mr. Norton will not receive any directors’ fees.
(4) Amounts shown include perquisite allowances and amounts the Issuer will contribute under its benefit plans, including retirement
plans. The perquisite allowance is a discretionary spending allowance above and beyond the NEO’s base salary that is paid less
applicable withholdings and deductions to assist with automobile expenses, fitness, recreational membership, financial planning and
other related expenses. Mr. Norton’s annual perquisite allowance is $20,000. The annual perquisite allowance for each of the other
NEOs is $17,000.
Executive Officer Share Ownership Requirements
The Issuer supports share ownership by executives and has established minimum share ownership requirements.
Upon completion of the Offering, certain executives will be subject to the minimum share ownership requirements.
Executives who are newly promoted or appointed to a position that is subject to these requirements will have five years
from the date they are promoted or appointed to meet the requirements. The ownership requirements for the current NEOs
are outlined in the following table:
Position
Multiple of Base Salary
10x
President & Chief Operating Officer
7.5x
Executive Vice President & Chief Financial Officer
5x
Current Share Ownership by Executive Officers
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The following table summarizes each of the NEO’s ownership of the Common Shares as of immediately prior to
the completion of the Offering:
Name & Position
Derek Norton
Mark Aldridge
President & Chief Operating Officer
Brian Carey
Executive Vice President & Chief Financial Officer
Paul Bruce
Jason Wright
Number of Common Shares Held
964,870
335,531
125,000
125,000
125,000
In addition to the Common Shares held by the NEOs noted above, an aggregate additional 957,746 Common
Shares will be held by 22 other executives and selected employees of the Issuer immediately prior to the completion of the
Offering. The NEOs and other executives may purchase additional Common Shares as part of the Offering.
The above shares were purchased through the Key Personnel Unit Purchase Plan introduced in 2005. Upon wind
up, all loans provided by MCLP to finance unit purchases under the Key Personnel Unit Purchase Plan will be repaid
within 12 months of Closing. See “Indebtedness of Directors and Executive Officers” below.
Employment Agreements, Termination and Change of Control Benefits
The Issuer has written employment agreements with each of its NEOs and each NEO is entitled to receive
compensation established by the Issuer as well as other benefits in accordance with plans available to the NEO (such as
health, dental, life insurance, short-term disability and long-term disability). The following outlines the specific details of
each NEO’s employment agreement.
Mr. Norton
Mr. Norton’s employment agreement will be effective upon the Closing of the Offering and will continue for an
indefinite term.
MCAP may terminate Mr. Norton’s employment at any time for any commission or omission that would constitute
just cause at law without notice or pay in lieu of notice, subject only to the express minimum requirements of applicable
employment standards legislation.
MCAP may also terminate Mr. Norton’s employment without just cause, in which case MCAP would be required
to pay Mr. Norton a lump sum amount equal to 2 times the sum of (i) his base salary, (ii) his annual short-term incentive
payment (based on the average he received over the preceding 3 calendar years), and (iii) his annual perquisite allowance
(the “Severance Payment”). In addition, MCAP will continue Mr. Norton’s benefits over the minimum notice period under
applicable employment standards legislation and, if approved by MCAP’s benefits provider, MCAP will maintain his
extended health and dental benefit coverage for 2 years from the date of termination or until he finds replacement
employment, whichever comes first (collectively, the “Benefit Continuation”), and any vested interest of Mr. Norton in any
long-term incentive plan of MCAP must be paid to him when due in accordance with the terms set out in any such plan.
In addition, Mr. Norton is entitled to resign from MCAP at any time for “good reason”. In such a case Mr. Norton
would be entitled to receive the Severance Payment and the Benefit Continuation as if he had been terminated without
cause. For purposes of the agreement, “good reason” means any of (i) the assignment to Mr. Norton of duties materially
different than the duties performed as of the Closing; (ii) a material diminution in the title, status, seniority, reporting
relationship, responsibilities or authority of his position as of the Closing; (iii) a reduction in his base salary, benefits,
perquisite allowance, vacation entitlements; (iv) a material reduction in the contribution rate by MCAP to his MCAPsponsored retirement plans; (v) a material reduction in the targets established under MCAP’s short-term incentive plan; or
(vi) relocation of his work location outside the city of Toronto.
113
In each case, Mr. Norton’s receipt of the Severance Payment and the Benefit Continuation is conditional on his
execution of a release of all claims.
Mr. Norton has agreed that, for an 18-month period from the date of his termination, he will not, subject to certain
customary exceptions, invest in or operate any business or activities that compete with MCAP’s business as operated at the
date of his termination. Mr. Norton has also agreed not to solicit, for 18 months after the cessation of his employment with
MCAP for any reason (whether by resignation or termination with or without cause), any MCAP client or any MCAP
affiliate that he had contact with during the last 12 months of his employment with MCAP or any MCAP employee.
In addition, Mr. Norton has agreed that should he cease to hold the position of CEO, he will be required, until the
first anniversary date he ceases to hold the position of CEO, to hold, directly or indirectly, a minimum number of shares of
MCAP equal in value to 5x his base salary. This will be calculated on the day that Mr. Norton ceases to hold the position of
CEO.
Messrs. Aldridge, Carey, Wright and Bruce (the “Non-CEO NEOs”)
The executive employment agreement for each Non-CEO NEO is for an indefinite term and stipulates that the
Issuer may terminate a Non-CEO NEO’s employment at any time without cause (meaning a termination of the employment
agreement for any reason other than a material breach of the employment agreement or for an omission or commission that
constitutes just cause under the common law) by providing the Non-CEO NEO with notice of termination or pay in lieu of
notice equivalent to the sum of (i) one month of base salary and (ii) one-twelfth of the average annual incentive paid to the
Non-CEO NEO for the preceding three calendar years, multiplied by the number of years that the Non-CEO NEO has been
an employee of MCAP (the “Service Period”) to a maximum of 24 years. In addition, such Non-CEO NEO would be
entitled to continuation of benefits over the minimum notice period under applicable employment standards legislation and,
if approved by MCAP’s benefits provider, maintenance of extended health and dental benefit coverage for the number of
months that such Non-CEO NEO is entitled to pay in lieu of notice, or until such Non-CEO NEO finds replacement
employment, whichever comes first. For Mr. Aldridge, the minimum Service Period is 18 years and for Mr. Carey, the
minimum Service Period is 12 years. All such payments to the Non-CEO NEOs are subject to their obligation to mitigate,
subject to all applicable taxes and conditional on the Non-CEO NEO’s execution of a release of all claims.
Each Non-CEO NEO’s employment agreements also contain customary confidentiality covenants and certain
restrictive covenants that continue to apply following the termination of employment, including non-solicitation provisions
which are in effect during the Non-CEO NEO’s employment and for 12 months following the termination of employment.
If any NEO, including Mr. Norton, is terminated for any reason other than resignation or termination for just
cause, and the NEO was actively employed for six months of the fiscal year, the NEO will also be entitled to payment of
the annual incentive on a pro-rata basis up to the last day worked, payable at the same time as it is paid to other employees
and in accordance with the annual incentive policy at the time of termination.
If any NEO, including Mr. Norton, is terminated for cause or resigns (in the case of Mr. Norton, without “good
reason”), the NEO will be entitled to accrued but unpaid base salary and vacation pay up to the termination date, the
reimbursement of expenses incurred in the course of the NEO’s employment up to the termination date and any additional
payments required by applicable employment standards legislation.
Each of the NEOs, including Mr. Norton, is subject to a recoupment clause pursuant to which the Issuer may
recover any incentive compensation paid from the achievement of financial results that are subsequently restated due to
material non-compliance with any financial reporting requirements, fraudulent acts, negligence, willful misconduct or
material errors made by management. With the exception of the Chief Executive Officer, President & Chief Operating
Officer and the Executive Vice President & Chief Financial Officer, if the restatement of the Issuer’s financial results
indicates that the Issuer should have made higher incentive compensation payments than those actually made under the
incentive plan, the Issuer may make appropriate incremental payments if the applicable NEO is still employed by the Issuer
and the NEO was not responsible for the preparation of the financial statements.
The table below shows the incremental payments that would be made to the Issuer’s NEOs upon the occurrence of
certain events, if such events were to occur immediately following the completion of this Offering.
114
Name
Event
Severance(1)
Other
Payments(2)
Total
Derek Norton……...............
Termination without cause or resignation
for “good reason” as described in Mr.
Norton’s employment agreement
$1,944,932
$522,886
$2,467,818
Brian Carey………………..
Executive Vice President
& Chief Financial Officer
Termination without cause
$ 472,944
$ 2,038
$ 474,983
Mark Aldridge……………..
President & Chief Operating
Officer
$ 990,000
$ 2,692
$ 992,692
Jason Wright………………
Capital Markets
$ 704,398
$ 2,854
$ 707,252
Paul Bruce…………………
Single-Family
$1,016,417
$ 21,872
$1,038,289
(1)
Severance payments are payable to Mr. Norton as a lump sum payment and payable to other NEOs as salary continuance subject to
mitigation for any amounts in excess of the statutory minimum provincial employment standards. The severance payment shown does
not include any amount on account of a pro-rata annual incentive payment for the current fiscal year which would be payable if
termination happens after May 31 of the given fiscal year.
(2)
Other payments includes contributions to each NEOs retirement benefits for the minimum notice period under the applicable
employment standards legislation. For Mr. Norton and Mr. Bruce, it also includes a notional Supplementary Employee Retirement
Plan provided for under a previous arrangement for certain employees hired by the Issuer prior to December 31, 1998.
Director Compensation
Board and Committee Retainers
Following completion of the Offering, the compensation of the Issuer’s directors will be determined by the Board,
upon recommendation of the HR&G Committee. The directors’ compensation program will be designed to reward directors
for their expertise, experience, objectivity and the time they will devote to the Issuer. In consideration for serving on the
Board for 2016, each non-employee director will be compensated as per the proposed fees indicated below:
Board and Committee Retainers
Annual Base Retainer
Director
60,000
Committee Chair Retainer
Chair - Audit
$20,000
Chair – Human Resources & Governance
$20,000
Chair – Risk & Compliance
$20,000
Member - Audit
$10,000
Member - Human Resources & Governance
$10,000
Member – Risk & Compliance
$10,000
Committee Member Retainer
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Otéra’s current nominees to the Board have waived the right to receive the Board and Committee retainers
described above.
Deferred Share Unit Plan for Non-Employee Directors
Each director, who is not an employee of the Issuer or any subsidiary of the Issuer, other than a director who
waived the right to receive the Board and Committee retainers, shall be eligible to receive deferred share units (“DSUs”)
under the Issuer’s Deferred Share Unit Plan for Non-Employee Directors (the “DSUP”). A DSU is a unit, equivalent in
value to a Common Share, credited by means of a bookkeeping entry in the books of the Issuer, to an account in the name
of the director. The number of DSUs to be credited to the director’s account as of a particular conversion date shall be
determined by dividing the portion of the director’s annual base retainer for the applicable period to be satisfied by DSUs
by the fair market value of a Common Share, as determined pursuant to the DSUP, on the particular conversion date. The
maximum number of DSUs that may be granted to a director under the plan is 6,000, or such higher amount as may be
permitted by the Board. DSUs will accumulate additional DSUs at the same rate as dividends, if any, paid on the Common
Shares. Following the end of a director’s tenure as a member of the Board, the director will receive a payment in cash at the
fair market value, as determined pursuant to the DSUP, of the Common Shares represented by his or her DSUs.
The following table summarizes the DSUP:
Dividend Investment
Directors may invest a portion of
their annual base retainer in the
DSUP. Additional Director DSUs
are earned as dividends are
distributed.
Value of equity
The value of a DSU when credited to or
redeemed by a director is equal to the
volume weighted average trading price of
the Common Shares over the five
preceding trading days.
Payout
A director may only redeem DSUs
for cash when he or she ceases to
be a member of the Board.
Director Share Ownership Requirements
Directors who are not also executive officers of the Issuer, other than a director who has waived the right to
receive the Board and Committee retainers, are subject to a minimum share ownership requirement of holding Common
Shares with a fair market value of at least $150,000. The minimum share ownership requirement must be achieved by
applicable directors within five years from the date of the director’s election to the Board. Directors can meet share
ownership requirements through direct or beneficial ownership of the Issuer securities , including DSUs. Directors that are
also subject to the executive officer share ownership requirements described above will be required to meet the higher of
the two ownership requirements.
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INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
Aggregate Indebtedness
The following table sets out the aggregate amount of indebtedness, outstanding as of May 31, 2016, of the Issuer’s
directors, executive officers and employees (current and former) entered into in connection with a purchase of securities of
the Issuer or any of its subsidiaries as well as mortgages to employees offered at market rates. The amounts do not include
“routine indebtedness” (as defined in National Instrument 51-102 - Continuous Disclosure Obligations).
Purpose
Share Purchases(1)
Other
(1)
AGGREGATE INDEBTEDNESS ($)
To the Issuer or its Subsidiaries
3,300,842
10,717,826
To Another Entity
-
to be repaid within 12 months of the Closing Date
Indebtedness of Directors and Executive Officers
The following table sets out the indebtedness to the Issuer or to any subsidiaries incurred by executive officers and
directors of the Issuer and their associates. The amounts exclude (i) indebtedness that has been entirely repaid on or before
the date of this prospectus, and (ii) “routine indebtedness” (as defined in National Instrument 51-102 - Continuous
Disclosure Obligations). See “Executive Officer and Director Compensation – Current Share Ownership by Executive
Officers” above.
NAME AND
PRINCIPAL
POSITION
INVOLVEMENT
OF ISSUER
Share Purchase Programs
Mark Aldridge,
President and
Lender
Chief Operating
Officer
LARGEST AMOUNT
OUTSTANDING
DURING THE
FINANCIAL YEAR
ENDED
NOVEMBER 30, 2015
($)
AMOUNT
OUTSTANDING
AS AT
MAY 31, 2016
($)
FINANCIALLY
ASSISTED SECURITIES
PURCHASES DURING
THE FINANCIAL YEAR
ENDED
NOVEMBER 30, 2015
(#)
SECURITY FOR
INDEBTEDNESS
(#)
1,017,159
623,003
Nil
186,775 units
Brian Carey,
Executive Vice
President and
Chief Financial
Officer
Lender
477,098
404,935
Nil
75,529 units
Jason Wright,
Executive Vice
President, Capital
Markets
Lender
477,098
404,935
Nil
75,529 units
Paul Bruce,
Executive Vice
Lender
733,651
672,519
Nil
100,000 units
Steven Delaney,
Chief Information
Officer
Lender
99,410
91,844
10,000
10,000 units
Don Ross, Senior
Vice President,
Investor
Marketing
Lender
262,215
239,089
Nil
28,423 units
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NAME AND
PRINCIPAL
POSITION
INVOLVEMENT
OF ISSUER
LARGEST AMOUNT
OUTSTANDING
DURING THE
FINANCIAL YEAR
ENDED
NOVEMBER 30, 2015
($)
Lucy Lombardi,
Senior Vice
President, Human
Resources
Lender
34,794
32,146
3,500
3,500 units
Heather Baker,
Chief Audit
Officer
Lender
99,410
91,844
10,000
10,000 units
Rick Gummer,
Retired employee
Lender
195,455
Nil
Nil
45,000 units
Lender
744,678
667,976
-
-
Other
Paul Bruce,
Executive Vice
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AMOUNT
OUTSTANDING
AS AT
MAY 31, 2016
($)
FINANCIALLY
ASSISTED SECURITIES
PURCHASES DURING
THE FINANCIAL YEAR
ENDED
NOVEMBER 30, 2015
(#)
SECURITY FOR
INDEBTEDNESS
(#)
PLAN OF DISTRIBUTION
Pursuant to the Underwriting Agreement, the Issuer and the Selling Shareholders have agreed to sell and the
Underwriters have severally agreed to purchase, as principals, on Closing, • Common Shares from the Issuer pursuant to the
Treasury Offering and • Common Shares from the Selling Shareholders pursuant to the Secondary Offering, at a price of $ 
per Common Share, for aggregate gross consideration of $• payable in cash to the Issuer and $• payable in cash to the
Selling Shareholders against delivery of the Common Shares. The Issuer will not receive any proceeds from the Secondary
Offering. In consideration for their services in connection with the Offering, the Issuer and the Selling Shareholders have
agreed to pay the Underwriters a fee equal to $• per Common Share. The Offering Price was determined by negotiation
among the Issuer, the Selling Shareholders and the Underwriters.
The Offering is being made in each of the provinces and territories of Canada through those Underwriters or their
affiliates who are registered to offer the Common Shares for sale in such provinces and territories and such other registered
dealers as may be designated by the Underwriters. Subject to applicable law and the provisions of the Underwriting
Agreement, the Underwriters may offer the Common Shares outside of Canada.
Otéra has granted to the Underwriters the Over-Allotment Option, which is exercisable in whole or in part at any
time for a period of 30 days after Closing to purchase up to an additional 15% of the aggregate number of Common Shares
issued under the Offering on the same terms as set forth above solely to cover over-allotments, if any, and for market
stabilization purposes. The Issuer will not receive any proceeds from the sale of Common Shares by Otéra pursuant to the
exercise of the Over-Allotment Option. This prospectus also qualifies the grant of the Over-Allotment Option and the
distribution of the Common Shares to be delivered upon the exercise of the Over-Allotment Option. A purchaser who
acquires Common Shares forming part of the Underwriters’ over-allocation position acquires such Common Shares under
this prospectus, regardless of whether the Underwriters’ over-allocation position is ultimately filled through the exercise of
the Over-Allotment Option or secondary market purchases.
The obligations of the Underwriters under the Underwriting Agreement are several (and not joint nor joint and
several), are subject to certain closing conditions and will contain termination provisions customary in underwriting
agreements for similar initial public offerings, including “material change out”, “disaster out”, “proceedings to restrict
distribution out” and “market out” clauses. The Underwriters are, however, obligated to take up and pay for all of the
Common Shares if any Common Shares are purchased under the Underwriting Agreement. The Underwriters are entitled
under the Underwriting Agreement to customary indemnification against certain liabilities and expenses, including certain
liabilities and related expenses under applicable securities legislation in connection with the Offering.
There is currently no market through which the Common Shares may be sold, and purchasers may not be able to
resell Common Shares purchased under this prospectus. This may affect the pricing of the Common Shares in the
secondary market, the transparency and availability of trading prices, the liquidity of the Common Shares, and the extent of
issuer regulation. The Issuer has applied to have the Common Shares listed on the Toronto Stock Exchange (the “TSX”).
Listing of the Common Shares on the TSX is subject to approval by the TSX of the Issuer’s listing application and
fulfillment by the Issuer of all the initial requirements and conditions of the TSX. The TSX has not conditionally approved
the listing of the Common Shares and there is no assurance that the TSX will approve the Issuer’s application. Closing of
the Offering is conditional on the Common Shares being approved for listing on the TSX. Subscriptions for Common
Shares will be received subject to rejection or allocation in whole or in part and the right is reserved to close the
subscription books at any time without notice. The Closing is expected to occur on , 2016 or such other date as the Issuer,
the Selling Shareholders and the Underwriters may agree, but in any event not later than , 2016.
After the Underwriters have made a reasonable effort to sell all of the Common Shares at the price specified on the
cover page of this prospectus, the Offering Price may be decreased and may be further changed from time to time to an
amount not greater than that set out on the cover page of this prospectus, and the compensation realized by the Underwriters
will be decreased by the amount that the aggregate price paid by the purchasers for the Common Shares is less than the
price paid by the Underwriters to the Issuer and the Selling Shareholders.
The Common Shares have not been, and will not be, registered under the U.S. Securities Act or the securities laws
of any state of the United States, and may not be offered, sold or delivered, directly or indirectly, in the United States, or to,
or for the account or benefit of, “U.S. Persons” (as defined in Regulation S under the U.S. Securities Act) except pursuant
to an exemption from the registration requirements of the U.S. Securities Act and applicable state securities laws. Each
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Underwriter has agreed that it will not offer or sell Common Shares within the United States, or to, or for the account or
benefit of, U.S. Persons, except in transactions exempt from the registration requirements of the U.S. Securities Act and
applicable state securities laws.
The Underwriting Agreement also provides that the Underwriters may offer and sell the Common Shares outside
the United States in accordance with Regulation S under the U.S. Securities Act. In addition, until 40 days after the
commencement of the Offering, an offer or sale of the Common Shares within the United States by any dealer (whether or
not participating in the Offering) may violate the registration requirements of the U.S. Securities Act if such offer or sale is
made otherwise than in accordance with Rule 144A under the U.S. Securities Act.
Registration of interests in and transfers of Common Shares held through CDS or its nominee will be made
electronically through the NCI system of CDS. Common Shares registered to CDS or its nominee will be deposited
electronically with CDS on an NCI basis on the Closing of the Offering. Purchasers of Common Shares will receive only a
customer confirmation from the registered dealer from or through whom a beneficial interest in the Common Shares is
purchased.
Price Stabilization, Short Positions and Passive Market Making
In connection with the Offering, the Underwriters may over-allocate or effect transactions which stabilize or
maintain the market price of the Common Shares at levels other than those which otherwise might prevail on the open
market, including: stabilizing transactions; short sales; purchases to cover positions created by short sales; imposition of
penalty bids; and syndicate covering transactions.
Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in
the market price of the Common Shares while the Offering is in progress. These transactions may also include overallocating or making short sales of the Common Shares, which involves the sale by the Underwriters of a greater number of
Common Shares than they are required to purchase in the Offering. Short sales may be “covered short sales”, which are
short positions in an amount not greater than the Over-Allotment Option, or may be “naked short sales”, which are short
positions in excess of that amount.
The Underwriters may close out any covered short position either by exercising the Over-Allotment Option, in
whole or in part, or by purchasing Common Shares in the open market. In making this determination, the Underwriters will
consider, among other things, the price of Common Shares available for purchase in the open market compared with the
price at which they may purchase Common Shares from Otéra through the Over-Allotment Option.
The Underwriters must close out any naked short position by purchasing Common Shares in the open market. A
naked short position is more likely to be created if the Underwriters are concerned that there may be downward pressure on
the price of the Common Shares in the open market. Any naked short sales will form part of the Underwriters’ overallocation position. A purchaser who acquires Common Shares forming part of the Underwriters’ over-allocation position
resulting from any covered short sales or naked short sales will, in each case, acquire such Common Shares under this
prospectus, regardless of whether the Underwriters’ over-allocation position is ultimately filled through the exercise of the
Over-Allotment Option or secondary market purchases.
In addition, in accordance with policy statements of certain Canadian securities regulatory authorities and the
Universal Market Integrity Rules for Canadian Marketplaces (“UMIR”), the Underwriters may not, at any time during the
period of distribution, bid for or purchase Common Shares. The foregoing restriction is, however, subject to certain
exceptions as permitted by such policy statements and UMIR. These exceptions include a bid or purchase permitted under
the provisions of such policy statements and the UMIR relating to market stabilization and market balancing activities and a
bid or purchase on behalf of a customer where the order was not solicited.
As a result of these activities, the price of the Common Shares may be higher than the price that otherwise might
exist in the open market. If these activities are commenced, they may be discontinued by the Underwriters at any time. The
Underwriters may carry out these transactions on any stock exchange on which the Common Shares are listed, in the overthe-counter market, or otherwise.
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Lock-up Arrangements
Pursuant to the Underwriting Agreement, the Issuer, the Selling Shareholders, as well as each of the Issuer’s
directors, officers and employee shareholders, holding, directly or indirectly (together with such shareholders’ associates
and affiliates), the Issuer’s outstanding Common Shares on or prior to the Closing Date, have agreed that they will not,
directly or indirectly, without the prior written consent of the Joint Bookrunners, acting on behalf of the Underwriters,
issue, offer, sell, grant any option to purchase or otherwise dispose of (or announce any intention to do so) any Common
Shares of the Issuer, or securities convertible or exchangeable into Common Shares of the Issuer for a period commencing
on the Closing Date and ending 365 days (or, in the case of the Issuer, 180 days) after the Closing Date, subject to the
following exceptions: (i) the issuance of stock options or other securities in the normal course pursuant to any executive
compensation plan or employee benefit plan of the Issuer or any of its subsidiaries existing on the Closing Date; and (ii) the
issuance of securities of the Issuer upon the conversion, exercise or exchange of convertible, exercisable or exchangeable
securities existing on the Closing Date or upon the conversion, exercise or exchange of stock options or other convertible,
exercisable or exchangeable securities subsequently granted pursuant to any executive compensation plan or employee
benefit plan as permitted by the Underwriting Agreement.
Relationship Between the Issuer and Certain of the Underwriters
RBC Dominion Securities Inc., BMO Nesbitt Burns Inc., TD Securities Inc., CIBC World Markets Inc., National
Bank Financial Inc., Scotia Capital Inc. and Laurentian Bank Securities Inc. are affiliates of banks which are lenders to
MCAP under the Facilities. Consequently, the Issuer may be considered to be a “connected issuer” of each of these
Underwriters under Canadian securities laws. As at •, approximately $• million was outstanding under the Facilities. MCAP
is in compliance with the terms of, and the lenders have not waived any breach of, the agreements governing the Facilities
since their respective dates of execution. The decision to distribute the Common Shares, including the determination of the
terms of the Offering, has been made through negotiations between the Issuer, the Selling Shareholders and the
Underwriters. The affiliated lenders of the Underwriters did not have any involvement in that decision or determination.
MCAP’s financial position has not changed substantially and adversely since the indebtedness under the Facilities was
incurred. The proceeds of the Offering will not be applied for the benefit of the Underwriters or their affiliates, other than
its respective portion of the Underwriters’ fee payable by the Issuer.
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CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Blake, Cassels & Graydon LLP, counsel to the Issuer, and Osler, Hoskin & Harcourt LLP,
counsel to the Underwriters, the following summary describes the principal Canadian federal income tax considerations
pursuant to the Tax Act and the regulations thereunder generally applicable to a holder who acquires, as beneficial owner,
Common Shares pursuant to the Offering and who, for purposes of the Tax Act and at all relevant times, is or is deemed to
be resident in Canada, holds the Common Shares as capital property and deals at arm's length with the Issuer, each of the
Selling Shareholders and the Underwriters and is not affiliated with the Issuer, any of the Selling Shareholders or the
Underwriters (a “Holder”). Generally, the Common Shares will be considered to be capital property to a Holder provided
the Holder does not hold the Common Shares in the course of carrying on a business of trading or dealing in securities and
has not acquired them in one or more transactions considered to be an adventure in the nature of trade. Certain Holders who
might not otherwise be considered to hold their Common Shares as capital property may, in certain circumstances, be
entitled to have the Common Shares, and all other "Canadian securities" (as defined in the Tax Act) owned or subsequently
acquired by such Holders, treated as capital property by making the irrevocable election permitted by subsection 39(4) of
the Tax Act.
This summary is not applicable to a holder: (i) who is not, at all relevant times, resident or deemed to be resident
in Canada for purposes of the Tax Act and any applicable income tax treaty, (ii) that is a "financial institution", as defined
in subsection 142.2(1) of the Tax Act, (iii) an interest in which would be a "tax shelter investment" as defined in the Tax
Act, (iv) that is a "specified financial institution" as defined in the Tax Act, (v) that has elected to report its “Canadian tax
results” as defined in the Tax Act in a currency other than Canadian currency, or (vi) who has entered or will enter into a
“derivative forward agreement” (as defined in the Tax Act) in respect of the Common Shares. Any such holder should
consult its own tax advisor with respect to an investment in the Common Shares. In addition, this summary does not
address the deductibility of interest by a holder who has borrowed money or otherwise incurred debt in connection with the
acquisition of Common Shares. This summary does not address any Canadian federal income tax considerations
applicable to non-residents of Canada, and such non-residents should consult their own tax advisors regarding the
tax consequences of acquiring Common Shares pursuant to the Offering.
This summary is based upon the provisions of the Tax Act and the regulations thereunder in force as of the date
hereof, all specific proposals to amend the Tax Act and the regulations thereunder that have been publicly announced prior
to the date hereof (the "Proposed Amendments") and counsel's understanding of the current administrative policies and
assessing practices of the CRA made publicly available prior to the date hereof. This summary assumes the Proposed
Amendments will be enacted in the form proposed; however, no assurance can be given that the Proposed Amendments
will be enacted in the form proposed, or at all. This summary is not exhaustive of all possible Canadian federal income tax
considerations and, except for the Proposed Amendments, does not take into account any changes in the law or in
administrative policies or assessing practices, whether by legislative, governmental or judicial action, nor does it take into
account provincial, territorial or foreign tax considerations, which may differ significantly from those discussed herein.
This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or
tax advice to any particular holder or prospective holder of Common Shares, and no representations with respect to
the income tax consequences to any holder or prospective holder are made. Consequently, holders and prospective
holders of Common Shares should consult their own tax advisors for advice with respect to the tax consequences to
them of acquiring Common Shares pursuant to the Offering.
Receipt of Dividends on Common Shares
Dividends received or deemed to be received on the Common Shares by a Holder that is an individual (other than
certain trusts) will be included in computing the individual’s income for tax purposes and will be subject to the gross-up
and dividend tax credit rules normally applicable to dividends received from taxable Canadian corporations (as defined in
the Tax Act), including the enhanced gross-up and dividend tax credit for eligible dividends (as defined in the Tax Act)
paid by “taxable Canadian corporations” such as the Issuer. See the discussion in “Dividend Policy”.
A Holder that is a corporation will be required to include dividends received or deemed to be received on Common
Shares in computing its income for tax purposes and generally will be entitled to deduct the amount of such dividends in
computing its taxable income. In certain circumstances, subsection 55(2) of the Tax Act (as proposed to be amended by
Proposed Amendments contained in the Bill C-15, Budget Implementation Act, 2016, No.1) will treat a taxable dividend
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received by a Holder that is a corporation as proceeds of disposition or a capital gain. Holders that are corporations should
consult their own tax advisors having regard to their own circumstances.
A Holder that is a “private corporation”, as defined in the Tax Act, or any other corporation controlled, whether
because of a beneficial interest in one or more trusts or otherwise, by or for the benefit of an individual (other than a trust)
or a related group of individuals (other than trusts), will generally be liable to pay a refundable tax under Part IV of the Tax
Act on dividends received (or deemed to be received) on the Common Shares to the extent such dividends are deductible in
computing its taxable income for the taxation year.
Taxable dividends received by Holder who is an individual (including certain trusts) may give rise to a liability for
alternative minimum tax as calculated under the detailed rules set out in the Tax Act.
Disposition of Common Shares
A disposition or a deemed disposition of a Common Share by a Holder (except to the Issuer unless purchased by
the Issuer in the open market in the manner in which shares are normally purchased by a member of the public in the open
market) will generally result in the Holder realizing a capital gain (or a capital loss) equal to the amount by which the
proceeds of disposition of the Common Share are greater (or less) than the aggregate of the Holder's adjusted cost base of
the Common Share and any reasonable costs of disposition. Such capital gain (or capital loss) will be subject to the tax
treatment described below under "Taxation of Capital Gains and Capital Losses".
Taxation of Capital Gains and Capital Losses
Generally, one-half of any capital gain (a “taxable capital gain”) realized by a Holder in a taxation year must be
included in the Holder's income for the year and, subject to and in accordance with provisions of the Tax Act, one-half of
any capital loss (an “allowable capital loss”) realized by a Holder in a taxation year must be deducted from taxable capital
gains realized by the Holder in that year. Allowable capital losses for a taxation year in excess of taxable capital gains for
that year generally may be carried back and deducted in any of the three preceding taxation years or carried forward and
deducted in any subsequent taxation year against net taxable capital gains realized in such years, to the extent and under the
circumstances described in the Tax Act.
The amount of any capital loss realized by a Holder that is a corporation on the disposition of a Common Share
may be reduced by the amount of dividends received or deemed to be received by it on such Common Share to the extent
and under the circumstances described by the Tax Act. Similar rules may apply where a corporation is a member of a
partnership or a beneficiary of a trust that owns Common Shares directly or indirectly through a partnership or a trust.
A Holder that is, throughout the relevant taxation year, a “Canadian-controlled private corporation”, as defined in
the Tax Act, may be liable for a refundable tax on its “aggregate investment income”, which is defined in the Tax Act to
include taxable capital gains.
Capital gains realized by Holder who is an individual (including certain trusts) may give rise to a liability for
alternative minimum tax as calculated under the detailed rules set out in the Tax Act.
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RISK FACTORS
You should carefully consider, in addition to the other information contained in this prospectus, including the
consolidated financial statements and the related notes appearing at the end of this prospectus, the following risk factors
before deciding to invest in Common Shares. The risks and uncertainties described below are not the only ones facing
MCAP. Additional risks and uncertainties not presently known to MCAP, or that MCAP currently believes are immaterial,
may also adversely impact MCAP’s business, financial condition and results of operations. If any of the following risks
actually occurs, MCAP’s business, financial condition or results of operations would likely suffer. In such case, the trading
price of the Common Shares on any secondary market that may develop could fall, and you may lose all or part of your
investment.
MCAP’s operations are affected by a number of underlying risks, both internal and external to MCAP. MCAP’s
financial position and results of operations are directly impacted by these factors. Potential purchasers should consult their
own financial and legal advisors before deciding whether to invest in the Common Shares.
Risks Related to the Business
Funding and Liquidity Risk, Including MCAP’s Timely Payment Guarantee Obligations on Mortgages Sold into
CMHC-sponsored Securitization Programs
General
MCAP’s ability to originate, fund, sell and securitize mortgages is dependent on its ability to access its short-term
and long-term funding sources.
MCAP obtains long-term funding for its mortgages by selling the loans to Institutional Investors or by placing the
loans with various securitization programs. MCAP uses its warehouse loan facilities to fund the mortgages that it
originates and that it intends to securitize or sell to its Institutional Investors that buy mortgages on a “whole-loan” basis.
MCAP does not typically use its warehouse loan facilities to fund the single-family mortgages that are sold to MCAP’s
Institutional Investors that buy mortgages on a “committed basis” (which are paid for immediately after closing with
monies provided by the Institutional Investor), or to fund mortgages originated by its commercial and construction
business, other than CMHC-insured multi-unit loans. See “Business – Sources of Long-Term Funding” above.
MCAP’s ability to honour its mortgage commitments to borrowers and to fund and ultimately sell or securitize the
resulting mortgage loans is dependent on its ability to access its short-term and long-term funding sources. Changes in
market conditions, including general economic conditions, spreads on mortgages relative to other investments and
conditions in the securities markets generally, the demand of MCAP’s Institutional Investors for MCAP-originated
mortgages, the performance of the mortgage portfolios previously originated by MCAP or regulatory requirements could
result in an increase in the cost of selling MCAP-originated mortgage loans to Institutional Investors or to securitization
vehicles, temporary periods in which securitization vehicles are not available to MCAP or sales that cannot be made to
Institutional Investors, or unavailability of such funding sources. MCAP’s retained interest in securitization structures may
be adversely affected by these changes or the underlying performance of the assets in these structures. Any such adverse
changes may have a negative impact on MCAP’s business, financial condition and results of operations.
If MCAP is unable to access short-term funding sources, it may be forced to reduce, delay or cease its origination of
mortgages and break its funding commitments to borrowers, and may be unable to fulfill its obligations to certain
Institutional Investors or securitization programs
MCAP may be unable to access its short-term funding sources, or may find such access is significantly reduced, or
may face a shortage of Institutional Investors for a particular mortgage product. Disruption of MCAP’s short-term funding
may occur if, for example, MCAP is unable to comply with the terms and conditions of its warehouse loan facilities or its
other credit agreements or renew them when their terms expire or is unable to satisfy its liabilities as they come due. See
“Financial liquidity risk” below. Any of these circumstances may result in MCAP being unable to fulfill its funding
commitments to borrowers and such borrowers being unable to close on the purchase of their properties. This would have a
negative impact on MCAP’s reputation as an originator of mortgage loans, which could lead to lower originations, and
therefore lower origination fees in the short-term, and lower net interest income on securitized mortgages, lower servicing
fees and lower renewal retention rates in the long-term, and could result in legal liability for MCAP, all of which could
124
have a negative impact on MCAP’s business, financial condition and results of operations. See “Reputational and Brand
Risk” below.
In addition, if MCAP experiences a disruption to its short-term funding sources, MCAP may be unable to meet its
obligations to certain of the securitization vehicles into which it places mortgage loans. For example, under the NHAMBS and CMB programs MCAP is required to guarantee timely mortgage payments, including the repayment of the
outstanding balance at the maturity of a mortgage (which is normally met by renewing such mortgage for further
securitization or sale), on the mortgages underlying the NHA-MBS pools it originates and, in certain circumstances, to
repurchase from the relevant NHA-MBS pool individual mortgage loans that are in arrears. See “Business – Sources of
Long-Term Funding – Securitization of Mortgages” above. A disruption in MCAP’s access to short-term funding sources
could limit its ability to meet these obligations, which could jeopardize its NHA-MBS issuer status and which could, in
turn, have a negative impact on its business, financial condition and results of operations.
Similarly, MCAP has repurchase obligations if there are breaches of its representations and warranties made under
the mortgage sale agreements it enters into with Institutional Investors or with securitization vehicles. See “Repurchase or
Indemnity Obligations and Breach of Representations and Warranties on Mortgage Sales” below. A disruption of MCAP’s
short-term funding could limit MCAP’s ability to meet these obligations, which could jeopardize its ability to access these
long-term funding sources and which, in turn, could have a significant negative impact on MCAP’s business, financial
condition and results of operations.
See “Description of Material Indebtedness” above for a description of MCAP’s principal sources of short-term
funding.
MCAP may be unable to access long-term funding due to deterioration in the Canadian real estate and associated capital
markets
If the Canadian real estate market or a significant segment of the market deteriorates, there may be a decrease in
the supply of available funding in the capital markets into which MCAP places its mortgages for longer term funding, due
to decreased demand for “whole” mortgage loans, securities backed by mortgages and similar financial instruments. Such a
disruption in longer term mortgage funding markets could result in MCAP financing more of its existing mortgage assets
using its short-term warehouse loan facilities than it otherwise would, which would reduce its ability to use such facilities to
originate new mortgages and would also expose it to greater levels of credit risk in respect of the mortgages it would be
unable to securitize or sell. See “Funding and Liquidity Risk, Including MCAP’s Timely Payment Guarantee Obligations
on Mortgages Sold into CMHC-sponsored Securitization Programs” above and “Interest Rate, Hedging and Basis Risk”
and “Credit Risk” below.
Furthermore, if the broader capital markets were to be disrupted, MCAP’s ability to operate its business in a
profitable manner or at an optimal level may be adversely affected. For example, market disruptions similar to the global
“credit crisis” of 2007-2008 could increase the cost of certain of MCAP’s funding sources, reduce placement demand from
MCAP’s Institutional Investors or eliminate certain funding sources altogether. All of these factors could result in reduced
liquidity making it financially prohibitive for MCAP to access certain funding sources which may have an adverse impact
on MCAP’s business, financial condition and results of operations.
MCAP’s long-term funding sources include Institutional Investors, NHA-MBS, CMB, ABCP, RMBS and CMBS.
MCAP may be unable to access long-term funding due to a deterioration of its reputation as an originator and servicer of
mortgages
The mortgages MCAP has sold or securitized in the past may perform poorly, or MCAP may be unable to
effectively service the mortgages it originates. If either of these situations occur, the perceived value of any future
mortgages MCAP attempts to sell or securitize may be negatively affected, which could have an adverse impact on
MCAP’s ability to access long-term funding which could, in turn, have an adverse impact on MCAP’s business, financial
condition and results of operations. See “Reputational and Brand Risk” and “Deterioration of Servicer or Corporate
Ratings” below.
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MCAP may not be able to resell mortgage loans that it is required or otherwise decides to repurchase, or may not be able
to place such mortgage loans in securitization vehicles
Asset liquidity risk is faced if MCAP is unable to sell or securitize the mortgages it originates due to a lack of
overall market demand. Typically, MCAP-originated mortgages have minimal asset liquidity risk as, under normal market
conditions, there are many potential buyers for these assets. Asset liquidity risk is, however, of greater concern in respect
of mortgages that MCAP buys back to hold for its own account due to repurchase obligations or otherwise. See
“Repurchase or Indemnity Obligations and Breach of Representations and Warranties on Mortgage Sales” below. In certain
circumstances it may be in MCAP’s interest to choose to repurchase previously sold loans that have gone into arrears.
MCAP may not be able to sell these repurchased loans to third parties, and such loans may not fit the pooling criteria for
securitization programs. MCAP bears the credit and interest rate risk on repurchased loans if they cannot be resold and, in
the case of repurchased mortgages that need to be put into foreclosure or otherwise worked out, even if they are insured
mortgages (for example insured loans in arrears repurchased from ABCP securitization vehicles), they may have to remain
on MCAP’s balance sheet until they are liquidated, at which time MCAP would be able to make a claim under the
mortgage default insurance. If, due to increased defaults, whether from an economic downturn, poor underwriting or
otherwise, a significant volume of mortgage loans need to be repurchased by MCAP, this could restrict MCAP’s ability to
fund other loans by using its available funds, which could have an adverse impact on its business, financial condition and
results of operations. If MCAP is unable to access short-term funding sources, it may be forced to reduce, delay or cease its
origination of mortgages and break its funding commitments to borrowers and may be unable to fulfill its obligations to
certain Institutional Investors and securitization programs. See “Interest Rate, Hedging and Basis Risk” and “Credit Risk”
below.
Financial liquidity risk
Financial liquidity risk is faced if MCAP is unable to comply with the restrictive and maintenance covenants in its
warehouse loan facilities and its other credit facilities or is unable to meet its liabilities as they come due, including interest
payments on and repayment at maturity of its corporate debt. MCAP may from time to time partially finance its operations
through the use of warehouse loan facilities and its other credit facilities. If MCAP is unable to renew existing warehouse
loan facilities or its other credit facilities upon expiry and if it is unable to obtain replacement credit facilities, it may not be
able to fulfill its financial obligations. If any of the foregoing were to occur, there may be an adverse effect on MCAP’s
business, financial condition and results of operations. See “Restrictive Covenants, Including Change of Control Provisions
in Credit Agreements” below.
Repurchase or Indemnity Obligations and Breach of Representations and Warranties on Mortgage Sales
Mortgage sales are made by MCAP under agreements with Institutional Investors and securitization vehicles.
When selling mortgages, MCAP makes a variety of customary representations and warranties regarding itself, its mortgage
origination activities and the mortgages that are sold. These representations and warranties survive for the life of the
mortgages and relate to, among other things, compliance with laws, mortgage underwriting and funding practices and
standards, the accuracy and completeness of information in the mortgage documents and mortgage files, and the
characteristics and enforceability of the mortgages. In many cases, there may not be a cure for incorrect representations and
warranties and any such incorrect representations and warranties are not subject to any materiality thresholds.
Through its mortgage origination and underwriting processes, MCAP attempts to verify that its mortgages are
originated and underwritten in accordance with MCAP’s underwriting policy and the Mortgage Insurance Companies’
program requirements (where applicable) and the applicable requirements of the purchaser. There can be no assurance,
however, that MCAP will not make mistakes or that certain employees or brokers will not violate MCAP’s underwriting or
other policies, and breaches of representations and warranties may occur from time to time. MCAP’s mortgage sale
agreements generally require it to repurchase or substitute mortgages in the event it has breached a representation or
warranty made to the mortgage purchaser, and/or to indemnify the mortgage purchaser against any loss or damage it may
suffer.
When MCAP funds mortgages, it relies heavily upon information supplied by third parties including the
information contained in the mortgage application, property appraisal, title information and employment and income
documentation. If any of this information is misrepresented and the misrepresentation is not detected before mortgage
funding, the value of the mortgage may be significantly lower than expected. Whether the mortgage applicant, the mortgage
broker, another third party or one of MCAP’s employees makes a misrepresentation, MCAP may bear the risk of loss
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associated with the misrepresentation. A mortgage subject to a misrepresentation may be unsaleable in the ordinary course
of business or may be subject to repurchase or substitution if it is sold before detection of the misrepresentation, which may
require MCAP to indemnify the mortgage purchaser. The persons and entities that made a misrepresentation are often
difficult to locate and it may be difficult to collect from them any monetary losses MCAP may have suffered. While MCAP
has adopted controls and processes designed to help it identify misrepresented information in its mortgage origination
operations, there can be no assurance these controls and processes have detected or will detect and offset the risk of all
types and occurrences of misrepresentation.
Any requirement for MCAP to repurchase or substitute a significant amount of mortgages that it has sold or to
indemnify mortgage purchasers, could have a negative impact on MCAP’s business, financial condition and results of
operations. See “Funding and Liquidity Risk, Including MCAP’s Timely Payment Guarantee Obligations on Mortgages
Sold into CMHC-sponsored Securitization Programs” above. MCAP may not be able to resell mortgage loans that it is
required or otherwise decides to repurchase, or to place such mortgage loans in securitization vehicles.
Significant breaches of mortgage sale agreements may also discourage mortgage purchasers from doing business
with MCAP in the future, which could have a negative impact on MCAP’s ability to sell mortgages and could have an
adverse effect on MCAP’s business, financial condition and results of operations. See “Funding and Liquidity Risk,
Including MCAP’s Timely Payment Guarantee Obligations on Mortgages Sold into CMHC-sponsored Securitization
Programs” above. MCAP may be unable to access long-term funding due to a deterioration of its reputation as an originator
and servicer of mortgages. See “Reputational and Brand Risk” below.
Reputational and Brand Risk
Developing and maintaining MCAP’s reputation and brand is an important factor in MCAP’s relationship with its
Institutional Investors, borrowers, brokers, the Mortgage Insurance Companies, suppliers and others. In order to protect and
enhance its reputation, MCAP must ensure that all of its operations result in compliance with its contractual obligations
including meeting agreed-upon performance standards. If MCAP is unable to adequately address adverse publicity or other
issues, including concerns about service quality, regulatory or contractual compliance, misrepresentation, fraud or similar
matters, real or perceived, this could negatively impact public and market sentiment toward MCAP and MCAP’s products
and services, and MCAP’s business, financial condition and results of operations could suffer. In addition, any lawsuits,
regulatory inquiries or other legal proceedings brought against MCAP could create negative publicity, which could damage
MCAP’s reputation and competitive position and adversely affect MCAP’s business, financial condition and results of
operations.
If MCAP were to originate low-quality mortgage loans or portfolios of mortgage loans with, for example, higher
than industry average arrears, its reputation with its Institutional Investors, the Mortgage Insurance Companies, other
mortgage market participants, and other short-term and long-term funding sources would suffer, which would negatively
impact its ability to fund new mortgages going forward. MCAP may be unable to access long-term funding due to a
deterioration of its reputation as an originator and servicer of mortgages. In addition, if MCAP’s access to short-term
funding sources is disrupted and it became unable to fulfill its funding commitments to borrowers, its reputation with
borrowers would be negatively impacted and its ability to originate new mortgages would suffer. See “Funding and
Securitization Programs” above.
Failure of Information Technology Systems
MCAP is dependent upon the successful and uninterrupted functioning of its computer and data processing
systems and software. While MCAP believes that it has adequate safeguards and contingency plans in place, the failure or
unavailability of these systems could interrupt operations and materially impact MCAP’s ability to efficiently originate and
underwrite, and make commitments in respect of mortgage loans, or to thereafter monitor or service customer accounts. If
sustained or repeated, a system failure or loss of data could negatively affect the ability of MCAP to discharge its duties to
its Institutional Investors and securitization programs. In addition, MCAP depends on automated software to collect
payments on mortgages. If such software fails or is unavailable on a prolonged basis, MCAP could be required to manually
complete such activities, which could have adverse effect on MCAP’s reputation and its ability to attract and retain
borrowers, Institutional Investors and securitization programs, which could, in turn, have an adverse impact on MCAP’s
business, financial condition and results of operations.
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The inability to implement new systems, or delays in implementing new systems, could also affect MCAP’s ability
to realize projected or expected cost savings and its competitive position in the mortgage industry. Additionally, any
systems failures could impede MCAP’s ability to timely collect and report financial results and other operating information
in accordance with MCAP’s banking and other contractual commitments.
MCAP maintains confidential information regarding customers in its computer systems. This infrastructure may
be subject to physical break-ins, computer viruses, programming errors, attacks by third-parties or other disruptive
problems. A security breach of computer systems could disrupt operations, damage MCAP’s reputation or result in liability.
If any of the foregoing were to occur, this could have an adverse impact on MCAP’s business, financial condition and
results of operations.
The financial services sector, including MCAP, is exposed to cyber security risk. Threats are increasing in scale,
scope and complexity. In addition to exposure to cyber security breaches, MCAP is continuously exposed to various other
types of fraud stemming from the nature of MCAP’s business. For example, MCAP must often rely on information
provided by customers and other third-parties in its decisions to enter into transactions such as extending credit. The
increasing pace of advancement in available technology has increased the sophistication and complexity of potential fraud
crimes to which MCAP is exposed. Despite MCAP’s commitment to information and cyber security and fraud prevention,
MCAP and its third-party service providers may not be able to fully mitigate all risks associated with the increased
complexity and high rate of change in cyber-crime methods. To the extent that MCAP encounters events that impact its
relationships with its third-party service providers, MCAP may be exposed to service disruptions, regulatory action,
financial loss, litigation or reputational damage. If any of the foregoing were to occur, this could have an adverse impact on
MCAP’s business, financial condition and results of operations. See “Reputational and Brand Risk” above and
“Deterioration of Servicer or Corporate Ratings” below.
Interest Rate, Hedging and Basis Risk
High or rising interest rates may negatively impact the Canadian real estate market
The single-family mortgage financing industry in Canada continues to benefit from historically low mortgage
interest rates. However, there is a risk that an increase in mortgage interest rates could slow the pace of property sales and
adversely affect growth in the Canadian mortgage market, which could adversely affect MCAP’s business, financial
Changes in interest rates may negatively impact the value of assets MCAP holds on its balance sheet
In the normal course of its business, MCAP holds on its balance sheet various financial instruments and other
assets such as mortgages, other loans and receivables, DPP receivables and derivative products used for hedging. It also
records liabilities related to the mortgages it has securitized. The values of such assets and instruments are sensitive to
changing interest rates, and the spreads between interest rates associated with different assets and liabilities.
Rising interest rates generally reduce the demand for credit, including mortgages, increase the cost of borrowing
and may discourage potential borrowers from purchasing new properties or refinancing their existing mortgages.
Consequently, MCAP may originate lower volumes of mortgages in periods of rising interest rates. In addition, increases in
interest rates tend to decrease the value of mortgages that MCAP has already originated and that are warehoused on its
balance sheet, and such decreases will only be fully offset by hedging gains if the interest rate risk associated with such
loans is fully and effectively hedged. See “Hedging and basis risk” below. Increases in interest rates could therefore have
an adverse effect on MCAP’s business, financial condition and results of operations.
In periods of declining interest rates, prepayments on mortgages tend to increase as a result of borrowers taking
advantage of lower interest rates to refinance higher interest rate mortgages, or as a result of borrowers purchasing new
properties and paying out their existing mortgages. Such prepayments and payouts may lead to a reduction in MCAP’s
MUA unless MCAP is able to replace such mortgages with new originations. A reduction in the value of MCAP’s MUA
would result in a decrease in the amount of funds received from servicing those mortgages. This could have an adverse
effect on MCAP’s business, financial condition and results of operations.
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Hedging and basis risk
MCAP manages its balance sheet related interest rate risk by generally holding mortgages for its own account for
only a short period of time. In addition, MCAP further manages its exposure to interest rate risk by hedging a portion of its
pipeline of committed but not yet funded fixed-rate mortgages and, for the typically short periods of time until sale or
securitization, all funded fixed-rate mortgages that are held for its own account to minimize the potential impact of changes
in interest rates. Interest rate hedging has certain risks, such as the reliance on an unsuccessful hedging strategy, the use of
ineffective hedges (including “basis risk” (described below), which can occur in all forms of securitization programs), lack
of available hedging facilities, counterparty risk with respect to a hedging counterparty or an unexpected significant change
in interest rates, which can result in significantly increased cash collateral requirements. In addition, to the extent that
MCAP bears the risk and cost of hedging its committed but not yet funded fixed-rate single-family mortgage loan
commitments, if it is not successful in converting those commitments to funded loans, it would, if interest rates declined,
not have a new higher than market mortgage interest rate asset offsetting the amount of the hedge position, which may
result in hedging losses that are not offset by future gains on mortgages. There is no guarantee that any borrower will
actually close on an MCAP commitment, thereby creating a mortgage asset. The realization of any of these risks may have
an adverse effect on MCAP’s operating results, financial position and results of operations.
With respect to the variable-rate mortgages that MCAP originates, MCAP always attempts to fund such assets
using appropriate floating interest rate funding in order to minimize interest rate risk. However, the benchmark rates in the
mortgage markets (typically the prime rate for single-family mortgages) are not always the same as the benchmark
referenced rates available in the funding markets. For example, a single-family variable-rate mortgages priced based on
prime rates may be funded using commercial paper based on the Canadian Dollar Offered ABCP Rate (“Commercial
Paper Rate”). The spreads between benchmark lending rates (e.g., prime) and MCAP’s benchmark funding rates (e.g.,
Commercial Paper Rate) vary and may narrow, which would have an adverse impact on the value of the variable-rate
mortgages MCAP holds on its balance sheet. This variability is called “basis risk”. While this variability is often minimal,
it is difficult to economically hedge or entirely eliminate and MCAP does incur this basis risk as part of its normal course
operations. “Basis risk” is also incurred as part of hedging MCAP’s fixed-rate assets. For example, MCAP’s fixed rate
mortgage assets may need to be hedged by taking bond short positions or entering into swap agreements, the prices of
which will not always be perfectly correlated with the mortgage assets being hedged. A reduction in positive spreads
between mortgage rates and capital markets funding rates (including the rates realized through hedging strategies) could
have an adverse effect on MCAP’s business, financial condition and results of operations.
Changes in or Introduction of Government Legislation and Regulations
MCAP, through its wholly-owned subsidiaries, is licensed as a mortgage brokerage and administrator as required
in all provinces across Canada. In addition, MSC is an approved NHA-MBS issuer and CMB seller. There are different
regulatory and registration requirements in each of the jurisdictions in Canada. MCAP believes that it is appropriately
registered in the jurisdictions in which it conducts business, however, it may voluntarily seek additional registration in
respect of its activities from time to time or regulators may adopt a view that is different from MCAP’s view that may
require MCAP to seek additional registrations. Failure to be appropriately registered or to renew existing registrations on a
timely basis could result in enforcement action and potential interruption of certain of MCAP’s servicing or other activities.
This could have an adverse effect on MCAP’s business, financial condition and results of operations.
MCAP’s business relies, in large part, on the availability of mortgage default insurance. See “Reliance on
Mortgage Insurance Companies and the Ability to Obtain Mortgage Default Insurance” below. As such, if any of CMHC,
OSFI or the Federal Government pass additional regulations restricting the ability or use of portfolio insurance on new or
existing mortgages or that further restrict MCAP’s or certain borrowers’ ability to purchase mortgage default insurance or
that may have a negative impact on the Canadian housing market, this may, in turn, have a negative impact on MCAP’s
business, financial condition and results of operations. See “Industry Overview – Changes to the Regulatory Environment”
above.
As a financial institution, MCAP is also subject, directly or indirectly, to certain regulatory requirements under
legislation such as the PCMLTFA and PIPEDA. As well, many of MCAP’s Institutional Investors are subject to
regulations administered by OSFI. In order to carry on business with these Institutional Investors, MCAP must be familiar
with and be able to establish that its operations meet applicable OSFI requirements. These laws and regulations are subject
to changes, not all of which are predictable.
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MCAP is authorized to originate mortgages under each of the Mortgage Insurance Companies’ respective
programs. Any change in MCAP’s status and authorization under the Mortgage Insurance Companies’ programs could have
an adverse effect on MCAP’s business, financial condition and results of operations.
If MCAP is not able to comply with applicable legislation or the requirements that apply to a particular program,
or if MCAP operates without the necessary approvals or permits, MCAP could be subject to administrative or civil, and
possibly criminal, fines and penalties, and MCAP may be required to spend substantial capital to bring an operation into
compliance, to temporarily or permanently discontinue activities or to take corrective actions. Notwithstanding that MCAP
may currently be in compliance with all legislation and regulations to which it is currently directly or indirectly subject,
MCAP’s operations could be affected by new or future laws and regulations, or changes to existing laws and regulations,
that may be more onerous or less favourable than the regulatory regime currently in place or that result in significant fees
payable for compliance costs, and there is no assurance that MCAP will be able to pass on the increased cost of compliance
to MCAP’s customers. Any such change or future law could have an adverse effect on MCAP’s business, financial
condition and results of operations. See “Industry Overview – Changes to the Regulatory Environment” above.
Reliance on Independent Mortgage Brokers
MCAP’s residential mortgage operations are dependent on a network of mortgage brokers. It is therefore
important for MCAP to expand and maintain its relationship with a network of qualified independent mortgage brokers
across Canada. If MCAP is unable to offer competitive mortgage products or broker compensation, mortgage brokers may
choose to originate mortgages for MCAP’s competitors, since mortgage brokers are not contractually obligated to do
business with MCAP, and MCAP’s competitors also have relationships with many of the same brokers and actively
compete for their business with MCAP. Loss of market share by mortgage brokers generally, or MCAP’s loss of market
share within the mortgage broker channel, could have an adverse effect on MCAP’s business, financial condition and
results of operations.
Mortgage brokers are also held to certain levels of regulatory compliance, conduct and legal obligations. While
MCAP is not legally responsible for the actions of mortgage brokers, since MCAP has limited or no control over their
operations, there is still a risk that any claims, fines or penalties arising from actions by mortgage brokers dealing with
MCAP may be imposed on, or cause other claims, fines or penalties to be imposed on MCAP. This may have an adverse
effect on MCAP’s reputation, which could in turn have a negative impact on MCAP’s business, financial position and
results of operations. See “Reputational and Brand Risk” above.
Reliance on Mortgage Insurance Companies and the Ability to Obtain Mortgage Default Insurance
MCAP must obtain mortgage default insurance on the conventional single-family mortgages (i.e., mortgages with
sufficiently low LTV ratios so as not to require individual mortgage default insurance) that it originates in order to place
such loans into certain securitization programs. Should mortgage default insurance not be available to MCAP, including as
a result of the loss of MCAP’s “approved lender” status or should the current credit ratings of the Mortgage Insurance
Companies decline or should any of the Mortgage Insurance Companies be unable to fulfill their insurance payment
obligations, MCAP may be unable to participate in, or may have reduced participation at higher cost in, such
securitizations, which would limit MCAP’s funding sources and may have an adverse effect on MCAP’s business, financial
position and results of operations. In addition, the credit ratings of Mortgage Insurance Companies directly impacts
borrowing base tests across MCAP’s warehouse loan facilities and other credit facilities. If the rating of any of the
Mortgage Insurance Companies decline, MCAP faces higher margins (meaning less or more expensive financing) or
MCAP faces the possibility that mortgages insured by Mortgage Insurance Companies are no longer eligible to be financed
in warehouse loan facilities or other credit facilities.
MCAP must adhere to the policies and processes prescribed by Mortgage Insurance Companies in order for
mortgage default insurance to be valid. Failing to do so could result in MCAP’s claims on the mortgage default insurance
coverage being denied on individual mortgages or MCAP being denied access to such mortgage default insurance programs
in the future, which may have an adverse effect on MCAP’s business, financial position and results of operations. The
coverage provided by Mortgage Insurance Companies’ policies covers only certain causes of loss from borrower default.
Exclusions include natural disasters and acts of God. These limitations mean that even with a valid policy of mortgage
default insurance in place, MCAP may still have to bear the full amount of any loss incurred because of borrower default if
MCAP beneficially owns the mortgage loan or if the mortgage loan has been sold into NHA-MBS or CMB where MCAP
has a timely payment obligation. Also, if there is damage to the mortgaged property, MCAP may have to cause the property
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to be repaired (funded by the borrower’s or MCAP’s property insurance) before it can make a claim under the mortgage
default insurance.
Reliance on Key Management Personnel
One of MCAP’s competitive advantages is the breadth and depth of experience of MCAP’s executive team. While
MCAP has in place a business continuity strategy, including executive officer succession plans, the loss of key
management personnel may have an adverse effect on MCAP’s business, financial position and results of operations. In
addition, to implement and manage MCAP’s business and operating strategies effectively, MCAP must maintain a high
level of efficiency and performance, continue to enhance MCAP’s operational and management systems, and continue to
successfully attract, train, motivate and manage MCAP’s employees. If MCAP is not successful in these efforts, this may
have an adverse effect on MCAP’s business, financial position and results of operations.
Competition
MCAP’s products compete directly with those offered by banks, insurance companies, credit unions, trust
companies and other financial services companies. Certain of these competitors may be better capitalized, hold a larger
percentage of the Canadian mortgage market, have greater financial, technical and marketing resources or have greater
name recognition than MCAP. MCAP experiences competition in all aspects of its business, such as price competition,
which may include compensation paid to mortgage brokers or interest rates offered to borrowers. If price competition
increases, MCAP may not be able to raise the interest rates it charges in response to rising costs of funding or operations, or
may be forced to lower the interest rates that it charges to borrowers, which has the potential to reduce the value of the
mortgages that MCAP sells to its Institutional Investors or securitization vehicles. Price-cutting or discounting may reduce
MCAP’s profits. This could have an adverse effect on MCAP’s business, financial position and results of operations.
Termination of Servicing Contracts and Trigger Events
Under MCAP’s servicing agreements, both with Institutional Investors (including sub-servicing clients) and with
securitization vehicles, there are circumstances that may result in a “servicer termination event” whereby Institutional
Investors or the securitization vehicles have certain rights to unilaterally terminate their servicing relationship with MCAP
if MCAP fails to meet specified servicing performance levels. Examples of servicer termination events include failure by
MCAP as the servicer to make payments or deposits within the time required, and servicer representations or warranties
that prove to be false or incorrect in any material respect and remain unremedied for a stipulated period after notice to
MCAP. This may result in the loss of servicing fees, ancillary fees and possibly future renewals, which may have an
adverse effect on MCAP’s reputation, ability to attract and retain borrowers and investors, business, financial condition and
results of operations. A servicer termination event could also lead to a “trigger event”. The occurrence of a trigger event
may mean that MCAP would not be able to carry out any further sales under the affected securitization or mortgage sales
program unless and until the trigger event is resolved. In most securitizations, a trigger event would also mean that the cash
waterfall in the transaction would be altered such that all interest, principal and expenses of the securitization vehicle are
paid before MCAP receives any further cash from the transaction. Such trigger events could have an adverse effect on
MCAP’s business, financial condition and results of operations.
MCAP often enters into agreements with Institutional Investors for both mortgage origination as well as mortgage
servicing, and could fail to meet the conditions relating to the origination of mortgages (e.g. failure to meet certain
underwriting standards) resulting in termination of further originations for that Institutional Investor. Most mortgage
origination and servicing contracts have expiry or termination dates and the counterparty may chose not to renew or extend
beyond the end of their term, notwithstanding there has been no default by MCAP. Termination of origination and servicing
agreements under either of these scenarios may have an adverse effect on MCAP’s business, financial condition and results
of operations.
Restrictive Covenants, Including Change of Control Provisions in Credit Agreements
MCAP has entered into multiple credit facilities (including the Senior Secured Notes, operating lines, warehouse
loan facilities, and other types of facilities) with various FRFIs for use in MCAP’s day-to-day operations. Assets are
pledged as collateral for these facilities or other security is given, and each facility contains restrictive covenants and
obligations. These covenants and obligations may limit the discretion of MCAP’s management to incur additional
indebtedness or to take such other actions that might be in MCAP’s best interests. As well, if MCAP violates these
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covenants or obligations, and if these violations are not remedied or waived, the creditor may revoke the credit facility or
accelerate any amounts due thereunder and force MCAP to repay in full any outstanding amounts. A default under a credit
facility may cause defaults pursuant to other credit facilities pursuant to cross-default provisions. There is no assurance that
MCAP will have enough liquid assets to sufficiently repay the outstanding amounts if this were to happen.
In particular, certain of MCAP’s warehouse loan facilities and other credit facilities provide that a “change of
control” as defined therein, without the lender’s consent, will be a default that permits the lender to accelerate the maturity
of borrowings thereunder and, if such debt is not repaid, to enforce the security interests in the collateral securing such debt.
MCAP has negotiated and settled change of control provisions in certain of its warehouse loan facilities such that they
contemplate the Offering and will therefore not trigger adverse consequences. MCAP may not be able to obtain the required
approvals or negotiate the required amendments to the remaining warehouse loan facilities.
If either of the above scenarios were to occur, there would be an adverse impact on its business, financial condition
and results of operations. See “Description of Material Indebtedness – Change of Control Covenants” above.
Concentration of Institutional Investors
In fiscal 2015, MCAP sold approximately 13% of its originated mortgages to one FRFI. If MCAP’s relationship
with this investor is terminated, it may be difficult for MCAP to replace this investor with one or more others that has a
similar pricing structure and mortgage volume demands. As a result, this could have an adverse effect on MCAP’s
business, operating results, financial position and future growth.
Credit Risk
Credit risk is the risk of loss associated with a counterparty’s inability or unwillingness to fulfill its payment
obligations. This is primarily the risk of borrower default (see “Business – MCAP’s Business Model – Credit (Borrower
Default) Risk in MCAP’s Business Model” above) but could also involve the failure of an Institutional Investor, as a
funder, to advance loan funds when required under mortgage purchase agreements after MCAP has entered into the
mortgage commitment with the borrower. It could also involve any of MCAP’s credit providers failing to meet a payment
obligation under a warehouse loan facility or under another credit facility or under one or more swaps.
MCAP is at risk of deterioration of the credit quality of the assets it owns or administers due to the quality of
underwriting, changing financial capacity of its borrowers and changes in the real estate markets. MCAP has developed, or
is contractually bound by, various program-type and product-type investment policies that include: LTV levels,
concentration limits by borrower and related parties, geographic disbursement limits and loan-type diversification limits.
MCAP bears the direct credit risk of default by a borrower from the time MCAP funds a loan until it sells the loan to a
funding source, or if thereafter MCAP repurchases the loan from the investor (see “Funding and Liquidity Risk, Including
MCAP’s Timely Payment Guarantee Obligations on Mortgages Sold into CMHC-sponsored Securitization Programs”
above) or exercises its right to renew the loan, until such time as it resells the loan. High-quality portfolios of well
underwritten loans have a historically predictable level of expected arrears. Prime loans have the lowest arrears rates. Alt-A
loans, by their nature, generally have a higher default risk and accordingly warrant higher interest rates charged to the
borrower. If credit risk is not appropriately mitigated, it may have an adverse effect on MCAP’s available liquid assets or
its ability to sell or securitize mortgages or obtain mortgage default insurance in the future and on MCAP’s business,
financial condition and results of operations.
The Condition of the Canadian Real Estate Market and/or the General Economy in Canada May Deteriorate
A significant decline in real estate values could negatively affect MCAP’s operating results and growth prospects
as this could result in a decrease in the volume of mortgage originations. As property values decline, security on mortgages
could also be adversely affected, thereby reducing the ability to liquidate properties of defaulting borrowers at favourable
prices. While this may not have a significant immediate effect on MCAP’s operating results, given the nature of MCAP’s
business and the relatively low proportion of mortgages MCAP normally finances with its internal resources, MCAP’s
available liquid assets could be strained and MCAP’s servicing performance could be adversely affected, as would its
ability to obtain mortgage default insurance and its ability to sell mortgages in the future, either to Institutional Investors or
to securitization vehicles, thereby adversely affecting MCAP’s business, financial condition and results of operations.
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A decline in the general economic conditions (including increases in unemployment) could cause default rates to
rise. The immediate impact to MCAP’s financial results would not necessarily be material due to the typically small
portion of mortgages that are owned by MCAP at any given time and the fact that most of those loans are either insured or
have high borrower equity. However, there could be adverse long-term effects to MCAP caused by higher default rates and
losses on mortgage loans owned by MCAP’s Institutional Investor clients. Increasing defaults and losses on mortgages will
also negatively impact the value of MCAP’s future cash flows from securitizations and would also make warehouse loan
facilities and credit facilities less available and more expensive for MCAP. In certain circumstances it may be in MCAP’s
interest to choose to repurchase previously sold loans that have gone into arrears. MCAP may not be able to resell mortgage
loans that it is required or otherwise decides to repurchase, or place such mortgage loans in alternative securitization
vehicles. See “Repurchase or Indemnity Obligations and Breach of Representations and Warranties on Mortgages Sales”
above. This would reduce MCAP’s resources to originate more profitable mortgages or participate in future securitization
transactions which could adversely affect its business, financial position and results of operations. See “Funding and
Securitization Programs” above.
The commercial and construction sectors tend to be cyclical in nature, and are dependent on various factors such
as, but not limited to, interest rates, employment rates, overall economic conditions and business and population growth and
trends. Adverse changes in any of these factors may lead to lower origination volumes. Although each of these mortgage
types are relatively small when compared to MCAP’s single-family mortgage segment, any reduction in the levels of
commercial or construction mortgages originated and administered by MCAP may impact MCAP’s business, financial
In addition, there are economic trends and factors that are beyond MCAP’s control, which may affect its business,
financial condition and results of operations. Such trends and factors include adverse changes in the conditions in the
specific markets for MCAP’s products and services, the conditions in the broader market for residential and commercial
mortgages and the conditions in the domestic or global economy generally.
Although MCAP’s performance is affected by the general condition of the economy, not all of its service areas are
affected equally or at the same time. The impact of general economic conditions on MCAP’s performance will vary based
on many factors, including the level of diversification of MCAP’s portfolio across different geographic regions and the
impact of economic changes on those regions. It is not possible for MCAP’s management to accurately predict fluctuations
and the impact of such fluctuations on performance. There is no guarantee that the revenue, asset and profit growth that
MCAP has historically generated will continue or that any of MCAP’s targets for distributable cash or other performance
expectations will be achieved.
Litigation Risk
MCAP may, from time to time, become involved in legal proceedings in the normal course of its business, either
as a plaintiff or a defendant. The costs of litigation and settlement can be substantial, and there is no assurance that such
costs will be recovered in whole or at all. During litigation involving a borrower in respect of a mortgage, MCAP may not
be receiving payments on the mortgage that is the subject of litigation, thereby impacting cash flows. The unfavourable
resolution of any legal proceedings, and litigation costs generally, could have an adverse effect on MCAP’s business,
financial position and results of operations.
Deterioration of Servicer or Corporate Ratings
MCAP, through its wholly-owned subsidiaries, is rated as a residential and commercial mortgage servicer by S&P
and as a commercial servicer by Fitch. MCLP is corporately rated by DBRS. The ratings are important to the success of
MCAP, as they help attract and retain Institutional Investors and sub-servicing clients and help qualify MCAP to service
mortgages in certain securitization programs. An adverse change in or loss of MCAP’s servicer ratings by S&P or Fitch
could constitute a default under MCAP’s servicing agreements and may result in a “servicer termination event” or “trigger
event” thereunder. See “Termination of Servicing Contracts and Trigger Events” above. Any loss or deterioration of the
DBRS corporate rating could result in higher pricing and margin levels of certain of MCAP’s credit facilities. Any adverse
change in or loss of the DBRS corporate rating or the servicer ratings would be detrimental to MCAP’s overall business as
well as its reputation, and may have an adverse effect on MCAP’s operating results, financial position and future growth.
See “Reputational and Brand Risk” above.
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Labour Costs
Labour is one of MCAP’s most significant costs, and increases in labour costs could materially affect MCAP’s
cost structure. If MCAP fails to attract and retain qualified employees, control its labour costs or recover any increased
labour costs through increased prices charged to customers, or otherwise offset such increases with cost savings in other
areas, MCAP’s operating margins could suffer. In addition, MCAP competes with other businesses in MCAP’s markets for
qualified employees. From time to time, the labour supply may become tight in some of MCAP’s markets. A shortage of
qualified employees could require MCAP to enhance its wage and benefits packages to compete more effectively for
employees, to hire more expensive or less efficient temporary employees or to contract for services with more expensive
third-party vendors. Each of these options may have an adverse effect on MCAP’s business, financial condition and results
of operations.
Ability to Sustain Performance and Growth
MCAP’s revenue and profits have grown significantly since 2013. MCAP’s future operating results could be
adversely affected by any of the risk factors identified herein, or others. MCAP’s past results and growth may not be
indicative of its prospects and there can be no assurance that MCAP will sustain its level of performance or grow profitably
in future periods. In addition, continued growth by MCAP may result in additional operating expenses and capital
expenditures. There can be no assurance that MCAP will be able to effectively manage growth, and any failure to do so
could have an adverse effect on MCAP’s business, financial condition and results of operations.
Impact of Natural Disasters and Other Events
Various events, including natural disasters, extreme weather conditions, war and terrorism may cause a significant
decline in the value of the properties underlying MCAP’s MUA or adversely affect the capacity of borrowers to repay
mortgages, capital resources of borrowers that can be used to cover any shortfalls, collateral in support of mortgages and
conditions of mortgages. Deterioration in these factors could lead to difficulties in repayment of mortgages or a decline in
the performance of mortgage portfolios (whether owned by MCAP or administered for Institutional Investors) or of assets
in securitization structures, possibly resulting in higher loan losses and a decline in the income and cash flow from MCAP’s
securitization investments. Losses resulting from borrower defaults caused by such events may not be covered by mortgage
default insurance policies. See “Reliance on Mortgage Insurance Companies and the Ability to Obtain Mortgage Default
Insurance” above. Any of these events could have an adverse effect on MCAP’s business, financial condition and results of
operations.
Environmental Matters
MCAP may need to take possession of secured properties through enforcement proceedings should a loan default
arise. By taking possession, MCAP may be exposed to potential environmental liability lawsuits from third parties or
government entities based on damages and costs resulting from contamination emanating from the property. If significant,
these lawsuits may have an adverse impact on MCAP’s business, financial condition and results of operations.
Seasonality of Originations
The volume of mortgage originations fluctuates throughout the year and is generally higher in the spring and
summer of each year compared to the fall and winter periods. The seasonality of MCAP’s mortgage originations may, or
may not, translate into some seasonality with respect to MCAP’s net income, depending largely on the timing and severity
of interest rate movements. If interest rates move when MCAP has many unfunded mortgages outstanding, the results of its
hedging activities would be more pronounced than if such a move in interest rates occurred during slower origination
periods. Any such seasonality may have an impact on MCAP’s business, financial condition and results of operations.
MCAP is Not an OSFI-Regulated Entity
MCAP is not regulated by OSFI and therefore is not subject to OSFI’s capital or liquidity rules. In addition,
MCAP is only indirectly subject to OSFI’s operational and risk management rules by virtue of the fact that many of its
Institutional Investors are FRFIs that are required to have MCAP comply with such rules. Not being an OSFI-regulated
financial institution results in not having access to deposit funding which may hinder MCAP’s liquidity and the diversity of
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its funding sources. These factors may have an adverse impact on MCAP’s business, financial condition and results of
operations.
Risks Related to the Offering
No Prior Public Market for Common Shares
Prior to the Offering, no public market existed for the Common Shares. An active and liquid market for the
Common Shares might not develop following the completion of the Offering or, if such a market develops, it might not be
sustained. If an active public market does not develop or is not sustained, investors might have difficulty selling their
Common Shares.
The Offering Price will be determined by negotiations between MCAP, the Selling Shareholders and the
Underwriters and may not be indicative of the price at which the Common Shares will trade following the completion of the
Offering. MCAP cannot assure investors that the trading price of Common Shares will not materially decline below the
Offering Price.
Volatile Trading Price for Common Shares
The trading price for Common Shares may be volatile and subject to wide fluctuations in response to numerous
factors, many of which are beyond MCAP’s control, including the following:
 actual or anticipated fluctuations in MCAP’s quarterly financial performance;
 changes in estimates of MCAP’s future financial performance;
 changes in forecasts, estimates or recommendations by industry or securities research analysts;
 changes in the economic performance or market valuations of companies in the industry in which MCAP operates;
 addition or departure of MCAP’s executive officers and other key personnel;
 release or expiration of lock-up or other transfer restrictions on outstanding Common Shares;
 sales or potential sales of additional Common Shares;
 significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by
or involving MCAP or MCAP’s competitors;
 operating and share price performance of other companies that investors deem comparable to us; and
 news reports relating to trends, concerns, technological or competitive developments, regulatory changes and other
related issues in MCAP’s industry or target markets.
Financial markets have in the past experienced significant price and volume fluctuations that have particularly
affected the trading prices of companies’ equity securities and that have, in many cases, been unrelated to the operating
performance, underlying asset values or prospects of such companies. Accordingly, the trading price of the Common
Shares may decline even if MCAP’s financial performance, financial condition, operating results, underlying asset values
or prospects have not changed. As well, certain investors may base their investment decisions on consideration of the
Issuer’s environmental, governance and social practices and performance against such institutions’ respective investment
guidelines and criteria, and failure to meet such criteria may result in a limited or no investment in the Common Shares by
those institutions, which could materially adversely affect the trading price of the Common Shares. There can be no
assurance that fluctuations in price and volume will not occur. If such increased levels of volatility and market turmoil
occur, the Issuer’s business, financial condition and performance could be materially adversely impacted and the trading
price of the Common Shares could also be materially adversely affected.
The Selling Shareholders Will Retain a Significant Portion of the Voting Power of the Issuer After the Offering
Upon the completion of the Offering, Otéra and MCAN will control a significant portion of the voting power of
the Issuer, and, pursuant to the Nomination Rights Agreement, Otéra will initially be entitled to nominate three of the nine
members of the Board. Otéra also has a continuing right to nominate for election a certain number of the members of the
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Board depending on Otéra’s then current ownership of the Common Shares. See “Securityholders’ Agreements –
Nomination Rights Agreement” above. For so long as these shareholders either directly or indirectly maintain a significant
voting interest in the Issuer, they will have the ability to exert substantial influence over many matters affecting the Issuer’s
business, policies and affairs, including:

the composition of the Board and, through the Board, any determination with respect to the business plans and
policies, including the appointment and removal of its officers;

determinations with respect to acquisitions of businesses, mergers or other business combinations; and

the Issuer’s capital structure, including financing activities.
The Common Shares may be less liquid and trade at a discount relative to the trading that could occur in
circumstances where these shareholders did not have the ability to significantly influence matters affecting the Issuer.
Additionally, these shareholders’ significant voting interest in the Issuer may discourage transactions involving a change of
control of MCAP, including transactions in which an investor, as a holder of Common Shares, might otherwise receive a
premium for its Common Shares over the then-current trading price.
Also, in addition to the approval of the Board, the approval of the shareholders is required for any takeover,
merger, sale of substantially all of MCAP’s assets or similar transaction, which may require the approval of the Selling
Shareholders for so long as they, directly or indirectly, own a significant portion of the Common Shares. The interests of
these shareholders may not be consistent with the interests of the other shareholders of the Issuer.
Payments of Dividends
The payment of dividends under the Issuer’s dividend policy is not guaranteed and could fluctuate with the
performance of the Issuer. The Board has the discretion to determine the amount of dividends, if any, to be declared and
paid to shareholders. The Issuer may alter its dividend policy at any time, and the payment of dividends will depend on,
among other things: changes in the economy; MCAP’s financial condition; MCAP’s current and expected future levels of
earnings; MCAP’s liquidity requirements; market opportunities; income taxes; debt repayments; legal, regulatory and
contractual constraints; tax laws; and other relevant factors.
Over time, MCAP’s capital and other cash needs may change significantly from its current needs, which could
affect whether the Issuer pays dividends and the amount of dividends, if any, it may pay in the future. If the Issuer pays
dividends at the level currently anticipated under the proposed dividend policy (as described under “Dividend Policy”), it
may not retain a sufficient amount of cash to finance growth opportunities, meet any large unanticipated liquidity
requirements or fund its activities in the event of a significant business downturn. The Board may amend, revoke or
suspend the Issuer’s dividend policy at any time. A decline in the trading price or liquidity, or both, of the Common Shares
could result if the Issuer reduces or eliminates the payment of dividends, which could result in losses to shareholders. See
“Dividend Policy”.
Dilution
The issuance of additional Common Shares by the Issuer may have a dilutive effect on the interests of the Issuer’s
shareholders. The number of Common Shares that the Issuer is authorized to issue is unlimited. The Issuer may, in its sole
discretion, subject to applicable laws and the rules of the TSX and any stock exchange on which its securities may be listed
from time to time, issue additional Common Shares from time to time (including pursuant to any future LTIP and its
DSUP) and the interests of shareholders may be diluted thereby.
Future sales of Common Shares by existing shareholders
Subject to compliance with applicable securities laws and the terms of any lock-up agreements described under
“Plan of Distribution”, the Selling Shareholders and the Issuer’s directors and management, and their respective affiliates
may sell some or all of their Common Shares in the future. No prediction can be made as to the effect, if any, such future
sales of Common Shares will have on the trading price of the Common Shares prevailing from time to time. However, the
future sale of a substantial number of Common Shares by the Selling Shareholders and the Issuer’s directors and
management, and their respective affiliates, or the perception that such sales could occur, could materially adversely affect
prevailing trading prices for the Common Shares.
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Pursuant to the Registration Rights Agreement, Otéra will be granted certain registration rights. See
“Securityholders’ Agreements – Registration Rights Agreement” above.
Use of Proceeds
We cannot specify with certainty the particular uses of the net proceeds that MCAP will receive from the Offering.
The Issuer intends to invest the net proceeds from the Treasury Offering to support the growth of its mortgage funding
programs, but the specific funding programs and the amounts to be invested in each have not yet been determined and
cannot be stated with any degree of certainty.
Management will have broad discretion (subject to appropriate Board of Directors oversight) in the application of
the net proceeds, including for any of the purposes described in “Use of Proceeds”. Accordingly, a purchaser of Common
Shares will have to rely upon the judgment of MCAP’s management (subject to appropriate Board of Directors oversight)
with respect to the use of the proceeds, with only limited information concerning management’s specific intentions.
MCAP’s management may spend a portion or all of the net proceeds from the Offering in ways that MCAP’s shareholders
might not desire, that might not yield a favourable return and that might not increase the value of the Issuer’s business or an
investment in the Common Shares. The failure by MCAP’s management to apply these funds effectively could harm
MCAP’s business. Pending use of such funds, MCAP might invest the net proceeds from the Offering in a manner that does
not produce income or that loses value.
MCAP Will Incur Additional Expenses as a Result of Being a Public Company
Although management has substantial experience in the mortgage financing industry, it has limited experience
operating MCAP as a public entity. To operate effectively, MCAP will be required to continue to implement changes in
certain aspects of its business, improve and expand its management information systems and develop, manage and train
management level and other employees to comply with ongoing public company requirements. MCAP expects that
compliance with applicable securities laws and the rules of the TSX will make some activities more time-consuming and
costly. Failure to take such actions, or delay in the implementation thereof, could have an adverse effect on MCAP’s
business, financial condition and results of operations.
Holding Company Risk
Following completion of the Offering, the Issuer will be a holding company and a substantial portion of its assets
will be the shares or partnership units of its subsidiaries. As a result, prospective purchasers of Common Shares are subject
to the risks attributable to the Issuer’s subsidiaries. As a holding company, the Issuer will conduct substantially all of its
business through its subsidiaries, which will generate substantially all of its revenues.
Consequently, the Issuer’s cash flows and ability to execute on current or desirable future business opportunities
are dependent on the earnings of its subsidiaries and the distribution of those earnings to the Issuer. The ability of these
entities to pay dividends and other distributions will depend on their operating results and will be subject to applicable laws
and regulations which require that solvency and minimum capital standards requirements be maintained by such companies
and, to the extent applicable, contractual restrictions contained in the instruments governing their debt. In the event of a
bankruptcy, liquidation or reorganization of any of the Issuer’s subsidiaries, holders of indebtedness and other creditors will
generally be entitled to payment of their claims from the assets of such subsidiaries before any assets are made available for
distribution to the Issuer.
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LEGAL PROCEEDINGS
In the normal course of business, the Issuer may, from time to time, be a party to legal proceedings, as either a
plaintiff or a defendant, which may result in unplanned costs, expenses or payments to third parties. Management does not
expect that the outcome of any of these known proceedings will have a material effect on the Issuer’s financial position or
its operations.
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EXPERTS AND INTERESTS OF EXPERTS
Certain Canadian legal matters relating to the Offering will be passed upon on behalf of MCAP by Blake, Cassels
& Graydon LLP, and on behalf of the Underwriters by Osler, Hoskin & Harcourt LLP. The partners and associates of
Blake, Cassels & Graydon LLP, collectively, beneficially own, directly and indirectly, less than 1% of the issued and
outstanding Common Shares. The partners and associates of Osler, Hoskin & Harcourt LLP, collectively, beneficially own,
directly and indirectly, less than 1% of the issued and outstanding Common Shares.
Deloitte LLP is the external auditor of MCAP and has confirmed that they are independent within the meaning of
the Rules of Professional Conduct of the Chartered Professional Accountants of Ontario.
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INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
Other than as noted elsewhere in this prospectus, there are no material interests, direct or indirect, of any director
or executive officer of the Issuer, any shareholder that beneficially owns, or controls or directs (directly or indirectly), more
than 10% of any class or series of the Issuer’s outstanding voting securities, or any associate or affiliate of any of the
foregoing persons, in any transaction within the three years before the date hereof that has materially affected or is
reasonably expected to materially affect the Issuer or a subsidiary of the Issuer.
MCAP provides mortgage origination, servicing and administration and certain corporate services to MCAN. As
at February 29, 2016, MCAN Holdings LP (a wholly-owned subsidiary of MCAN) held a 14.74% interest in MCAP.
MCAP also provides mortgage origination, servicing and administration services to Otéra Capital Inc., which is an affiliate
of Otéra. As at February 29, 2016, Otéra held a 78.04% interest in MCAP.
MCAP established the Key Personnel Unit Purchase Plan, whereby the Board of Directors of MCAP approved
loans to the benefit of key management personnel for the purpose of purchasing B units in MCLP. During each of 2013,
2014 and 2015, loans were advanced to unit-holders of Management LP to purchase partnership units in the amounts as
described in note 4 to the consolidated financial statements. These loans have an interest rate equal to prime rate and are
secured by the units. See “Corporate Structure and Reorganization” elsewhere in this prospectus for a discussion on the
effect of the Offering on the Key Personnel Unit Purchase Plan and the related loans.
All related party transactions have been recorded at their exchange amounts which are disclosed in note 4 to the
2015 consolidated financial statements
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AUDITOR, TRANSFER AGENT AND REGISTRAR
MCAP’s external auditor is Deloitte LLP, Chartered Professional Accountants, located at 22 Adelaide Street West,
Suite 200, Toronto, Ontario M5H OA9.
The transfer agent and registrar for the Common Shares is  at its principal offices in Toronto, Ontario.
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MATERIAL CONTRACTS
The following are the only material contracts, other than those contracts entered into in the ordinary course of
business, which the Issuer has entered into since the beginning of the last financial year before the date of this prospectus,
entered into prior to such date but which contract is still in effect, or to which the Issuer is or will become a party on or
prior to the closing of the Offering:
(a) the Nomination Rights Agreement;
(b) the Registration Rights Agreement; and
(c) the Underwriting Agreement.
(the above collectively referred to as the “Material Contracts”).
Copies of the Material Contracts, if not already entered into then once executed, may be inspected during ordinary
business hours at MCAP’s head office located at 200 King Street West, Toronto, Ontario M5H 3T4 and will be made
available online on SEDAR at http://www.sedar.com under the Issuer’s profile.
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PURCHASERS’ STATUTORY RIGHTS
Securities legislation in certain of the provinces and territories of Canada provides purchasers with the right to
withdraw from an agreement to purchase securities. This right may be exercised within two business days after receipt or
deemed receipt of a prospectus and any amendment. In several of the provinces and territories of Canada, the securities
legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, revisions of the price or
damages if the prospectus and any amendment contains a misrepresentation or is not delivered to the purchaser, provided
that the remedies for rescission, revisions of the price or damages are exercised by the purchaser within the time limit
prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable
provisions of the securities legislation of the purchaser’s province or territory for the particulars of these rights or consult
with a legal advisor.
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GLOSSARY OF TERMS
“ABCP” means asset backed commercial paper.
“Additional Notes” has the meaning ascribed thereto under the heading “Description of Material Indebtedness – 3.955%
Senior Secured Notes due 2019”.
“Advance Notice Provisions” has the meaning set under the heading “Description of Share Capital – Advance Notice
Requirements for Director Nominations”.
“allowable capital loss” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax
Considerations - Taxation of Capital Gains and Capital Losses.
“Alt-A” has the meaning ascribed thereto under the heading “Industry Overview - Key Industry Trends by Product Type Single-Family Residential Mortgages”.
“Audit Committee” means the Audit Committee of the Board of Directors.
“Board of Directors” or “Board” means the board of directors of the Issuer.
“Canada Guaranty” means Canada Guaranty Mortgage Insurance Company.
“CDS” means CDS Clearing and Depository Services Inc.
“Chair” means the chair of the Board of Directors.
“CHT” means Canada Housing Trust.
“Closing” means the closing of the Offering.
“Closing Date” means the date of the Closing.
“CMB” means Canada Mortgage Bond.
“CMBS” means commercial mortgage backed securities.
“CMHC” means Canada Mortgage Housing Corporation.
“Code” means the Code of Business Conduct adopted by the Issuer.
“Commercial Mortgages” has the meaning ascribed thereto under the heading “Management’s Discussion and Analysis of
Financial Condition and Results of Operation – General Description of MCAP”.
“Commercial Paper Rate” has the meaning ascribed thereto under the heading “Risk Factors - Interest Rate, Hedging and
Basis Risk – Hedging and Basis Risk”.
“Common Shares” means the common shares of the Issuer.
“Construction Loans” has the meaning ascribed thereto under the heading “Management’s Discussion and Analysis of
Financial Condition and Results of Operation – General Description of MCAP”.
“CRA” means the Canada Revenue Agency.
“CREA” has the meaning ascribed thereto under the heading “Industry Overview - Key Industry Trends by Product Type Growth potential of the single-family mortgage market”.
“CRO” means the Chief Risk Officer of the Issuer.
“D+H” means D+H Corporation.
“DBRS” means DBRS Limited.
“Demand Registration” has the meaning ascribed thereto under the heading “Securityholders’ Agreements - Registration
Rights Agreement - Demand Registrations”.
“Diversity Policy” means the policy approved by the Board of Directors of the Issuer that sets out the Issuer’s approach to
diversity on the Board and in executive officer roles.
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“DPP” has the meaning ascribed thereto under the heading “Management’s Discussion and Analysis of Financial Condition
and Results of Operations - 2015 Results Summary – Revenue - Securitization and other financial instrument gains - Fair
value adjustment of financial instruments”.
“DSUs” has the meaning ascribed thereto under the heading “Executive Officer and Director Compensation - Director
Compensation - Deferred Share Unit Plan for Non-Employee Directors”.
“DSUP” means the Deferred Share Unit Plan for non-employee directors.
“Eclipse” means Eclipse Mortgages.
“Employee Holdcos” has the meaning ascribed thereto under the heading “Corporate Structure and Reorganization –
Reorganization”.
“Existing Notes” has the meaning ascribed thereto under the heading “Description of Material Indebtedness – 3.955%
“Facilities” are those credit facilities described under “Description of Material Indebtedness”.
“Fitch” means Fitch Ratings.
“FRFIs” means federally regulated financial institutions.
“FTEs” means full- time equivalent employees.
“Funding” has the meaning ascribed thereto under the heading “Business - MCAP’s Business Model - Funding Sources”.
“FVTPL” has the meaning ascribed thereto under the heading “Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Financial Instruments”.
“FY” means fiscal year.
“Genworth” means Genworth Financial Mortgage Insurance Company Canada.
“GOC” has the meaning ascribed thereto under the heading “Management’s Discussion and Analysis of Financial
Condition and Results of Operations - 2015 Results Summary - Revenue - Securitization and other financial instrument
gains - Hedge gains or losses”.
“Guideline B-20” means Guideline B-20: Residential Mortgage Underwriting Practices and Procedures.
“Guideline B-21” means Guideline B-21: Residential Mortgage Insurance Underwriting Policies and Procedures.
“Hay” has the meaning ascribed thereto under the heading “Executive Officer and Director Compensation - Compensation
Governance - Compensation Consultant”.
“Holder” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations”.
“HR” means Human Resources.
“HR&G Committee” means the Human Resources & Governance Committee of the Board of Directors.
“IAS I” has the meaning ascribed thereto under the heading “Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Accounting Standards Issued but not yet Effective - Amendments to IAS 1,
Presentation of Financial Statements (“IAS 1”)”.
“IFRS” means International Financial Reporting Standards.
“IFRS 9” means IFRS 9, Financial Instruments.
“IFRS 15” means IFRS 15, Revenue from Contracts with Customers.
“IFRS 16” means IFRS 16, Leases
“Incidental Registration” has the meaning ascribed thereto under the heading “Securityholders’ Agreements Registration Rights Agreement - Incidental Registration Offerings”.
“Individual Objectives” has the meaning ascribed thereto under the heading “Executive Officer and Director
Compensation - Compensation Discussion and Analysis - Principal Elements of Compensation - Annual incentive
compensation.”
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“Initial Common Share” has the meaning ascribed thereto under “Prior Issuances”.
“Institutional Investors” means, collectively, Canadian banks, credit unions, life insurers and pension funds.
“Insured Mortgage Warehouse Line” has the meaning ascribed thereto under the heading “Description of Material
Indebtedness - Operating Lines - MCLP Warehouse for Insured Mortgage Loans”.
“IPO” means initial public offering.
“Issuer” means MCAP Corporation.
“IT” means information technology.
“Joint Bookrunners” means RBC Dominion Securities Inc. and BMO Nesbitt Burns Inc.
“Key Personnel Unit Purchase Plan” has the meaning ascribed thereto under the heading “Corporate Structure and
Reorganization – Reorganization”.
“LTIP” means any long-term incentive plan.
“LTV” means loan to value.
“Majority Voting Policy” has the meaning ascribed thereto under the heading “Corporate Governance - Nomination and
Election of Directors - Majority Voting Policy”.
“Management LP” means MCLP Key Personnel Limited Partnership.
“Marketing Materials” has the meaning ascribed thereto under the heading “Marketing Materials”.
“Material Contracts” has the meaning ascribed thereto under the heading “Material Contracts”.
“MCAN” means MCAN Mortgage Corporation.
“MCLP” means MCAP Commercial LP.
“MCLP Credit Agreement” has the meaning ascribed thereto under the heading “Description of Material Indebtedness –
Warehouse Lines – MCLP Warehouse”.
“MCLP GP” means 4223667 Canada Inc.
“MCLP Operating Line” has the meaning ascribed thereto under the heading “Description of Material Indebtedness –
Operating Lines – MCLP Operating Line”.
“MCLP Warehouse Lines” has the meaning ascribed thereto under the heading “Description of Material Indebtedness –
Warehouse Lines – MCLP Warehouse”.
“MD&A” means management’s discussion and analysis of financial condition and results of operations.
“MFC” means MCAP Financial Corporation.
“MFLP” means MCAP Financial Limited Partnership.
“Mortgage Insurance Companies” means CMHC, Genworth and Canada Guaranty, collectively.
“MPC” means Mortgage Professionals Canada.
“MPC December 2015 Report” means the MPC “Annual State of the Residential Mortgage Market in Canada” December
2015 report.
“MSC” means MCAP Service Corporation.
“MSC Credit Agreement” has the meaning ascribed thereto under the heading “Description of Material Indebtedness –
Operating Lines – MSC Warehouse”.
“MSC Operating Line” has the meaning ascribed thereto under the heading “Description of Material Indebtedness –
Operating Lines – MSC Operating Line”.
“MSC Warehouse Line” has the meaning ascribed thereto under the heading “Description of Material Indebtedness –
Warehouse Lines – MSC Warehouse”.
146
“MUA” means mortgages under administration.
“multi-unit mortgages” means multi-unit residential mortgages.
“Mutual Life” has the meaning ascribed thereto under the heading “Business - Overview of Historical Growth and
Financial Performance”.
“Named Executive Officers” has the meaning ascribed thereto under the heading “Executive Officer and Director
Compensation - Compensation Discussion and Analysis – Overview”.
“NCI” means non-certificated inventory system of CDS.
“NEOs” has the meaning ascribed thereto under the heading “Executive Officer and Director Compensation Compensation Discussion and Analysis – Overview”.
“NHA-MBS” means National Housing Act – Mortgage Backed Securities.
“NI 52-109” has the meaning ascribed thereto under the heading “Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Disclosure Controls and Internal Controls over Financial Reporting”.
“NI 52-110” means National Instrument 52-110 - Audit Committees of the Canadian Securities Administrators, as it may be
amended from time to time.
“NI 58-101” means National Instrument 58-101 - Disclosure of Corporate Governance Practices of the Canadian
Securities Administrators, as it may be amended from time to time.
“Nominating Shareholder” has the meaning ascribed thereto under the heading “Description of Share Capital – Advance
Notice Requirements for Director Nominations”.
“Nomination Rights Agreement” has the meaning ascribed thereto under the heading “Securityholders’ Agreements –
Nomination Rights Agreement”
“Non-CEO NEOs” means collectively Mark Aldridge, Brian Carey, Jason Wright and Paul Bruce.
“Noteholder Guarantees” has the meaning ascribed thereto under the heading “Description of Material Indebtedness –
3.955% Senior Secured Notes due 2019”.
“Noteholder Guarantors” has the meaning ascribed thereto under the heading “Description of Material Indebtedness –
3.955% Senior Secured Notes due 2019”.
“Notice Date” has the meaning set under the heading “Description of Share Capital – Advance Notice Requirements for
Director Nominations”.
“Offering” means this initial public offering of Common Shares.
“Offering Price” means the price of each Common Share that will be issued pursuant to the Offering.
“Origination” has the meaning ascribed thereto under the heading “Business - MCAP’s Business Model - Origination
Channels and Brand Strategy”.
“OSFI” means the Office of the Superintendent of Financial Institutions.
“Otéra” means Otéra Capital CADCAP Inc.
“Over-Allotment Option” means the option granted by Otéra to the Underwriters to purchase up to  additional Common
Shares at the Offering Price, exercisable for a period of  days from the Closing.
“Over-Allotment Shares” means Common Shares issuable under the Over-Allotment Option.
“PCI” has the meaning ascribed thereto under the heading “Executive Officer and Director Compensation - Compensation
Governance - Compensation Consultant”.
“PCMLTFA” means the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada).
“PIPEDA” means the Personal Information Protection and Electronic Documents Act (Canada).
“PRA” means principal reinvestment account.
147
“Prime single-family mortgages” has the meaning ascribed thereto under the heading “Industry Overview - Key Industry
Trends by Product Type - Single-Family Residential Mortgages”.
“Proposed Amendments” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax
Considerations”.
“PSUs” has the meaning ascribed thereto under the heading “Executive Officer and Director Compensation - Compensation
Discussion and Analysis - Principal Elements of Compensation”.
“Q1” means first quarter.
“Q2-2016” has the meaning ascribed thereto under the heading “Business - Q2-2016 Key Operating Data”
“Refinancings” has the meaning ascribed thereto under the heading “Industry Overview - Key Industry Trends by Product
Type - Single-Family Residential Mortgages- Growth potential of the single-family mortgage market”.
“Registration Rights Agreement” has the meaning ascribed thereto under the heading “Securityholders’ Agreements Registration Rights Agreement”.
“Renewals” has the meaning ascribed thereto under the heading “Industry Overview - Key Industry Trends by Product
Type - Single-Family Residential Mortgages- Growth potential of the single-family mortgage market”.
“Reorganization” has the meaning ascribed thereto under the heading “General Matters”.
“ResMor” means ResMor Trust Company.
“Risk & Compliance Committee” means the Risk & Compliance Committee of the Board of Directors of MCAP.
“RMBS” means residential mortgage backed securities.
“RMF” means the Issuer’s Risk Management Framework.
“RMG” means RMG Mortgages.
“ROC” means the Risk Oversight Committee of the Issuer.
“RRIF” means registered retirement income fund, as defined in the Tax Act.
“RRSP” means registered retirement savings plan, as defined in the Tax Act.
“RSUs” has the meaning ascribed thereto under the heading “Executive Officer and Director Compensation Compensation Discussion and Analysis - Principal Elements of Compensation”.
“S&P” means Standard & Poor’s Rating Services.
“Schedule I Banks” means those Canadian domestic banks that are authorized under the Bank Act (Canada) to accept
deposits and which may be eligible for deposit insurance provided by the Canadian Deposit Insurance Corporation.
“Secondary Offering” means the offering of the Secondary Shares.
“Secondary Shares” means the Common Shares sold by the Selling Shareholders pursuant to the Offering.
“SEDAR” means the System for Electronic Document Analysis and Retrieval.
“Selling Shareholders” means Otéra and MCAN.
“Senior Secured Notes” means the Existing Notes and the Additional Notes, collectively.
“Service Period” has the meaning ascribed thereto under the heading “Executive Officer and Director Compensation Employment Agreements, Termination and Change of Control Benefits - Messrs. Aldridge, Carey, Wright and Bruce (the
“Non-CEO NEOs”).
“Servicing” has the meaning ascribed thereto under the heading “Business - MCAP’s Business Model – Servicing”.
“single-family mortgages” means single-family residential mortgages.
“SOs” has the meaning ascribed thereto under the heading “Executive Officer and Director Compensation - Compensation
Discussion and Analysis - Principal Elements of Compensation”.
148
“Standstill Notice” has the meaning ascribed thereto under the heading “Securityholders’ Agreements - Registration Rights
Agreement - Demand Registrations”.
“Tax Act” means the Income Tax Act (Canada).
“taxable capital gain” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax
Considerations - Taxation of Capital Gains and Capital Losses”.
“TFSA” means tax-free savings account, as defined in the Tax Act.
“Tranche I” has the meaning ascribed thereto under the heading “Description of Material Indebtedness – Warehouse Lines
– MCLP Warehouse”.
“Tranche II” has the meaning ascribed thereto under the heading “Description of Material Indebtedness – Warehouse
Lines – MCLP Warehouse”.
“Treasury Offering” means the initial public offering of the Treasury Shares.
“Treasury Shares” means the Common Shares issued by the Issuer pursuant to the Offering.
“Trust Indenture” has the meaning ascribed thereto under the heading “Description of Material Indebtedness – 3.955%
“TSX” means the Toronto Stock Exchange.
“UMIR” means Universal Market Integrity Rules for Canadian Market Places.
“Underwriters” means the Joint Bookrunners and TD Securities Inc., CIBC World Markets Inc., National Bank Financial
Inc., Scotia Capital Inc. and Laurentian Bank Securities Inc.
“Underwriting” has the meaning ascribed thereto under the heading “Business - MCAP’s Business Model Underwriting”.
“Underwriting Agreement” means the underwriting agreement dated , 2016 among the Issuer, the Selling Shareholders,
and the Underwriters.
“U.S.” means the United States of America.
“warehouse loan facilities” means warehouse loan and other short-term financing facilities.
“Warehousing” has the meaning ascribed thereto under the heading “Business - MCAP’s Business Model - Funding
Sources”.
149
INDEX TO FINANCIAL STATEMENTS
The following financial statements of MCAP are included in this prospectus:
Consolidated Financial Statements of MCAP Commercial LP as of November 30, 2015 and 2014 and for the years
ended November 30, 2015, 2014 and 2013 .......................................................................................................................... F-2
Interim Condensed Consolidated Financial Statements of MCAP Commercial LP for the three month periods ended
February 29, 2016 and February 28, 2015.......................................................................................................................... F-44
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(Signed) Ian Sutherland, Director
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APPENDIX “A”
MANDATE OF THE BOARD OF DIRECTORS
INTRODUCTION AND PURPOSE
1) The Board of Directors (the “Board”) has the duty to manage, or supervise the management of, the business and affairs
of MCAP Corporation (the “Corporation”). The directors’ primary responsibility is to act in good faith and to
exercise their business judgment in what they reasonably believe to be the best interests of the Corporation. The Board
has the authority and obligation to provide stewardship and oversight of management.
2) The Board acts as the ultimate decision-making body of the Corporation, except with respect to those matters that must
be approved by the shareholders. The Board has the power to delegate certain of its authorities to management of the
Corporation and to reserve certain powers for itself. Where a committee of the Board or senior management is
responsible for making recommendations to the Board, the Board will carefully consider those recommendations.
3) The Board, either directly or through a committee of the Board, shall carry out the duties set forth in this mandate
subject to, and in accordance with, applicable law and the articles, bylaws and any other constating documents of the
Corporation that may be in effect from time to time.
4) Certain aspects of the composition and organization of the Board (including, without limitation, the number,
qualifications and remuneration of directors; the number of Board meetings; Canadian residency requirements; quorum
requirements; and meeting procedures and notices of meetings) are prescribed by the Canada Business Corporations
Act (the “CBCA”), the Securities Act (Ontario) and the Corporation’s articles and bylaws, subject to any exemptions or
relief that may be granted from such requirements and applicable agreements of the Corporation.
5) Directors must have sufficient time to carry out their duties and not assume responsibilities that would materially
interfere with, or be incompatible with, Board membership. Directors who experience a significant change in their
personal circumstances, including a change in their principal occupation, are expected to promptly advise the chair of
the Human Resources & Governance Committee.
BOARD MEMBERSHIP
Chair
1) The directors shall select from among their number the Chair of the Board (the “Chair”). In the event that the Chair
ceases to be a member of the Board or is unable to fulfil his or her duties as Chair (whether due to illness, incapacity or
otherwise), the remaining Board members shall promptly appoint one of their number to temporarily act in place of the
Chair until a replacement Chair can be appointed.
Independence; Lead Director
1) A majority of the Board must be independent within the meaning of the provisions of National Instrument 58-101 –
Disclosure of Corporate Governance Practices of the Canadian Securities Administrators (as such provisions may be
amended, restated or replaced from time to time).
2) If the Chair is not independent, then the independent directors shall select from among their number an independent
director who will act as Lead Independent Director (the “Lead Director”) and who shall assume responsibility for
providing leadership to enhance the effectiveness and independence of the Board.
3) The Lead Director will chair Board meetings in the absence of the Chair or when the Chair has any potential conflict
with respect to matters to be considered by the entire Board.
A-1
4) The Board will consider, on an ongoing basis, whether additional structures or processes are required to permit it to
function independently of management.
5) On an annual basis, the Board will determine which of its directors is independent based on the rules of applicable
stock exchanges and the Canadian Securities Administrators.
6) The Board believes that its members should be permitted to serve on the boards of other entities, so long as these
commitments do not materially interfere and are not incompatible with their duties as members of the Corporation’s
Board. Directors must advise the Chair in advance of accepting an invitation to serve on the board of another public
entity.
Director Expectations
1) Each member of the Board is expected to attend all meetings of the Board and any Board committee of which he or she
is a member and to have read and considered, in advance of each Board or Board committee meeting, the materials sent
to her or him and to actively participate in such meetings.
Director Development and Education
1)
All new directors shall receive a comprehensive orientation. All directors shall gain and maintain a detailed
understanding of the Corporation’s business, including an understanding of the Corporation’s principal operational
and financial objectives, plans and strategies and financial position and performance.
2)
The Board shall provide for its members to participate in continuing education opportunities to both maintain their
skills as directors and to ensure their knowledge and understanding of the Corporation’s business remains current.
MEETINGS
Agenda
1) The Chair, in consultation with the Lead Director, if any, is responsible for the agenda of each Board meeting. Prior to
each Board meeting, the Chair, the Chief Executive Officer of the Corporation (the “CEO”), and the Lead Director
will discuss the agenda items.
Number of Meetings
1) The Board will meet as often as the Board considers appropriate to fulfill its duties, but in any event at least once in
each quarter.
Meetings of Independent Directors
1) At the conclusion of each meeting of the Board, the independent directors shall hold an in-camera session, at which
management and non-independent directors are not present, and the agenda for each Board meeting will afford an
opportunity for such a session. The independent directors may also, at their discretion, hold ad hoc meetings that are
not attended by management and non-independent directors.
Invitees
1) The Board (or any Board committee) may invite, at its discretion, non-directors to attend a meeting. Any member of
management will attend a meeting if invited by the directors.
Minutes
1) The Corporate Secretary of the Corporation (the “Secretary”), his or her designee or any other person the Board
requests shall act as secretary of Board meetings. Minutes of Board meetings shall be recorded and maintained by the
Secretary in sufficient detail to convey the substance of all discussions held and shall be, on a timely basis,
subsequently presented to the Board for approval.
A-2
COMMITTEES
1) The Board has established the following committees: The Human Resources & Governance Committee, the Audit
Committee, and the Risk & Compliance Committee. Circumstances may warrant the establishment of new Board
committees or the reassignment of authority and responsibility amongst committees.
2) The authority and responsibilities of each Board committee shall be set out in a written charter or mandate that has
been approved by the Board. At least annually, each Board committee charter or mandate shall be reviewed and, after
consulting with the Human Resources & Governance Committee, any advisable amendments thereto shall be approved
by the Board.
3) The Board shall delegate to the applicable committee those duties and responsibilities set out in each Board
committee’s charter or mandate. Annually, the Board shall appoint members of the Board to applicable committees, in
accordance with the independence provisions specified in the mandate for each committee. At the time of the annual
appointment of the members of each Committee, the Board may appoint a chair of each Committee.
4) Each Board committee chair shall provide a report to the Board on material matters considered by the committee at the
next regular Board meeting following such committee’s meeting.
DUTIES AND RESPONSIBILITIES
Culture of Integrity and Ethics
1) The Board shall:
a)
satisfy itself as to the integrity of the CEO and other senior management and that the CEO and other senior
management create a culture of integrity throughout the Corporation, its subsidiaries, and affiliates that it controls;
b) approve the Corporation’s Code of Business Conduct (the “Code”). At least annually, the Board shall review an
annual report to be provided by the Human Resources & Governance Committee regarding compliance with the
Code and approve, if advisable, any waiver as required thereunder;
c)
ensure that the Corporation operates at all times in accordance with applicable laws and regulations, and to high
ethical and moral standards; and
d) review and approve all related party transactions in which the Corporation is involved or which the Corporation
proposes to enter into.
Delegation to Management
Subject to applicable law and the Corporation’s articles and by-laws, the Board shall:
1)
a) specify the duties of the Corporation’s corporate officers and delegate to them powers to manage the business and
affairs of the Corporation, except to the extent that such delegation is prohibited under the CBCA or limited by the
articles or by-laws of the Corporation or by any resolution of the Board or policy of the Corporation; and
b) determine what, if any, executive limitations may be required in the exercise of the authority delegated to
management.
Strategy Determination
1) The Board shall:
a)
develop and adopt a strategic planning process and, after consultation with senior management, approve, on at
least an annual basis, a strategic plan which takes into account, among other things, the opportunities and risks of
the Corporation’s businesses;
A-3
b) review and, if advisable, approve the business and investment objectives to be met by management and ensure
they are consistent with the Corporation’s long-term objectives;
c)
determine, from time to time, the appropriate criteria against which to evaluate performance and set strategic
objectives;
d) monitor the Corporation’s progress towards the objectives set forth in the strategic plan; and
e)
where appropriate, take action when performance falls short of such objectives.
Human Resource Management
1) The Board shall review and, if advisable, approve recommendations from the Human Resources & Governance
Committee regarding:
a)
the Corporation’s executive compensation;
b) employee compensation and benefit programs;
c)
the Corporation’s policies, practices and processes concerning the management of human resources, including, but
not limited to, the policies, practices and processes related to the appointment, succession planning, development,
performance review and compensation of executives (including the CEO), as well as the Corporation’s
compensation plans and general human resources management practices;
d) the appointment of competent and qualified corporate officers with the CEO;
e)
executive and non-executive employee compensation policies and plans;
f)
director compensation; and
g) any other matter provided for in the mandate for the Human Resources & Governance Committee.
Risk Management
1) The Board shall review and, if advisable, approve recommendations from the Risk & Compliance Committee
regarding:
a)
the principal risks of the Corporation’s businesses and operations and the Corporation’s overall risk management
framework and its risk appetite, including risk limits;
b) identifying assessment and management of the Corporation’s risk profile;
c)
the effectiveness of the Corporation’s risk practices;
d) the Corporation’s policies, processes and procedures in place to manage risks;
e)
the Corporation’s adherence to internal risk policies and procedures through timely management reporting;
f)
compliance with (i) laws and regulations; (ii) material third party contracts; and (iii) Board approved policies;
g) the significant risks reports provided by the Corporation’s Chief Risk Officer; and
h) any other matter provided for in the mandate for the Risk & Compliance Committee.
A-4
Corporate Governance
1) The Board shall:
a)
at least annually, review a report of the Human Resources & Governance Committee concerning the Corporation’s
approach to corporate governance. This report will also assess the effectiveness of the Board, its committees and
each of the individual directors. The Board composition and committee structure will be reviewed and assessed;
b) at the recommendation of the Human Resources & Governance Committee, annually determine those individuals
proposed to be nominated for election as directors at the next annual meeting of shareholders. The Human
Resources & Governance Committee shall consider the competencies and skills required by the directors and the
Board as a whole;
c)
determine, if recommended by the Human Resources & Governance Committee, whether circumstances warrant
proposing for nomination for election as a director any director who has already served as a director for ten or
more years;
d) develop effective Board governance processes and procedures including developing and approving board
committee mandates and position descriptions for the Chair, the Lead Director (if applicable), the chair of each
Board committee, and the CEO, and periodically review such descriptions; and
e)
maintain the Board’s independence from management.
Communications and Feedback Process
1) The Board shall adopt a communications policy for the Corporation (including ensuring the timeliness and integrity of
communications to shareholders, other stakeholders and the public and establishing suitable mechanisms to receive
feedback from shareholders).
Monitoring and Acting
1) The Board shall:
(a) monitor the activities of the boards of subsidiaries of the Corporation and affiliates of the Corporation that it
controls.
(b) review a report from the Secretary regarding the activities of boards of the Corporation’s subsidiaries and affiliates
controlled by the Corporation.
Financial Reporting and Dividends
1) The Board shall fulfil the following duties and responsibilities on a quarterly basis, or as otherwise necessary or
advisable in the discharge of its duties. The Board shall:
a)
review and approve reports provided to the Board by any committee of the Board;
b) review, and if advisable, approve management’s annual budget as well as the policies and procedures relating to
the authorization of major investments and significant allocations of capital;
c)
review operating and financial performance results relative to established corporate objectives;
d) oversee the Corporation’s compliance with applicable audit, accounting and financial and non-financial reporting
requirements and confirm that management has established adequate internal control and management information
systems, including in the areas of internal control over financial reporting and disclosure controls and procedures;
e)
review and approve any annual or interim financial statements, management’s discussion and analysis thereof,
annual information form, annual report (if any) and management proxy circular that are prepared and provided to
the Board by management;
A-5
f)
review the CEO and CFO certifications required under applicable securities laws in connection with internal
controls;
g) review the terms of and, if advisable, approve any distributions to shareholders (whether by dividend or otherwise)
and the record date and payment date of any such distribution; and
h) any other matter provided for in the mandate for the Audit Committee.
Operations, Policies and Procedures
1) The Board shall fulfil the following duties and responsibilities on a quarterly basis, or as otherwise necessary or
advisable in the discharge of its duties. The Board shall:
a)
receive an update on the Corporation’s key strategic initiatives from senior management;
b) on the recommendation of the appropriate Board Committee, not less than annually, designate, review and approve
as “group wide policies” those policies the Board wishes to have application across all the Corporation; and
c)
regularly review and monitor compliance with, and independently assess the effectiveness of, all Board approved
policies, procedures and controls, including, without limitation, the Code
Resources
1) The Board shall have adequate human, material and financial resources available to it and shall have the authority to
retain and terminate independent external advisors, including, without limitation, legal counsel, consultants or other
advisors to assist it in fulfilling its responsibilities and to set and pay reasonable compensation of these external
advisors without consulting or obtaining the approval of any officer of the Corporation. The Corporation shall provide
appropriate funding, as determined by the Board, for the services of these advisors.
2) The Board shall have unrestricted access to the Corporation’s management and employees and books and records.
NO RIGHTS CREATED
1) This mandate is a statement of broad policies and is intended to function as a component of the flexible governance
framework within which the Board, assisted by its committees, directs the Corporation’s affairs. While it should be
interpreted in the context of all applicable laws, regulations and listing requirements, as well as the Corporation’s
Articles and By-Laws, it is not intended to establish or create any legally binding obligations.
MANDATE REVIEW
1) The Board and the Human Resources & Governance Committee shall review and assess the adequacy of this mandate
at least annually to ensure compliance with any rules or regulations promulgated by any regulatory body and approve
any modifications to this mandate as are considered advisable.
A-6
APPENDIX “B”
AUDIT COMMITTEE MANDATE
INTRODUCTION AND PURPOSE
1) This Mandate (the “Mandate”) sets forth the purpose, composition, duties and responsibilities of the Audit
Committee (the “Committee”) of the Board of Directors (the “Board”) of MCAP Corporation (the
“Corporation”).
2) The primary purpose of the Committee is to assist the Board in fulfilling its oversight responsibilities with respect
to:
a)
financial reporting and disclosure requirements;
b) ensuring that an effective accounting, risk management and financial control framework has been
designed, implemented and tested by management of the Corporation;
c)
external audit processes;
d) helping directors meet their responsibilities;
e)
providing better communication between directors and the external auditor;
f)
enhancing the independence of the external auditor;
g) increasing the credibility and objectivity of financial reports; and
h) strengthening the role of directors by facilitating in-depth discussions among directors, management and
the external auditor regarding significant issues involving judgment and impacting quality controls and
reporting.
COMMITTEE MEMBERSHIP
Number of Members
1) The Committee shall be composed of three or more members of the Board.
Independence of Members
1) Each member of the Committee must be independent. “Independent” shall have the meaning, as the context
requires, given to it in National Instrument 52-110 Audit Committees, as may be amended from time to time.
Chair
1) If a chair of the Committee (the “Chair”) is not appointed by the Board, the members of the Committee may
designate a Chair by majority vote of the full Committee membership. The Chair shall be a member of the
Committee.
Financial Literacy of Members
1) At the time of his or her appointment to the Committee, each member of the Committee shall have, or shall
acquire within a reasonable time following appointment to the Committee, the ability to read and understand a set
of financial statements that present a breadth and level of complexity of accounting issues that are generally
comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the
Corporation’s financial statements.
B-1
Term of Members
1) The members of the Committee shall be appointed annually by the Board. Each member of the Committee shall
serve at the pleasure of the Board until the member resigns, is removed, or ceases to be a member of the Board.
MEETINGS
Number of Meetings
1) The Committee may meet as many times per year as necessary to carry out its responsibilities but not less than
once per financial quarter of the Corporation.
2) Where applicable, the Committee shall schedule meetings on dates that are prior to the dates or times that the
Board is scheduled to meet on.
Quorum
1) No business may be transacted by the Committee at a meeting unless a quorum of the Committee is present. A
majority of members of the Committee shall constitute a quorum.
2) All issues raised at a Committee meeting shall be decided by a majority vote of the Committee members.
Calling of Meetings
1) The Chair, any member of the Committee, the external auditor, the Chair of the Board, the Lead Independent
Director of the Board, or either the Chief Executive Officer or the Chief Financial Officer may call a meeting of
the Committee by notifying the Corporation’s Corporate Secretary who will notify the members of the Committee.
2) The procedures for calling, holding, conducting and adjourning meetings of the Committee shall be the same as
those applicable to meetings of the Board as specified in the by-laws of the Corporation.
Chair
1) The Chair shall preside over all Committee meetings that he or she attends, and in the absence of the Chair, the
members of the Committee present may appoint a chair for the meeting from among their number.
2) The Chair shall establish Committee meeting schedules and agendas and ensure that the Committee has access to
timely and relevant information related to the Committee mandate.
Minutes; Reporting to the Board
1) The Committee shall maintain minutes or other records of meetings and activities of the Committee in sufficient
detail to convey the substance of all discussions held. Upon approval of the minutes by the Committee, the
minutes shall be circulated to the members of the Board. However, the Chair may report orally to the Board on
any matter in his or her view requiring the immediate attention of the Board.
Attendance of Non-Members
1) The external auditor is entitled to attend and be heard at each Committee meeting. In addition, the Committee may
invite to a meeting any officers or employees of the Corporation, legal counsel, advisors and other persons whose
attendance it considers necessary or desirable in order to carry out its responsibilities. At least once per year, the
Committee shall meet with the Chief Audit Officer, if one has been appointed, and management in separate
sessions to discuss any matters that the Committee or such individuals consider appropriate.
B-2
Meetings without Management
1) As part of each meeting of the Committee, the independent directors shall hold a meeting with the external auditor
of the Corporation and an in camera session, at which management and non-independent directors are not present,
and the agenda for each Committee meeting will afford an opportunity for such a session.
Access to Management and Books and Records
1) The Committee shall have unrestricted access to the Corporation’s management and employees and the books and
records of the Corporation.
DUTIES AND RESPONSIBILITIES
1) The Committee has, among other things, the following responsibilities, in addition to the duties and
responsibilities required of an audit committee by any exchange upon which securities of the Corporation are
traded, or any governmental or regulatory body exercising authority over the Corporation, as are in effect from
time to time (collectively, the “Applicable Requirements”):
Financial Statements and Reporting
a)
assist the Board in the discharge of its oversight responsibilities relating to the Corporation’s financial
statements and its financial reporting practices and system of internal accounting and financial controls,
the corporate audit and risk assessment function (with respect to financial reporting and internal controls),
the management information systems, the annual external audit of the Corporation’s financial statements
and the compliance by the Corporation with laws and regulations and its own Code of Business Conduct
related thereto;
b) review significant accounting and reporting issues, including complex or unusual material transactions
and highly judgmental areas, unusual or sensitive matters such as disclosure of related party transactions,
significant non-recurring events, significant risks and changes in provisions, estimates or provisions
included in any financial statements, and recent professional and regulatory pronouncements, and
understand their impact on and presentation in the financial statements;
c)
review and discuss with management and the external auditor the results of the audit, including any
difficulties encountered and follow-up in that context and ensure that the external auditor is satisfied that
the accounting estimates and judgments made by management’s selection of accounting principles reflect
an appropriate application of generally accepted accounting principles;
d) receive from management on a quarterly basis and review an operations report setting out details of
MCAP performance (including production volumes, assets under administration, financial results both by
line of business and collectively) during the preceding quarter, year to date, and compared to the
approved budget, and any related projections;
e)
review the annual financial statements of the Corporation, together with the external auditor’s report
thereon, and consider whether there is any reason to believe that they are not complete, adequate,
consistent with information known to the members of the Committee, and reflect appropriate accounting
principles and, if appropriate, recommend to the Board their approval and disclosure;
f)
review the CEO and CFO certifications required by the Applicable Requirements in connection with
internal controls;
g) understand how management develops interim financial information, and the nature and extent of the
Chief Audit Officer’s and external auditor’s involvement;
h) review interim financial reports with management and the external auditor before disclosure and filing
with regulators, and consider whether there is any reason to believe that they are not complete and
consistent with the information known to the members of the Committee and reflect appropriate
accounting principles and, if appropriate, recommend to the Board their approval and disclosure;
B-3
i)
review the Corporation’s management discussion and analysis, and other financial information including,
without limitation, forward-looking information provided by the Corporation to any governmental body
or the public and, if appropriate, recommend to the Board their approval and disclosure;
j)
review in conjunction with the Human Resources & Governance Committee, the Corporation’s annual
information form and related regulatory filings before release to the extent that same include financial
information, and consider the accuracy and completeness of the financial information contained therein
and, if appropriate, recommend to the Board their approval and disclosure;
k) review the Corporation’s press releases containing financial information including, without limitation,
forward-looking information before the Corporation publicly discloses this information and, if
appropriate, recommend to the Board their approval and disclosure;
l)
review and discuss with management any litigation matters and other contingencies which could
significantly affect the financial statements, and review the manner in which these matters are disclosed
in the financial statements;
m) review and discuss any regulatory compliance issues which could significantly affect the financial
statements;
n) review and discuss any corporate governance issues which could significantly affect the financial
statements;
o) review with management and the external auditor all matters required to be communicated to the
Committee under generally accepted auditing standards;
p) to the extent not previously reviewed by the Committee, review and, if appropriate, recommend to the
Board the approval of all financial statements included in any prospectus, offering memoranda or other
offering document and all other financial reports required by regulatory authorities and requiring approval
by the Board;
q) review the statement of management’s responsibility for the financial statements as signed by the
management of the Corporation and included in any published document;
r)
obtain explanations for communication to the Board for all significant variances between comparable
reporting periods;
s)
ensure that adequate procedures are in place for the review of the Corporation’s public disclosure of
financial information extracted or derived from the Corporation’s financial statements and periodically
assess the adequacy of those procedures; and
t)
monitor the application and update, as necessary, of the Corporation’s disclosure policy in relation to
financial information.
Internal Control
a)
review the Corporation’s system of internal controls;
b) require management to design, implement and maintain appropriate systems of internal controls in
accordance with Applicable Requirements, including internal controls over financial reporting and
disclosure and to review, evaluate and approve these procedures;
c)
at least annually, consider and review with management and the Corporation’s external auditor:

the effectiveness of, or weaknesses or deficiencies in: the design or operation of the Corporation’s
internal controls (including computerized information system controls and security); the overall
control environment for managing business risks; and accounting, financial and disclosure controls
(including, without limitation, controls over financial reporting), non-financial controls, and legal
B-4
and regulatory controls and the impact of any identified weaknesses in internal controls on
management’s conclusions;

any significant changes in internal controls over financial reporting that are disclosed, or
considered for disclosure, including those in the Corporation’s regulatory filings;

any material issues raised by any inquiry or investigation by the Corporation’s regulators;

the Corporation’s fraud prevention and detection program, including deficiencies in internal
controls that may impact the integrity of financial information, or may expose the Corporation to
other significant internal or external fraud losses and the extent of those losses and any disciplinary
action in respect of fraud taken against management or other employees who have a significant role
in financial reporting; and

any related significant issues and recommendations of the external auditor together with
management’s responses thereto, including the timetable for implementation of
recommendations to correct weaknesses in internal controls over financial reporting and
disclosure controls and procedures; and
d) recommend and supervise the establishment and operation of an internal audit process including, if
applicable:

approving the internal audit charter;

reviewing with the Chief Audit Officer the internal audit budget, resource plan, activities and
organizational structure of the internal audit function;

reviewing and approving the annual internal audit plan to be performed by the Chief Audit
Officer and the degree of co-ordination between the plans of the Chief Audit Officer and the
external auditor;

reviewing the quarterly report of the Chief Audit Officer;

meeting separately with the Chief Audit Officer and report to the Board as appropriate;

reviewing performance of the Chief Audit Officer; and

recommending to the Board, at least once per year, appointment of the Chief Audit Officer.
External Audit
a)
recommend to the Board the appointment or discharge and compensation of the Corporation’s external
auditor;
b) review and approve the engagement letter of the external auditor;
c)
oversee the work of the external auditor, including the auditor’s work in preparing or issuing an audit
report, performing other audit, review or attest services or any other related work;
d) fill the role as the direct contact for the external auditor and manage the relationship between the
Corporation and the external auditor;
e)
maintain a free and open line of communication with management, the Chief Financial Officer and the
external auditor;
f)
resolve disagreements between the external auditor and management as to financial reporting matters
brought to the Committee’s attention;
B-5
g) at least annually, discuss with the external auditor such matters as are required by applicable auditing
standards;
h) at least annually, review a summary of the external auditor’s proposed audit scope and approach,
including coordination of audit effort with the Chief Audit Officer and to the extent to which the audit
scope can be relied upon to detect control weaknesses, fraud, illegal acts and error;
i)
review a report prepared by the external auditor in respect of each of the interim financial statements of
the Corporation;
j)
pre-approve all non-audit services to be provided to the Corporation or its subsidiary entities by the
Corporation’s external auditor, that the Committee deems advisable in accordance with Applicable
Requirements and policies and procedures adopted by the Board;
k) at least annually, and before the external auditor issues its report on the annual financial statements:
review and confirm the independence of the external auditor by obtaining statements from the auditor on
relationships between the auditor and the Corporation, including non-audit services; discuss any disclosed
relationships or services that may affect the objectivity and independence of the auditor; and obtain
written confirmation from the auditor that they are objective and independent within the meaning of the
applicable rules of professional conduct and other Applicable Requirements;
l)
at least annually, meet separately with the external auditor to discuss the access to requested information
and level of cooperation from management during the performance of their work;
m) on a regular basis, review and approve the Corporation’s hiring practices regarding partners, employees
and former employees of the present and former external auditor of the Corporation;
n) review the qualifications and performance of the lead partner(s) of the external auditor and determine
whether it is appropriate to adopt or continue a policy of rotating lead partners of the external auditor; and
o) if a change in external auditor is proposed, the Committee shall meet with the incumbent external auditor
to discuss the reasons for the proposed change, the reasons provided by such auditor for resigning or for
opposing any proposed action or resolution and any other related matters, including any management
statement in response thereto.
Liquidity and Capital Risk Management
a)
review and periodically recommend for Board approval overall risk management strategies and policies
relating to (i) liquidity risk; (ii) financing, hedging and leverage risk; and (iii) securitization risk;
b) ensure that a liquidity risk review process is in place and is reviewed as required;
c)
review with senior management, at least quarterly, reports demonstrating compliance with liquidity risk
policies;
d) review with senior management the quality and competence of management appointed to administer
liquidity risk processes;
e)
discuss with senior management, at least quarterly, the Corporation’s major liquidity risk exposures and
the steps that senior management has taken to monitor and control such exposures;
f)
review and recommend to the Board a liquidity contingency plan and recommend procedures for
implementing that plan; and
g) discuss with senior management, at least quarterly, the Corporation’s major interest rate risk exposures
and the steps that senior management has taken to monitor and control such exposures; and
h) review, amend and monitor compliance with the Corporation’s Financing, Hedging and Leverage policy.
B-6
Compliance
a)
establish procedures for the receipt, retention and treatment of whistleblower reports received by the
Corporation regarding accounting, internal controls or auditing matters, and for the confidential,
anonymous submission by employees of the Corporation or its subsidiaries of concerns regarding
questionable accounting or auditing matters (the “Whistleblowing Policy”);
b) designate the Chief Audit Officer (or the Corporate Secretary as an alternative, if required) to assist in the
administration of the Corporation’s Whistleblowing Policy and to receive any submissions made under
such policy;
c)
review the effectiveness of the Whistleblowing Policy and follow-up (including disciplinary action) of
any instances of non-compliance;
d) review the findings of any examinations by regulatory agencies related to financial statement reporting,
and any auditor observations;
e)
obtain regular updates from the Chief Audit Officer (or the Corporate Secretary as an alternative, if
required) and the Corporation’s legal counsel, if required, regarding compliance matters in respect of the
Whistleblowing Policy; and
f)
review reports regarding any material communications received from regulators in relation to financial
information.
Other Responsibilities
a)
consult with the Human Resources & Governance Committee and management regarding the
appointment of key financial executives;
b) perform other activities related to this Mandate as requested by the Board;
c)
investigate and assess any issue that raises significant concern to the Committee, with the assistance, if so
required by the Committee, of the Chief Financial Officer and/or the external auditor;
d) review and recommend for Board approval as required the Corporation’s policy regarding insurance for
the Corporation and review annually the adequacy of the Corporation’s insurance coverage;
e)
review any evidence of employee fraud or illegal acts;
f)
obtain from management follow up reports on any activity recommended or approved by the Committee;
and
g) establish and regularly review policies and procedures, and the adherence thereto, relating to liquidity,
funding and capital management.
OVERSIGHT FUNCTION
1) While the Committee is responsible for overseeing the Corporation’s financial statements and financial disclosures
as set forth in this Mandate, the Corporation’s management is responsible for the preparation, presentation and
integrity of the Corporation’s financial statements and financial disclosures and for the appropriateness of the
accounting principles and the reporting policies used by the Corporation, and the Corporation’s external auditor is
responsible for auditing the Corporation’s annual consolidated financial statements and for reviewing the
Corporation’s unaudited interim financial statements.
B-7
REPORTING
1) The Chair shall provide a report to the Board on material matters considered by the Committee at the next regular
Board meeting following the Committee's meeting. As required by the Applicable Requirements, the Committee
should report annually to shareholders, describing the Committee’s composition, responsibilities and any other
information required by applicable law. The Committee should also review any other report the Corporation issues
that relates to the Committee’s responsibilities.
DELEGATION
1) The Committee may, to the extent permissible by Applicable Requirements, designate a sub-committee to review
any matter within this Mandate as the Committee deems appropriate.
ACCESS TO INFORMATION AND AUTHORITY
1) The Committee will be granted access to all information regarding the Corporation that is necessary or desirable to
fulfill its duties and all directors, officers and employees will be directed to cooperate as requested by members of
the Committee. The Committee has the authority to retain, at the Corporation’s expense, independent legal,
financial and other advisors, consultants and experts, to assist the Committee in fulfilling its duties and
responsibilities, including sole authority to retain and to approve and pay any such firm’s fees and other retention
terms without prior approval of the Board. The Committee also has the authority to communicate directly with the
Chief Audit Officer and external auditor.
RESOURCES
1) The Committee shall have adequate human, material and financial resources available to it, specifically regarding
recourse to external experts to fulfill its functions.
LIMITATION ON COMMITTEE’S DUTIES; NO RIGHTS CREATED
1) Notwithstanding the foregoing and subject to applicable law, nothing contained in this Mandate is intended to
require the Committee to ensure the Corporation’s compliance with applicable laws or regulations. In contributing
to the Committee’s discharge of its duties under this Mandate, each member of the Committee shall be obliged
only to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable
circumstances. Nothing in this Mandate is intended or may be construed as imposing on any member of the
Committee a standard of care or diligence that is in any way more onerous or extensive than the standard to which
the members of the Board are subject. This Mandate is a statement of broad policies and is intended as a
component of the flexible governance framework within which the Committee functions. While it should be
interpreted in the context of all applicable laws, regulations and listing requirements, as well as in the context of
the Corporation’s Articles and By-laws, it is not intended to establish any legally binding obligations.
MANDATE REVIEW
1) The Committee and the Human Resources and Governance Committee shall review and assess the adequacy of
this Mandate at least annually to ensure compliance with Applicable Requirements and recommend for Board
approval any modifications to this Mandate as are considered advisable.
B-8
CERTIFICATE OF MCAP CORPORATION
Date: June 10, 2016
This amended and restated prospectus constitutes full, true and plain disclosure of all material facts relating to the
securities offered by this prospectus as required by the securities legislation of each of the provinces and territories of
Canada.
(Signed) Derek Norton
Derek Norton
(Signed) Brian Carey
Brian Carey
Chief Financial Officer
On behalf of the Board of Directors
(Signed) Gord Herridge
Gord Herridge
Director
(Signed) Ken Teskey
Ken Teskey
Director
C-1
CERTIFICATE OF THE UNDERWRITERS
Date: June 10, 2016
To the best of our knowledge, information and belief, this amended and restated prospectus constitutes full, true
and plain disclosure of all material facts relating to the securities offered by this prospectus as required by the securities
legislation of each of the provinces and territories of Canada.
RBC DOMINION SECURITIES INC.
BMO NESBITT BURNS INC.
By: (Signed) John Bylaard
By: (Signed) John Coke
TD SECURITIES INC.
By: (Signed) Jonathan Broer
CIBC WORLD MARKETS INC.
NATIONAL BANK FINANCIAL INC.
SCOTIA CAPITAL INC.
By: (Signed) Michael D. Shuh
By: (Signed) Maude Leblond
By: (Signed) Burhan Khan
LAURENTIAN BANK SECURITIES INC.
By: (Signed) Ryan Thomas
C-2

MCAP Corporation $275 million • Common Shares

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