Cagamas MBS Bhd (CMBS 2005-1) - 2015

MARC affirmed its AAAID rating on Cagamas MBS Berhad’s (Cagamas MBS) RM2,050.0 million asset-backed Sukuk Musyarakah issuance (CMBS 2005-1) with a stable outlook. The rating action affects the outstanding RM1,325.0 million sukuk issued under CMBS 2005-1. Cagamas MBS is a wholly-owned special purpose vehicle of Cagamas Holdings Berhad and was established to undertake the securitisation of conventional and Islamic home financing originated by the Government of Malaysia (GOM). The periodic obligations of CMBS 2005-1 are met by monthly instalments from a pool of government staff Islamic home financings (GSIHF), or Portfolio 2005-1 through direct salary/pension deductions by GOM’s Housing Loans Division, or Bahagian Pinjaman Perumahan (BPP).

The affirmed rating considers CMBS 2005-1’s strong credit enhancement level of 170.9% as of February 9, 2015 (February 10, 2014: 169.9%) on the back of the transaction’s collections account balance of RM779.0 million and outstanding principal of non-defaulted home financings of RM1,485.3 million. MARC views that the current credit enhancement level would allow CMBS 2005-1 to withstand adverse performance of the collateral pool in respect of defaults and prepayments.

The performance of Portfolio 2005-1 remains satisfactory as at September 30, 2014, registering a lower cumulative default rate (CDR) of 0.65% of the initial pool balance against MARC’s projected CDR of 3.8%. In addition, Portfolio 2005-1’s cumulative prepayment rate of 11.61% (September 30, 2013: 10.26%) or average quarterly prepayment rate of 0.31% (September 30, 2013: 0.30%) remains stable. MARC notes that in the event of an unexpectedly high volume of prepayments, the risk of a negative carry position will be mitigated by the transaction’s conditional pass-through provision feature which allows partial early redemption of CMBS 2005-1’s Tranche 6, maturing in August 2020. This is, however, subject to the availability of at least RM66.0 million in the collections account post-redemption. MARC also notes that Portfolio 2005-1’s longer weighted average term to maturity of 11.4 years against the remaining term to maturity of 5.5 years of CMBS 2005-1’s longest tranche further reduces the risk of an asset-liability mismatch. 

MARC expects the upcoming redemption of Tranche 4 of RM515.0 million on August 7, 2015 to be met by proceeds from the maturing permitted investments amounting to RM505.6 million and collections from BPP for the quarter ending December 31, 2014. As at September 30, 2014, Portfolio 2005-1 recorded a total outstanding principal balance of RM1,503.8 million comprising 30,632 fixed-rate home financings with an average loan size of RM49,091. Portfolio 2005-1’s home financings in arrears for three months or less accounted for 94.9% of total delinquent home financings. This increased sharply by 114.9% y-o-y to RM171.3 million as at September 30, 2014 (September 30, 2013: RM79.7 million) mainly due to administrative and payment reconciliation delays as a result of BPP’s migration to the new system System Pinjaman Perumahan Bersepadu between June 2014 and March 2015. MARC expects the high delinquency rate to continue for the next two to three quarters before it normalises.

The stable outlook is premised on MARC’s expectations of continued stable collateral performance and sustained high credit enhancement level that remains supportive of the rating. 

Strengths

• Substantial credit enhancement in the form of high overcollateralisation;
• Satisfactory performance by the collateral pool; and
• Well-managed collateral servicing and transaction administration.

Challenges/Risks

• Reinvestment risk associated with prepaid home financing; and
• Risk of higher-than-expected prepayments.