MARC Ratings has affirmed its rating of AAA on Cagamas MBS Berhad’s RM2,410.0 million asset-backed fixed rate serial bonds (CMBS 2007-2) with a stable outlook.

The rating reflects CMBS 2007-2’s fully cash-backed position. CMBS 2007-2 has a solid liquidity position, with cash and cash equivalents of RM698.7 million as of the November 22, 2023 reporting date. This is more than sufficient to cover the remaining RM20.2 million coupon payment and RM105.0 million principal repayment on CMBS 2007-2’s final Tranche 7, which is due on August 20, 2027. 

Cagamas MBS was established to undertake the securitisation of government staff housing loans (GSHL). CMBS 2007-2 is backed by a pool of GSHL, or Portfolio 2007-2. Direct monthly salary/pension deductions form the source of repayment for CMBS 2007-2. 

The collateral pool continues to perform well. Credit enhancement for CMBS 2007-2 stood at a very high 915.7%, partly due to the portfolio’s better-than-expected loss performance. The portfolio shows a strong performance history, with a very low cumulative default rate (CDR) of 0.07% (as a percentage of the initial pool balance), well below the initial projection. 

Subject to the portfolio meeting certain conditions, the transaction allows for prepayments of the last two tranches in reverse order. While liquidity is ample with cash balances of close to RM700 million, the company is unable to early redeem the final Tranche 7 given lower prepayment levels in the GSHL pool than initially expected (amounts from excess prepayments were thus lower than the original estimate). Nevertheless, the outstanding balance for CMBS 2007-2 was RM264.9 million, or approximately 8.8% of its original pool balance; this has met the required 10% threshold for prepayment.  

The rating is already at the highest level on MARC Ratings’ rating scale. The stable outlook reflects the fully cash-collateralised position of CMBS 2007-2, which is expected to be sustained up to the maturity date of August 20, 2027.