MARC has assigned a rating of AAAID to Cagamas MBS Berhad’s (Cagamas MBS) asset-backed Sukuk Musyarakah Issuance of RM2,050.0 million. The rating is based on the stringent core and portfolio eligibility criteria, aimed at partially mitigating risk of delinquencies and defaults further reinforced by representations and warranties provided by the Federal Government of Malaysia (GOM); deductions of mortgage payments at source; adequate MRTA coverage on all government staff islamic home financings (GSIHFs) in securitised portfolio; overcollateralisation of 138.8%; and, the ability of the projected cashflow to withstand AAA default and prepayment stresses.

Cagamas MBS is a limited purpose entity and a wholly-owned subsidiary of Cagamas Berhad (Cagamas), established with principal activities restricted to acquiring government staff housing loans from the GOM, and issuing asset-backed securities or any other forms of securities for the purpose of acquiring the housing loans/home financing thereof.

The proposed issuance of RM2,050.0 million nominal value Sukuk Musyarakah (Sukuk Musyarakah) represents the second securities issuance by Cagamas MBS; the purpose of which is to acquire rights, title, interest and benefit in, to, under and in respect of selected GSIHFs including all charges, guarantees and insurances by way of an equitable assignment. The portfolio GSIHFs (Portfolio 2005-1) amounting to RM2,844.5 million comprise of mortgages of mainly non-pensioners (hereinafter referred to as public sector employees) as well as pensioners. The GOM’s Housing Loans Division or Bahagian Pinjaman Perumahan (BPP) is the servicer of the securitised pool of GSIHFs. The proposed Sukuk Musyarakah comprises of six tranches with maturities on the third, fifth, seventh, tenth, twelfth and fifteenth anniversary from the issuance date. Similar to the previous transaction, the purchase will be undertaken retrospectively, whereby the pool of GSIHFs is acquired based on portfolio valuation as at the purchase date.

Credit enhancement is provided by the overcollateralisation of 138.8% as Portfolio 2005-1 is sold to Cagamas MBS at a 27.9% discount. From the analysis of the five static pools comprising home financing originated from 1996 to 2000, the GSIHFs are evidently exposed to technical delinquencies of up to six
months primarily due to operational mechanisms in administration of GSIHF accounts. Therefore, for purpose of collateral analysis, actual delinquencies are assumed for GSHLs with principal outstanding for more than six months but up to nine months with GSIHFs categorised as defaulted once it is outstanding for more than nine months. The sizing of the proposed Sukuk Musyarakah is based upon analysis of the default, delinquency and prepayment statistics of the five static pools. Historical recovery information in respect of recoveries from 1995 onwards was also utilised. A loss multiple of three times was applied to the base case default rate in the cashflow projections with a loss severity of 95.0% and a recovery time lag of 24 months.

Based on prepayments observed from the static pools higher prepayments were observed for GSHLs with older vintages. Hence, the cashflow has incorporated a base cumulative prepayment rate of 5.0% over the first seven years of the transaction with monthly prepayments remaining constant at 0.43% for the remaining tenure of the Sukuk Musyarakah. Prepayments were stressed with a 50% reduction applied to base case.

The transaction benefits from strict portfolio eligibility criteria including, amongst others, properties under the GSIHF must have certificate of fitness of occupation; the amount of financing under the GSIHF has been fully disbursed; the GSIHF must have been created more than six months prior to the purchase date; and, the GSIHF must not be a defaulted account as at the purchase date. In the event of a breach of the representations in relation to the portfolio eligibility criteria, the originator will undertake to compensate Cagamas MBS in the form of equivalent amount or another GSIHF acceptable to Cagamas MBS.

The transaction is a conditional reverse-pay structure with a limited pass-through feature which allows surplus cashflow to be paid to the outstanding Sukuk Musyarakah with the longest maturity should the cash balance exceeds RM66 million after the respective scheduled principal repayments on tranche one, two, three, four and five. The RM66 million to be retained in the cashflow before the pass-through of prepayment are triggered, provides adequate liquidity buffer to allow timely profit payments and redemption of the intermediate tranche.