MARC has assigned a rating of AAAIS to Cagamas MBS Berhad’s (Cagamas MBS) mortgage-backed Sukuk Musyarakah Issuance of RM2,110.0 million. The rating reflects the quality of the securitized government staff Islamic home financing (GSIHF); overcollateralisation of 120.3% which allows the transaction to withstand AAA default and prepayment stresses; and, procedures in place to monitor the securitized portfolio by the transaction administrator, Cagamas Berhad (Cagamas).


Cagamas MBS is a limited purpose entity and a wholly-owned subsidiary of Cagamas Berhad (Cagamas), whose principal activities are restricted to acquiring government staff housing loans (GSHLs), originated under both Islamic and conventional principles, from the Federal Government of Malaysia (GOM), and issuing securities for the purpose of acquiring the housing loans/ home financings thereof. Cagamas group of companies are undergoing a restructuring exercise whereby upon its completion, Cagamas MBS will be a wholly owned subsidiary of a newly incorporated holding company, Cagamas Holdings Berhad. The issuance of RM2,110.0 million nominal value Sukuk Musyarakah (CMBS 2007-1-i) represents the fourth securities issuance by Cagamas MBS, the proceeds of which will be mainly used for the acquisition of rights, title, interest and benefit in respect of portfolio of eligible GSIHFs (Portfolio 2007-1-i) amounting to RM2,538.2 million comprising of mortgages of mainly public sector employees. The GOM’s Housing Loans Division or Bahagian Pinjaman Perumahan (BPP) is the servicer of the securitised portfolio. The Sukuk Musyarakah comprises seven tranches with maturities on the third, fifth, seventh, tenth, twelfth, fifteenth and twentieth anniversary from the issuance date. Similar to the previous transactions, the purchase will be undertaken retrospectively, whereby the pool of GSIHFs is acquired based on portfolio valuation as at 31 January 2007.

Credit enhancement is provided primarily by the overcollateralisation of 120.3%. The sizing of the Sukuk Musyarakah is based upon analysis of the default, delinquency and prepayment statistics derived from five static pools with seven-year rundown data. Historical recovery information in respect of recoveries from 1995 onwards were also utilised. A cumulative default rate of 8.19% for the 20-year period was used as base case default rate on the assumption that the default experience will be similar to the average 10th month loss curve up to the 88th month, after which it will remain constant at 0.03% on a monthly basis up to the end of year 15 before falling to 0.02% thereafter. In stressing defaults, a loss multiple of three times was applied. MARC has also assumed 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 registered for GSHLs with older vintages. Hence, the cashflow has incorporated monthly prepayment rates that ramp up from 0.0% to 0.40% over the twenty-year period of CMBS 2007-1-i. Prepayments were stressed under both high and low prepayment scenarios with 50% reduction and 100% increase in prepayment rates being applied to the base case.

The quality of the collateral is underpinned by 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. All GSIHF possess adequate mortgage reducing term assurance (MRTA) coverage. Further, mortgage payments are deducted at source.


The transaction is a conditional reverse-pay structure with a limited pass-through feature which allows surplus cashflow on the scheduled maturity dates of Tranches 1, 2, 3, 4, and 5 to be paid to firstly, the outstanding Tranche 7 until its full redemption and then to Tranche 6, provided that the cash balance in the Collections Account 2007-1-i exceeds RM90.0 million after any such refund of capital to Tranche 7 and/or Tranche 6. The RM90.0 million to be retained in the cashflow after the pass-through of prepayment is triggered, provides adequate liquidity buffer to allow timely profit payments and redemption of the intermediate tranches.