Cagamas MBS Bhd (2005-1) - 2007

MARC has reaffirmed the AAAID rating of Cagamas MBS Berhad’s (Cagamas MBS) asset-backed Sukuk Musyarakah Issuance (CMBS 2005-1) of RM2,050.0 million. CMBS 2005-1 is collateralized by a portfolio of Government Staff Islamic residential mortgages, payments on which are deducted at source. The reaffirmed rating reflects the performance of the securitised mortgage portfolio in particular, its low cumulative default rate and significant principal prepayments which have allowed credit enhancement for the transaction to be maintained at a level which adequately supports the rating. Credit enhancement of 40.9% as of August 2007 is provided by overcollateralisation of 127.4% and a RM276.4 million cash balance. The rating also reflects the adequate monitoring capabilities of transaction administrator, Cagamas Berhad (Cagamas).

Cagamas MBS is a limited purpose entity established with principal activities restricted to acquiring government staff housing loans from the Federal Government of Malaysia (GOM), and issuing asset-backed securities or any other forms of securities for the purpose of acquiring the housing loans/home financing thereof. Cagamas MBS and Cagamas are expected to become wholly-owned subsidiaries of a newly incorporated holding company, Cagamas Holdings Berhad, upon completion of an ongoing restructuring exercise which MARC views as neutral to the credit quality of Cagamas MBS.

CMBS 2005-1 represents the second residential mortgage-backed securitisation issuance by Cagamas MBS. On 31 March 2005, Cagamas MBS acquired from the GOM rights, title, interest and benefit in respect of selected government staff islamic home financings (GSIHFs) (Portfolio 2005-1) amounting to RM2,844.5 million including all charges, guarantees and insurances, by way of equitable assignment. Portfolio 2005-1 comprises mainly mortgages of non-pensioners (public sector employees). The acquisition was funded by proceeds raised from the issuance of nominal value RM2,050.0 million CMBS 2005-1. The GOM’s Housing Loans Division or Bahagian Pinjaman Perumahan (BPP) is the servicer of the securitised pool of GSIHFs.  CMBS 2005-1 comprises six tranches with maturities on the third, fifth, seventh, tenth, twelfth and fifteenth anniversary from the issuance date.

As of 8 August 2007, CMBS 2005-1 benefits from credit enhancement of 40.9% contributed by overcollateralisation of 127.4% and cash reserve of RM276.4 million. Since closing, the portfolio has performed within stressed expectations. Portfolio 2005-1 recorded a cumulative prepayment rate of 1.55%, translating to an average quarterly prepayment rate of 0.19%. The cumulative prepayment rate registered is higher than initial expectations. The bulk of the prepayments were voluntary prepayments (86.1%). As at March 2007, total collections attributed to prepayments amounted to RM44.0 million. Portfolio 2005-1 registered a cumulative default rate of 0.14%, significantly lower than the stressed of 2.26%.

Due to the high prepayment and low default rates registered since closing, Portfolio 2005-1’s cash balance of RM276.4 million is 10.6% higher than Tranche 1 CMBS 2005-1’s principal amount due in August 2008. Should the trend of prepayments and defaults in the first eight quarters continue going forward, MARC expects approximately 24% of Tranche 6 to be partially redeemed in August 2008 should Cagamas elect to do so.