Cagamas MBS Bhd (2005-2) - 2007

MARC has reaffirmed the long term rating of Cagamas MBS Berhad’s (Cagamas MBS) asset-backed Fixed Rate Serial Bonds (CMBS 2005-2) of RM2,060.0 million at AAA.  CMBS 2005-2 is collateralised by a portfolio of government staff housing loans (GSHLs), payments on which are deducted at source. The reaffirmed rating reflects the performance of the securitised mortgage portfolio in particular, the low cumulative default rate and significant principal prepayments which have allowed credit enhancement to increase from 41.0% since the last rating action to 41.6% as of 12 September 2007. Credit enhancement of 41.6% is provided by overcollateralisation of 129.7% and a RM244.5 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 2005-2 represents the third residential mortgage-backed securitisation issuance by Cagamas MBS. Cagamas MBS had acquired from the GOM rights, titles, interests and benefits in respect of selected government staff housing loans (GSHLs) amounting to RM2,898.7 million including all charges, guarantees and insurances by way of an equitable assignment. The acquisition was funded by proceeds from issuance of CMBS 2005-2. The GOM’s Housing Loans Division or Bahagian Pinjaman Perumahan (BPP) is the servicer for Portfolio 2005-2. CMBS 2005-2 is the first issue with a tenure of up to 20 years, the previous two issues having shorter tenures. This allows for better matching of the assets with its liabilities.

As of 12 September 2007, CMBS 2005-2 benefits from credit enhancement of 41.6% contributed by an overcollateralisation of 129.7% and RM244.5 million cash balance. Since transaction close, Portfolio 2005-2 registered a cumulative prepayment rate of 1.86% translating to a quarterly prepayment rate of 0.27% which is higher than expected cumulative prepayment rate. Collections attributed to prepayment amounted to RM54.0 million with 93.4% of total prepayments being voluntary prepayment. Portfolio 2005-2 recorded a cumulative default rate of 0.17%, significantly lower than the stressed default rate of 1.64%. 
 
Due to the high prepayment and low default rates, Portfolio 2005-2’s cash balance of RM244.5 million as at 12 September 2007 is more than sufficient to fully retire Tranche 1 of CMBS 2005-2 due in December 2008. Should the trend of prepayments and defaults in the first seven quarters continue going forward, MARC expects approximately 39.2% of Tranche 7 to be partially redeemed in December 2008 should Cagamas elect to do so.