Cagamas MBS Bhd (2005-1) - 2008

MARC has affirmed 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 represents the second residential mortgage-backed securitization issuance by Cagamas MBS a portfolio of government staff Islamic home financings (GSIHFs). The affirmed rating reflects the satisfactory performance of the securitised mortgage portfolio, in particular its low cumulative default rate to date. This has resulted in an increased credit enhancement level of 47.3% as of August 2008 from 40.9% since our December 2007 review, provided by both principal overcollateralisation and a RM173.9 million cash balance. The rating also reflects the adequate monitoring capabilities of the transaction administrator, Cagamas Berhad (Cagamas).

Cagamas MBS, wholly-owned by Cagamas Holdings Berhad, is a limited purpose entity whose principal activities are restricted to acquiring government staff housing loans (GSHLs), originated under both Islamic and conventional principles, from the Government of Malaysia (GOM), and issuing asset-backed securities to pay for the acquisition.

At transaction close in August 2005, Cagamas MBS acquired the rights, title, interest and benefit in respect of selected GSIHFs (Portfolio 2005-1), comprising mortgages of mainly public sector employees and pensioners, amounting to RM2,844.5 million, by way of equitable assignment. The acquisition was funded by proceeds raised from the issuance of RM2,050.0 million CMBS 2005-1, providing overcollateralisation equal to 138.8% of the original principal. CMBS 2005-1 comprises six tranches with maturities on the third, fifth, seventh, tenth, twelfth and fifteenth anniversary from the issuance date.  As of August 2008, the RM250.0 million Tranche 1 Sukuk has been fully redeemed. The GOM’s Housing Loans Division or Bahagian Pinjaman Perumahan services the Portfolio 2005-1 from monthly mortgages instalments that are deducted at source from the monthly salaries and pensions.

As of August 2008, CMBS 2005-1 benefits from an increased credit enhancement of 47.3% contributed by overcollateralisation of 137.6% and cash reserve of RM173.9 million as a result of Portfolio 2005-1’s significantly lower than expected default rate. The cumulative default rate remained low at 0.39% against the stressed default rate of 3.24%. The portfolio had also registered a higher than expected cumulative prepayment rate of 2.60% against the initial projection of 0.86% since inception. Nevertheless, MARC observes that 87.2% of the prepayments were voluntary and takes comfort from the fact that the reinvestment risk is mitigated by the structure’s in-built conditional pass-through provision which allows for partial redemption of Tranche 6 of the Sukuk ahead of its legal maturity.

Strengths

• Satisfactory performance of the mortgage portfolio reflected in low delinquency and default rates;
• Higher credit enhancement in the form of a principal overcollateralization and a sizeable cash reserve; and
• Monitoring capabilities of transaction administrator, Cagamas.

Challenges

• Negative carry for funds in the collection account caused by persistently higher prepayment levels.