Cagamas MBS Bhd (2004-1) - 2008 / 2009

MARC has affirmed the AAA rating of Cagamas MBS Berhad’s (Cagamas MBS) asset-backed fixed rate serial bonds (CMBS 2004-1) of RM1,555.0 million. The rating carries a stable outlook. CMBS 2004-1 is the first residential mortgage-backed securitization issuance by Cagamas MBS involving a portfolio of government staff housing loans (GSHLs). The affirmed rating and stable rating outlook reflect the satisfactory performance of the securitised mortgage portfolio in particular, its low cumulative default rate to date. The lower than expected cumulative default rate recorded has improved CMBS 2004-1’s credit enhancement level to 43.0% as of October 2008, supported by both principal overcollateralisation and a RM333.8 million cash balance. The rating also reflects the adequate monitoring capabilities of the transaction administrator, the national mortgage corporation, Cagamas Berhad (Cagamas).
 
Cagamas MBS, wholly-owned by Cagamas Holdings Berhad, the holding company of Cagamas, is a limited purpose entity whose principal activities are restricted to acquiring GSHLs from the Federal Government of Malaysia (GOM), and issuing asset-backed securities to finance the acquisition.

At transaction close, Cagamas MBS acquired the rights, title, interest and benefit in respect of selected GSHLs (Portfolio 2004-1), comprising mortgages of government pensioners, amounting to RM1,935.7 million, by way of equitable assignment. The acquisition was funded by proceeds raised from the issuance of CMBS 2004-1, providing an overcollateralisation of 124.5% of the original principal at transaction close. CMBS 2004-1 comprises four tranches of bonds with maturities on the third, fifth, seventh and tenth anniversary from the issuance date.  As of October 2008, Series 1 of RM580.0 million has been fully redeemed reducing CMBS 2004-1’s total outstanding debt to RM975.0 million. Similar to other Cagamas MBS’ residential mortgage backed issuances, the GOM’s Housing Loans Division or Bahagian Pinjaman Perumahan services the Portfolio 2004-1 from monthly mortgage instalments that are deducted at source from the monthly pensions.

As of October 2008, the credit enhancement level of CMBS 2004-1 increased slightly to 43.0% from 42.0% at the last rating action date. The cumulative default rate remained low at 0.43% against the stressed default rate of 3.40%. Portfolio 2004-1 has registered an average quarterly prepayment rate of 0.68% since inception which is higher than the initial projection of 0.40%. Nevertheless, MARC takes comfort that a significant 79.5% of the prepayments was voluntary and reinvestment risk is mitigated by the structure’s in-built conditional pass-through provision which allows for partial redemption of Series 4 ahead of its legal maturity.

As of October 2008, Portfolio 2004-1’s cash balance which stood at RM333.8 million covers 98.2% of Series 2’s outstanding principal which matures in October 2009.

Strengths

• Satisfactory performance of the mortgage portfolio supporting the transaction as reflected in the portfolio’s low delinquency and default rates;
• High borrower density translates to low nominal exposure per borrower; and
• Monitoring capabilities of transaction administrator, Cagamas Berhad.

Challenges

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