Cagamas MBS Bhd (2005-2) - 2008 / 2009

MARC has affirmed the AAA rating of Cagamas MBS Berhad’s (Cagamas MBS) asset-backed fixed rate serial bonds of RM2,060.0 million (CMBS 2005-2). The rating carries a stable outlook. The affirmed rating and stable outlook reflect the satisfactory performance of the securitised mortgage portfolio to date, particularly its lower-than-expected delinquency and cumulative default rates. As of December 2008, CMBS 2005-2 benefitted from a credit enhancement level of 46.7%, an increase from 41.6% in the last review, derived from both principal overcollateralisation and its cash reserve of RM183.7 million. The affirmed rating is also supported by 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 Federal Government of Malaysia (GOM), and issuing asset-backed securities to pay for the purchase of the GSHLs.

At transaction close in December 2005, Cagamas MBS acquired from the GOM rights, title, interest and benefit in respect of eligible GSHLs amounting to RM2,898.7 million by way of equitable assignment (Portfolio 2005-2). All 36,992 loans in the pool are fixed-rate loans with monthly mortgage installments being made via direct salary/pension deductions. Cagamas MBS issued CMBS 2005-2 which comprises seven tranches of fixed-rate bonds with tenures of up to 20 years to fund the acquisition.  The GOM’s Housing Loans Division or Bahagian Pinjaman Perumahan (BPP) is the servicer of Portfolio 2005-2. 

As of December 2008, the credit enhancement level available for the bondholders rose to 46.7% compared to 41.6% in MARC’s last review as a result of commendable performance of Portfolio 2005-2 to date and the RM183.7 million Collection Account 2005-2 (CA 2005-2) balance. Following Tranche 1’s principal repayment of RM225.0 million in December 2008, MARC notes that the cash balance in CA 2005-2 exceeds the minimum required balance of RM90.0 million, which offers Cagamas MBS the opportunity to partially retire Tranche 7 maturing December 2025.

Since closing, Portfolio 2005-2 has performed well as evidenced by the portfolio’s significantly lower-than-expected cumulative default rate of 0.44% against MARC’s initial projection of 2.79% for the same period. Portfolio 2005-2’s cumulative prepayment rate of 3.14% as of December 2008, was higher than assumed in MARC’s initial projections. Voluntary prepayments accounted for 85.9% of total prepayments during the period under review. The portfolio is partially protected against rising reinvestment risk (with falling interest rates) by the structure’s in-built conditional pass-through provision which allows for partial redemption of Tranche 7 and Tranche 6 of CMBS 2005-2 ahead of their legal maturity.

Strengths

• Satisfactory performance of Portfolio 2005-2 to date;
• High borrower density translates to low nominal exposure per borrower; and
• Adequate monitoring capabilities of the transaction administrator, Cagamas Berhad.

Challenges

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