Cagamas MBS Bhd (2005-2) - 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). CMBS 2005-2 comprises seven tranches with maturities on the third, fifth, seventh, tenth, twelfth, fifteenth and twentieth anniversary from the issuance date of December 12, 2005. To date, Cagamas MBS has launched five residential mortgage backed securities issuances, amounting to a total of RM10.2 billion.

The affirmed rating reflects the satisfactory performance of the securitised mortgage portfolio to date, particularly its lower-than-expected delinquency and cumulative default rates. As of reporting date September 14, 2009, credit enhancement for the transaction has risen to 47.3% up from 46.7% in MARC’s previous review. Credit enhancement is provided by both principal overcollateralisation of 129.9% (excluding principal of defaulted mortgages) and its cash and permitted investments of RM318.9 million. The affirmed rating also reflects the adequate monitoring capabilities employed in administering the mortgage portfolio by 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 for the purpose of acquiring the aforesaid GSHLs.

At transaction close, 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. All loans in the pool are fixed-rate loans with monthly mortgage instalments made via direct salary/pension deductions. The acquisition was funded by proceeds from the issuance of CMBS 2005-2. The GOM’s Housing Loans Division or Bahagian Pinjaman Perumahan (BPP) is the servicer of Portfolio 2005-2 and will continue to administer the foregoing after the securitisation exercise.

Since closing, the collateral has performed well, underpinned by the portfolio’s lower-than-expected cumulative default rate of 0.53%. As at December 31, 2008, Portfolio 2005-2 consisted of 35,439 accounts with a total outstanding principal amount of RM2,399.4 million. Portfolio 2005-2’s delinquency rate improved to 1.88% compared to 3.45% in the last review. A majority of these are in arrears of one month and are primarily attributable to operational and technical delays.

The cumulative prepayment rate was recorded at 4.39%, higher than the initial expectations of 0.86%. Since inception, the average quarterly prepayment rate stood at 0.29%. Total prepayments amounted to RM127.3 million, of which 90.83% were voluntary payments.

MARC notes that Portfolio 2005-2’s cash and permitted investments stood at RM318.9 million, offering Cagamas MBS the opportunity to partially retire Tranche 7 maturing in December 2025 should it elect to do so.

The portfolio is partially protected against rising reinvestment risk (with falling interest rates) by the structure’s built-in conditional pass-through provision which allows for partial redemption of Tranche 7 and Tranche 6 of CMBS 2005-2 ahead of their legal maturities.

Strengths

Challenges/Risk