Cagamas MBS Bhd (2005-1) - 2010

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 with a stable outlook. CMBS 2005-1 represents the second residential mortgage-backed securitisation issuance by Cagamas MBS. The affirmed rating reflects an increase in the transaction’s credit enhancement levels due to loan payoffs and amortisation in addition to the satisfactory performance of the securitised mortgage portfolio to date with regard to its stable delinquency and low cumulative default rates. Underpinning the stable performance of the pool is its weighted average seasoning of 8.6 years and the high credit quality obligors. The affirmed rating is also supported by the adequate monitoring capabilities of the transaction administrator, Cagamas Berhad (Cagamas).

Cagamas MBS is a limited purpose entity and a wholly-owned subsidiary of Cagamas Holdings Berhad (Cagamas Holdings) whose principal activities are restricted to securitising government staff housing loans, originated under both Islamic and conventional principles, from the Government of Malaysia (GOM), by issuing asset-backed securities. The collateral backing this transaction is a pool of eligible Government Staff Islamic Home Financings (Portfolio 2005-1) on which monthly mortgage installments are made via direct salary/pension deductions. The GOM’s Housing Loans Division, or Bahagian Pinjaman Perumahan (BPP), is the servicer of Portfolio 2005-1.

As at August 9, 2010, CMBS 2005-1’s outstanding mortgage portfolio consisted of 34,947 fixed-rate mortgages with an outstanding pool balance of RM2,180.2 million, excluding RM13.4 million in defaults (loan amounts in arrears for more than 9 months); this compares to the portfolio’s position at issuance which consisted of 37,264 fixed-rate mortgages worth RM2,844.5 million in total. Additionally, Cagamas MBS had redeemed its RM215.0 million Tranche 2 Sukuk under CMBS 2005-1 on August 6, 2010, leaving the total amount of outstanding Sukuk at RM1,585.0 million; Cagamas MBS did not exercise its option to redeem Tranche 6 of CMBS 2005-1. Accordingly, credit enhancement level was calculated to be 155.6%, supported by cash and permitted investments of RM286.5 million in CMBS 2005-1’s Collection Account and the principal balance of performing mortgages within the collateral pool.

Based on Cagamas’ quarterly report on Portfolio 2005-1’s performance dated August 9, 2010, the cumulative default rate for the collateral pool registered at 0.47%, an amount significantly lower than MARC’s  assumed  cumulative  default  rate of  5.80% for  the  same  period. The  report  attributes  the majority of the defaults to administrative issues including data reconciliation lags and delays in salary and/or pension deductions due to changes in the employment statuses of government staff. Concurrently, the pool’s cumulative prepayment rate stood at 5.31%, which falls within MARC’s range of prepayment stress tests (which includes both high and low prepayment scenarios) and does not cause any breach of rating thresholds.
 
MARC expects Portfolio 2005-1 to continue to perform well and Cagamas MBS to be in a position to exercise its option to partially redeem the last two tranches of CMBS 2005-1 on the next redemption date. This option can only be exercised on condition that a RM66 million cash balance remains post redemption. This ensures a minimum amount of liquidity protection for future interest and principal payments. That said, MARC is of the opinion that available credit support vis-a-vis the existing credit enhancement level offers significant protection in the event that there are adverse changes in performance of the collateral pool.

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