Cagamas MBS Bhd (2005-1) - 2011

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. The rating action affects the outstanding Sukuk of approximately RM1,585.0 million. CMBS 2005-1 represents the second residential mortgage-backed securitisation issuance by Cagamas MBS. The transaction’s affirmed rating reflects strong credit enhancement levels for the outstanding Sukuk based on a collections account balance of RM364.9 million and the outstanding principal of non-defaulted mortgages of RM2,111.1 million. The mortgage portfolio’s stability is attributable to its composition of seasoned mortgages with high credit quality. The affirmed rating also benefits from satisfactory management of collateral servicing and transaction administration.

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.

Based on Cagamas’ quarterly servicer report for CMBS 2005-1 dated February 8, 2011 (the reporting date), Portfolio 2005-1’s balance registered at RM2,119.9 million, representing 34,553 fixed-rate mortgages, each having an average size of RM61,354 and a weighted term to maturity of 15.1 years. Since MARC’s last review in August 2010, the transaction’s credit enhancement level had increased to 156.2% owing to the collateral pool’s strong performance. At the reporting date, the collateral pool’s cumulative default rate registered at 0.3% versus MARC’s expected cumulative default rate of 6.2%, while its cumulative prepayment rate was 5.9% and within MARC’s range of assumed prepayment rates. The transaction’s defaults were mainly attributable to data reconciliation lag and delay in salary and/or pension deductions as a result of changes in the employment statuses of borrowers. 

MARC’s cash flow analysis demonstrates that the Sukuk can still be adequately serviced under ‘AAA’ high-stress default scenarios, with support from available funds in the Collection Account which will cover more than the scheduled redemption of RM260.0 million of Tranche 3 Sukuk on August 8, 2012. Cagamas MBS may exercise the option to partially redeeming the final tranche of CMBS 2005-1 on the next scheduled redemption date on the condition that RM66 million remains in the Collection Account post redemption.
 
MARC’s stable outlook for CMBS 2005-1 is premised on the stable performance of the transaction’s collateral pool and its high collateralisation ratio, which allows the Sukuk to withstand a large increase in mortgage defaults and loss rates. MARC considers the risk of shortfalls arising from unexpectedly high prepayments to be well mitigated by CMBS 2005-1’s sizeable accumulated liquidity reserves.

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Challenges/Risks