Cagamas MBS Bhd (2007-1-i) - 2011

MARC has affirmed the AAAIS rating of Cagamas MBS Berhad’s (Cagamas MBS) RM2,110.0 million mortgage-backed Sukuk Musyarakah issuance (CMBS 2007-1-i) with a stable outlook. The rating action affects the outstanding Sukuk of approximately RM1,780.0 million. CMBS 2007-1-i represents the fourth residential mortgage-backed securitisation issuance by Cagamas MBS. The transaction’s affirmed rating reflects a strong credit enhancement level of 126.6% for the outstanding Sukuk, supported by a collection account balance of RM132.6 million and an outstanding collateral pool balance of RM2,121.11 million in non-defaulted mortgages. The collateral pool, which comprises seasoned mortgages of high credit quality, has continued to show stable performance over the period under review. 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 Islamic Home Financing (GSIHF), originated under Islamic principles, from the Government of Malaysia (GOM), by issuing asset-backed securities. The collateral backing this transaction is a pool of eligible GSIHFs (Portfolio 2007-1-i) on which monthly mortgage instalments are made via direct salary/pension deductions. The GOM’s Housing Loans Division, or Bahagian Pinjaman Perumahan (BPP), is the servicer of Portfolio 2007-1-i.

Based on the servicer’s quarterly report for CMBS 2007-1-i dated February 28, 2011 (the reporting date), Portfolio 2007-1-i’s balance registered at RM2,128.32 million, representing 25,021 fixed-rate mortgages with an average size of RM85,061 and a weighted term to maturity of 17.45 years. The weighted average seasoning factor of the collateral pool was 6.6 years. As of the same date, the mortgage portfolio’s cumulative default rate registered at 0.28% versus MARC‘s expected cumulative default rate of 4.29%. The majority of the RM7.20 million in defaults (loan amounts in arrears for more than 9 months) under the transaction have been the result of data reconciliation lags and delays in salary and/or pension deductions due to changes in the employment status of government staff. Meanwhile, the collateral pool’s cumulative prepayment rate remained within MARC’s range of stress test limits at 3.13%.

At this point, MARC’s cash flow analysis supports expectations that sufficient funds will be built up for Tranche 2 worth RM255.0 million by its maturity date on May 29, 2012. Cagamas MBS will be able to exercise the option to partially redeem the final tranche of CMBS 2007-1-i on this scheduled redemption date on the condition that RM90 million remains in the Collection Account post redemption. The cash flow analysis has also demonstrated that the Sukuk are able to withstand ‘AAA’ default and prepayment stress scenarios for their remaining tenure.  Notwithstanding, MARC acknowledges that actual liquidity levels could differ from projections due to differences between observed and simulated early redemption in relation to timing and redemption amount.

MARC’s stable outlook for CMBS 2007-1-i is premised on stable performance of the transaction’s collateral pool and its high collateralisation ratio, which offers ample protection against default and prepayment risk.

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Challenges/Risks