Cagamas MBS Bhd (CMBS 2005-1) - 2012

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 is an Islamic issuance which represents the second residential home financing 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 RM527.8 million and the outstanding principal of non-defaulted home financings of RM1,954.8 million. The ratings are also supported by the transaction’s stable collateral pool performance, the transaction’s structural features as well as 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 home financing instalments 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, 2012 (the reporting date), Portfolio 2005-1’s balance registered at RM1,967.3 million, representing 33,691 fixed-rate home financing, each having an average size of RM58,392 and a weighted term to maturity of 14.2 years. Since MARC’s last review in May 2011, the transaction’s credit enhancement level had increased to 156.6% from 156.0% owing to the collateral pool’s strong performance. At the reporting date, the collateral pool’s cumulative default rate registered at 0.4% versus MARC’s expected cumulative default rate of 7.8%, while its cumulative prepayment rate was 7.4% 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 status 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 are sufficient  to  cover the scheduled redemption of RM260.0 million of Tranche 3 Sukuk on August 8, 2012.

The cash flow analysis also considers increases of 7% to 13% in civil servant salaries under the government’s improved Malaysian Remuneration System, effective from April 2012 onwards. MARC views the salary increases to be a positive factor for the collateral pool’s performance going forward in the context of home financing affordability and expects some increases in prepayments as well.
 
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 home financing 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. Cagamas MBS may exercise the option to partially redeem 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.

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