Cagamas MBS Bhd (CMBS 2005-1) - 2013

MARC has affirmed its AAAID rating on Cagamas MBS Berhad’s (Cagamas MBS) RM2,050.0 million asset-backed Sukuk Musyarakah issuance (CMBS 2005-1) with a stable outlook. The rating action affects outstanding sukuk of RM1,325.0 million following the redemption of RM260.0 million Tranche 3 on August 8, 2012. CMBS 2005-1, representing the second residential home financing securitisation issuance by Cagamas MBS, is backed by a pool of eligible Government Staff Islamic Home Financings (GSIHF), or Portfolio 2005-1. The affirmed rating reflects strong credit enhancement levels for the outstanding sukuk supported by a collection account balance of RM439.2 million and outstanding principal of non-defaulted home financing of RM1,798.3 million. In addition, the collateral pool, comprising seasoned mortgages of high credit quality, continues to demonstrate a strong performance to date. The rating also benefits from the transaction’s structural features as well as satisfactory management of collateral servicing and transaction administration.

Cagamas MBS, a wholly-owned subsidiary of Cagamas Holdings Berhad (Cagamas Holdings), is a limited purpose entity with its principal activities restricted to purchasing of Islamic or conventional government staff home financing, originated by the Government of Malaysia (GOM), via asset-backed securitisation. The securitised asset for this transaction, Portfolio 2005-1, comprises home financing of mainly public sector employees and pensioners with monthly instalments made through direct salary/pension deductions. The servicer of Portfolio 2005-1 is GOM’s Housing Loans Division, or Bahagian Pinjaman Perumahan (BPP).

Based on the servicer’s quarterly report dated February 8, 2013, Portfolio 2005-1 registered a total outstanding principal balance of RM1,812.1 million comprising 32,703 fixed-rate home financings with an average size of RM55,409 and weighted term to maturity of 13.25 years. The weighted average seasoning of the GSIHF is 11.10 years. The transaction’s credit enhancement levels have improved to 168.9% from 156.6% since MARC’s last review on the back of strong performance by the collateral pool. As of the reporting date, Portfolio 2005-1’s cumulative default rate (CDR) stood at 0.48% of the initial pool balance after 30 quarters of performance, comfortably below MARC’s projected CDR and stressed CDR of 3.0% and 9.0% respectively. Home financing defaults, defined as accounts in arrears for more than nine months experienced by the pool, have been mainly attributed to data reconciliation lags and delays in salary and/or pension deductions due to changes to the employment status of the borrowers. The portfolio’s total delinquent mortgages for the quarter increased to RM187.5 million (Quarter 29: RM182.2 million), accounting for 6.59% of the initial pool balance while the cumulative prepayment rate was 8.86%, translating to average prepayment rate of 0.30% per quarter. MARC’s cash flow runs demonstrate that the collateral pool remains resilient in high-stress default and prepayment scenarios for AAA-rated transaction to sufficiently service its sukuk obligations.

The stable outlook is premised on the collateral pool’s stable performance and high degree of overcollateralisation provided by the pool which allows the transaction to withstand various stressed default and prepayment scenarios. MARC considers the risk of shortfalls arising from unexpectedly high prepayments to be well mitigated by the transaction structure which incorporates a conditional pass-through provision to allow partial early redemption of Tranche 6, on the condition that RM66.0 million remains in the collection account post redemption of the tranche.

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