Cagamas MBS Bhd (CMBS 2007-1-i) - 2013

MARC has affirmed its AAAIS rating on Cagamas MBS Berhad’s (Cagamas MBS) RM2,110.0 million asset-backed Sukuk Musyarakah issuance (CMBS 2007-1-i) with a stable outlook. The rating action affects outstanding sukuk of RM1,525.0 million. The affirmed rating reflects strong credit enhancement level and performance by the collateral pool which comprises seasoned mortgages of high credit quality. 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 special purpose entity incorporately solely to undertake the securitisation of Islamic or conventional government staff home financing originated by the Government of Malaysia (GOM). The collateral backing this transaction, Portfolio 2007-1-i, comprises a pool of eligible Government Staff Islamic Home Financing (GSIHF) of mainly public sector employees and pensioners with monthly instalments made through direct salary/pension deductions. The servicer of Portfolio 2007-1-i is GOM’s Housing Loans Division, or Bahagian Pinjaman Perumahan (BPP).

As at reporting date February 28, 2013, Portfolio 2007-1-i recorded a total outstanding principal balance of RM1,873.6 million comprising 24,121 fixed-rate home financings with an average size of RM77,675 and weighted term to maturity of 15.6 years. The weighted average seasoning of the GSIHF is 8.5 years. The transaction’s credit enhancement level improved to 132.9% from 127.5% since MARC’s last review while the cumulative default rate stood at 0.52% of the initial pool balance after 23 quarters of performance, comfortably below MARC’s projected rate of 2.17%. These home financing defaults, which MARC defines as accounts exceeding nine months in arrears, are mainly attributed to data reconciliation lags and delays in salary and/or pension deductions due to borrower employment status changes. The portfolio’s total delinquent mortgages (defined as one month or more but less than or equal to nine months in arrears) decreased by 11.9% quarter-on-quarter to RM89.2 million (Quarter 22: RM101.2 million), which represented 3.51% of the initial pool balance. Meanwhile, the cumulative prepayment rate stood at 5.71%, translating to an average prepayment rate of 0.25% per quarter.

MARC considers the risk of negative carry which can potentially arise from unexpectedly high volume of prepayments to be well mitigated by the transaction’s conditional pass-through provision feature. This mechanism allows partial early redemption of Tranche 7 and subsequent tranches in reverse order provided that the collection account balance remains in excess of RM90.0 million after meeting the early redemption. The next RM270.0 million redemption of CMBS 2007-1-i is scheduled in May 2014 which will be sufficiently met by the current collection account balance of RM167.0 million and estimated collection of RM200 million over the next 12 months. 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 MARC’s expectations of continued stable collateral performance and sustained high credit enhancement levels which will allow the collateral pool to withstand higher-than-expected levels of defaults and prepayments.

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