Cagamas MBS Bhd (CMBS 2005-1) - 2014

MARC has affirmed the rating of Cagamas MBS Berhad’s (Cagamas MBS) RM2,050.0 million asset-backed Sukuk Musyarakah issuance (CMBS 2005-1) at AAAID with a stable outlook. The rating action affects the outstanding RM1,325.0 million sukuk issued under CMBS 2005-1. The affirmed rating reflects the strong credit enhancement level on CMBS 2005-1 supported by an account balance of RM613.2 million and outstanding principal of non-defaulted home financings of RM1,637.8 million. CMBS 2005-1 is backed by a pool of government staff Islamic home financings (GSIHF), or Portfolio 2005-1. The portfolio continues to demonstrate strong performance to date as indicated by its low defaults and healthy prepayments.

Cagamas MBS, a wholly-owned subsidiary of Cagamas Holdings Berhad, is a special purpose entity incorporated to undertake the securitisation of conventional or Islamic home financing originated by the Government of Malaysia (GOM). CMBS 2005-1 represents the second issuance by Cagamas MBS. The periodic obligations of CMBS 2005-1 are met by monthly instalments in relation to Portfolio 2005-1 through direct salary/pension deductions, serviced by GOM’s Housing Loans Division, or Bahagian Pinjaman Perumahan (BPP). The direct deductions partially mitigate risks of non-timely payment of CMBS 2005-1.

As of the quarterly reporting date February 10, 2014 (Quarter 34), Portfolio 2005-1 recorded a total outstanding principal balance of RM1,653.4 million comprising 31,681 fixed-rate home financings with an average loan size of RM52,190. The weighted term to maturity and weighted average seasoning of the GSIHF were 12.32 years and 12.09 years respectively. After 34 quarters, the portfolio’s cumulative default rate (CDR) stood at 0.55% of the initial pool balance, comfortably below MARC’s projected CDR and stressed CDR of 3.4% and 10.2% respectively. Home financing defaults, defined as accounts in arrears for more than nine months, 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. Portfolio 2005-1’s total delinquent mortgages was lower in Quarter 34, accounting for 3.09% of the initial pool balance compared to 6.59% in Quarter 30 during MARC’s last review. The decline is mainly due to the reduced remittance processing time following the implementation of electronic funds transfer from January 1, 2013 onwards at the Accountant General Department that has eliminated the manual system of making monthly mortgage payments to BPP.

MARC expects that the existing credit enhancement of 169.9% would allow CMBS 2005-1 to withstand adverse performance of the collateral pool in respect of default and prepayment. MARC also views favourably the transaction’s conditional pass-through provision feature to address the risk of negative carry arising from any unexpected high volume of prepayments. The cumulative prepayment rate remains high at 10.26% against MARC’s assumed rate of 9.82%. The provision allows partial early redemption of CMBS 2005-1’s last tranche, Tranche 6, maturing in August 2020 subject to the availability of at least RM66.0 million in the collection account post-redemption. Currently, the available funds in the collection account is sufficient to cover the next redemption of RM515.0 million in August 2015.

The stable outlook is premised on MARC’s expectations of continued stable collateral performance and sustained high credit enhancement level that remain supportive of the rating. 

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Challenges/Risks