Cagamas MBS Bhd (CMBS 2007-1-i) - 2014

MARC has affirmed the rating of Cagamas MBS Berhad’s (Cagamas MBS) RM2,110.0 million asset-backed Sukuk Musyarakah issuance (CMBS 2007-1-i) at AAAIS with a stable outlook. The rating action affects RM1,525.0 million of outstanding sukuk. The affirmed rating reflects CMBS 2007-1-i’s strong credit enhancement level of 133.8% based on an account balance of RM312.5 million and outstanding principal of non-defaulted home financings of RM1,728.1 million. CMBS 2007-1-i is backed by a pool of government staff Islamic home financings (GSIHF), or Portfolio 2007-1-i. The portfolio has continued to demonstrate strong performance to date as indicated by its low default rate.   

Cagamas MBS, a wholly-owned subsidiary of Cagamas Holdings Berhad, is a special purpose entity incorporated to undertake the securitisation of conventional and Islamic home financing originated by the Government of Malaysia (GOM). CMBS 2007-1-i represents the fourth issuance by Cagamas MBS. The periodic obligations of CMBS 2007-1-i are met by monthly instalments in relation to Portfolio 2007-1-i through direct salary/pension deductions, serviced by GOM’s Housing Loans Division, or Bahagian Pinjaman Perumahan (BPP). The direct deduction partially mitigate risks of non-timely prepayment of CMBS 2007-1-i.

As of the quarterly reporting date February 28, 2014 (Quarter 27), Portfolio 2007-1-i’s cumulative default rate (CDR) stood at 0.49% of the initial pool balance, comfortably below MARC’s projected CDR and stressed CDR of 2.66% and 7.99% 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 in borrowers’ employment status. Portfolio 2007-1-i’s total delinquent mortgages were lower in Quarter 27, accounting for 2.16% of the initial pool balance compared to 3.51% in Quarter 23 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.

After 27 quarters of performance, Portfolio 2007-1-i’s total outstanding principal balance reduced to RM1,740.5 million comprising 23,553 fixed-rate home financings with an average loan size of RM73,898. The weighted term to maturity and weighted average seasoning of the GSIHF were 14.7 years and 9.5 years respectively. MARC notes that the portfolio's cumulative prepayment rate of 6.96% was somewhat lower than MARC’s assumed rate. The rating agency is of the view that any prolonged lower prepayments could lead to liquidity issues although these concerns are currently mitigated by the portfolio’s low default and high credit enhancement levels. Currently, the available funds in the collection account provide sufficient liquidity for the upcoming redemption of RM270.0 million in May 2014. Meanwhile, MARC views favourably the transaction’s conditional pass-through provision feature to address the risk of negative carry due to any unexpected large prepayments. The provision allows partial early redemption of CMBS 2007-1-i’s last tranche, Tranche 7, maturing in May 2027 subject to the availability of at least RM90.0 million in the collection account post-redemption.

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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