Cagamas MBS Bhd (CMBS 2005-2) - 2014

MARC has affirmed its AAA rating on Cagamas MBS Berhad’s (Cagamas MBS) asset-backed fixed rate serial bonds (CMBS 2005-2) of RM2,060.0 million with a stable outlook. The rating action affects the outstanding bonds of RM1,315.0 million issued under CMBS 2005-2. The rating essentially reflects the strong credit enhancement of 169.4% based on outstanding principal of non-defaulted mortgages of RM1,663.8 million and collection account balance of RM564.3 million.

Cagamas MBS is a wholly-owned special purpose vehicle of Cagamas Holdings Berhad (Cagamas Holdings) established solely for the issuance of mortgage-backed securities via the securitisation of eligible government staff housing loans (GSHL) under Islamic and conventional principles. The collateral pool consists mainly of mortgage loans (Portfolio 2005-2) granted to eligible civil servants and government pensioners. Direct salary/pension deductions by the Accountant General’s Department/Pension Administrator will form the source of repayment for CMBS 2005-2 while the transaction servicing is conducted by Bahagian Pinjaman Perumahan (BPP).

The collateral pool performance of CMBS 2005-2 remains satisfactory after 33 quarters of performance, supported by the portfolio’s cumulative default rate (CDR) of 0.60% of the initial pool balance, which is lower than MARC’s assumed CDR of 2.69%.  GSHL defaults (defined as accounts in arrears for more than nine months) experienced by the pool have been mainly attributed to non-credit issues such as lags and delays in deductions due to changes in the eligibility status of borrowers and insurance claims processing for deceased borrowers. Total delinquent mortgages (defined as one month or more but less than or equal to nine months in arrears) decreased substantially to 2.65% from 6.43% in Quarter 29 following the implementation of the electronic funds transfer system in the Accountant General’s Department effective January 1, 2013.

Based on the servicer’s quarterly report for CMBS 2005-2 dated March 12, 2014, the outstanding principal of the collateral pool declined to RM1,681.3 million from RM1,847.1 million on the previous reporting date of March 12, 2013. The collateral pool comprises 31,435 mortgages with an average size of RM53,486, weighted term to maturity of 12.7 years and weighted average seasoning of 11.7 years. The cumulative prepayments on Portfolio 2005-2 rose to 12.08% of the initial pool balance from 10.41% since MARC’s last review and this translates to an average quarterly prepayment rate of 0.37% which remains well within MARC’s assumed stressed scenarios.

As of March 12, 2014, the total cash balance of RM564.3 million is sufficient to cover the upcoming RM320.0 million redemption of CMBS 2005-2 on December 11, 2015. The transaction’s structure which allows early redemption of the back-ended tranches reduces the risks relating to negative carry and asset-liability mismatches in the event of high prepayments. Under MARC’s assumed high stressed default rate of three times and zero prepayment, the projected collection of Portfolio 2005-2 should be able to comfortably cover the biggest portion of the repayment of RM385.0 million in 2020 with a remaining cash balance of RM221.7 million thereafter.

The stable outlook is premised on MARC’s expectation that Portfolio 2005-2 will continue to demonstrate stable performance in light of the high overcollateralisation ratio which allows CMBS 2005-2 to withstand adverse performance of the collateral pool.

Strengths