Cagamas MBS Bhd (CMBS 2005-2) - 2015

Rationale MARC has affirmed its AAA rating on Cagamas MBS Berhad’s (Cagamas MBS) assetbacked 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 affirmed rating reflects the robust credit enhancement level of 170.3% on CMBS 2005-2 based on an outstanding principal balance of non-defaulted mortgages of RM1,510.5 million and a collection account balance of RM729.0 million. The rating also takes into account the good performance track record of the underlying collateral pool (Portfolio 2005-2) comprising government staff housing loans (GSHL) granted to eligible civil servants and government pensioners.

Cagamas MBS is a wholly-owned special purpose vehicle of Cagamas Holdings Berhad established solely for the issuance of mortgage-backed securities via the securitisation of eligible GSHL originated by the Government of Malaysia (GOM) under both Islamic and conventional principles. Direct salary/pension deductions by the Accountant General’s Department/Pension Administrator form the source of repayment for CMBS 2005-2. The GOM’s Housing Loans Division, or Bahagian Pinjaman Perumahan (BPP), is the servicer of Portfolio 2005-2.

Based on the latest servicer report dated March 12, 2015 (Quarter 37), Portfolio 2005-2 continued to exhibit high credit quality characteristics that were well within MARC’s expectations, with a cumulative default rate (CDR) of 0.57% and a cumulative prepayment rate of 13.57%. The collateral pool’s CDR was comfortably below MARC’s assumed rate of 3.05%. GSHL defaults, defined as accounts in arrears for more than nine months, were mainly attributed to lags and delays in deductions due to changes in eligibility status of borrowers and time taken processing insurance claims on deceased borrowers. Meanwhile, average quarterly delinquency rates (mortgages in arrears between one and nine months) during the period under review (Quarter 34 to Quarter 37) continued its downtrend to 1.75% from 2.99% (Quarter 30 to Quarter 33) since the implementation of the electronic funds transfer system in the Accountant General’s Department in 2013. The majority of these delinquent mortgages were usually resolved in subsequent quarters, as reflected by the collateral pool’s low CDR.

Cagamas MBS has significant cash buffer in the collection account to meet the upcoming RM320.0 million redemption of CMBS 2005-2 on December 11, 2015. To mitigate risk of negative carry and asset-liability mismatches due to high prepayments, CMBS 2005-2 has a conditional reverse pass through mechanism which allows early redemption of the back-ended tranches. Given the transaction’s current strong credit enhancement level and stable historical default and prepayment rates, MARC views Cagamas MBS as MARC Analysis Cagamas MBS Berhad 2 having strong capacity to withstand an adverse performance of Portfolio 2005-2. Nonetheless, MARC highlights that the majority of Portfolio 2005-2’s borrowers would be retired civil servants during the tailend tenure of CMBS 2005-2 which expires in 2025, given that the weighted average age of borrowers currently stands at 50 years. The rating agency expects the performance of the collateral pool in the longer term to be sustained by at source pension deductions.

The stable outlook is premised on MARC’s expectation that Portfolio 2005-2 will continue to demonstrate stable performance characterised by a high credit enhancement level that is supportive of the current rating.

Major Rating Factors

Strengths

• Robust credit enhancement level supported by high overcollateralisation;
• Satisfactory portfolio performance as reflected by healthy prepayment levels and low default rates; and
• Transaction structure provides sufficient credit protection.

Challenges/Risks

• Reinvestment risk associated with prepaid home financing
• Risk of higher-than-expected prepayments