CREDIT ANALYSIS REPORT

CAGAMAS MBS BERHAD (CMBS 2005-1) - 2017

Report ID 5481 Popularity 142 views 0 downloads 
Report Date May 2017 Product  
Company / Issuer Cagamas MBS Bhd Sector Residential Mortgages
Price (RM)
Normal: RM500.00        
  Add to Cart
Rationale

MARC has affirmed its AAAIS rating on Cagamas MBS Berhad’s (Cagamas MBS) RM2,050.0 million asset-backed Sukuk Musyarakah issuance (CMBS 2005-1) with a stable outlook. The sukuk programme has an outstanding amount of RM810.0 million as at end-September 2016.

Cagamas MBS is a wholly-owned special purpose vehicle of Cagamas Holdings Berhad and was established to undertake the securitisation of conventional and Islamic home financing originated by the Malaysian government. CMBS 2005-1 is backed by a pool of government staff Islamic home financing (GSIHF), or Portfolio 2005-1. Repayment risk is low as the periodic obligations of CMBS 2005-1 are met through direct salary or pension deductions monthly.

The affirmed rating is premised on CMBS 2005-1’s strong credit enhancement level of 220.4% as of September 30, 2016 (Quarter 46) with a combined cash at bank and permitted investments of RM597.9 million and outstanding principal of non-defaulted home financing of RM1,187.1 million comprising 28,790 fixed-rate accounts. MARC is of the view that the current credit enhancement level would allow CMBS 2005-1 to withstand any adverse performance of the collateral pool in respect of defaults and prepayments.

The performance of Portfolio 2005-1 remains satisfactory as at Quarter 46 with a cumulative default rate (CDR) of 0.79% of the initial pool balance, which remains well below MARC’s projected CDR of 4.60%. Defined as accounts in arrears exceeding nine months, the defaults were mainly due to administrative delays in deduction on changes in customers’ status and processing time on takaful claims on deceased customers. Irregular delinquency rates (accounts in arrears for three months or less) were mainly due to technical issues pertaining to the timing of monthly salary deductions or payment centres updating into the Sistem Pinjaman Perumahan Bersepadu (collection system).

Portfolio 2005-1’s cumulative prepayment rate was 13.91% as at Quarter 46, while the average quarterly prepayment rate for the current review period remained stable at 0.30% (Quarter 42: 12.81%; 0.31%). MARC notes that in the event of an unexpectedly high volume of prepayments, the risk of a negative carry position will be mitigated by the transaction’s conditional pass-through provision feature which allows for partial early redemption of CMBS 2005-1’s Tranche 6 which matures in August 2020. This is, however, subject to the availability of at least RM66.0 million in CMBS 2005-1’s collection account post-redemption. MARC also notes that Portfolio 2005-1’s weighted average term to maturity of 9.6 years against the remaining term to maturity of 3.5 years of CMBS 2005-1 further reduces the risk of an asset-liability mismatch. 

MARC expects the upcoming redemption of Tranche 5 of RM410.0 million on August 8, 2017 to be met by the current cash and cash equivalents of RM597.9 million as at end-September 2016.

The stable outlook is premised on the rating agency’s expectation of continued stable collateral performance and a sustained high credit enhancement level that remains supportive of the rating. 

Major Rating Factors

Strengths

  • Substantial credit enhancement in the form of high overcollateralisation;
  • Satisfactory performance by the collateral pool; and
  • Well-managed collateral servicing and transaction administration.

Challenges/Risks

  • Reinvestment risk associated with prepaid home financing; and
  • Risk of negative carry from higher-than-expected prepayments.
Related