CAGAMAS MBS BERHAD (CMBS 2005-1) - 2018

MARC has affirmed its AAAIS rating on Cagamas MBS Berhad’s RM2,050.0 million asset-backed Sukuk Musyarakah issuance (CMBS 2005-1) with a stable outlook. The rating affects the final tranche of sukuk under CMBS 2005-1 amounting to RM400.0 million.

Wholly owned by Cagamas Holdings Berhad, Cagamas MBS was incorporated as a special purpose vehicle 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.

The affirmed rating is based on CMBS 2005-1’s strong credit enhancement level of 350.8% as at September 30, 2017 (Quarter 50) with an outstanding principal of non-defaulted home financing of RM1,045.5 million and a combined cash at bank and permitted investments of RM357.6 million. With quarterly cashflow of about RM37.2 million, MARC expects Cagamas MBS to have sufficient cash by end-2018 to cover the payment on the final tranche of RM400.0 million due on August 7, 2020.

The rating also incorporates the good credit quality of the underlying collateral pool of GSIHF comprising 27,826 accounts. The collateral pool has continued to demonstrate strong performance as reflected by a low cumulative default rate (CDR) of 0.81% as at Quarter 50. Given the historic low CDR, MARC has revised its base case final CDR for Quarter 60 to 1.92% from the initial projection of 6.00% with an assumed quarterly default rate of 0.11% for the remaining 2.5 years of CMBS 2005-1. The defaults, which are defined as GSIHF accounts in arrears for more than nine months, were mainly due to incomplete accounts reconciliation, pending assessment on the status of borrower accounts and pending claims on mortgage reducing term assurance (MRTA). The default risk of the collateral pool is expected to remain low, underpinned by the mortgage payment mechanism through deductions of monthly salary or pension.

The cumulative prepayment rate on Portfolio 2005-1 stood at 14.87% as at Quarter 50, with the average quarterly prepayment rate remaining stable at 0.30%. 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 mechanism which allows for partial early redemption of CMBS 2005-1’s Tranche 6 which matures in August 2020.

The stable outlook is premised on MARC’s expectations 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 over-collateralisation; and
• Satisfactory performance of the collateral pool.

Challenge/Risk

• Reinvestment risk associated with prepaid home financing.