CAGAMAS MBS BERHAD (CMBS 2007-1-i) - 2018

MARC has affirmed its AAAIS on Cagamas MBS Berhad’s RM2,110.0 million asset-backed Sukuk Musyarakah issuance (CMBS 2007-1-i) with a stable outlook.

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 2007-1-i is backed by a pool of government staff Islamic home financing (GSIHF), or Portfolio 2007-1-i.

The affirmed rating is based on CMBS 2007-1-i’s strong credit enhancement level of 167.1% as at October 31, 2017 (Quarter 43) with an outstanding principal of non-defaulted home financing of RM1,224.9 million and a combined cash at bank and permitted investments of RM204.0 million. The sukuk programme has an outstanding amount of RM855.0 million as at end-October 2017. The rating also incorporates the good credit quality of the underlying collateral pool of GSIHF comprising 20,963 accounts. MARC observes that the collateral pool has continued to demonstrate strong performance, with a cumulative default rate (CDR) of 0.57% as at Quarter 43.

MARC has now revised the base case final CDR for Quarter 80 to 4.27% from the initial projection of 8.19% with an assumed quarterly default rate of 0.10% for the remaining 9.25 years of CMBS 2007-1-i. Defined as GSIHF accounts that are in arrears for more than nine months, the defaults were mainly due to incomplete accounts reconciliation and pending assessment on the status of borrower accounts as well as pending claims on mortgage reducing term takaful (MRTT). 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 2007-1-i stood at 11.29% as at Quarter 43, with the average quarterly prepayment rate remaining stable at 0.26%. Risk of negative carry arising from higher-than-expected prepayments is addressed by the conditional pass-through mechanism that allows for early redemption of the bonds in reverse order with the last tranche being paid first. CMBS 2007-1-i’s liquidity buffer remained strong, with cash and cash equivalents of RM204.0 million as at October 31, 2017 accounting for 83.3% of Tranche 5 amounting to RM245.0 million which is due on May 29, 2019.

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 overcollateralisation; and
• Satisfactory performance by the collateral pool.

Challenges/Risks

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