CREDIT ANALYSIS REPORT

CAGAMAS MBS BERHAD (CMBS 2007-2) - 2019

Report ID 5940 Popularity 1303 views 97 downloads 
Report Date May 2019 Product  
Company / Issuer Cagamas MBS Bhd Sector Residential Mortgages
Price (RM)
Normal: RM500.00        
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Rationale

MARC has affirmed its AAA rating on Cagamas MBS Berhad’s RM2,410.0 million asset-backed fixed rate serial bonds (CMBS 2007-2) with a stable outlook.

The rating affirmation mainly reflects CMBS 2007-2’s strong credit enhancement level of 220.4% as at August 31, 2018 (Quarter 46) with an outstanding principal of non-defaulted mortgage loans of RM755.9 million and combined cash and permitted investments of RM599.4 million. The bond programme has an outstanding amount of RM615.0 million as at end-August 2018.

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 2007-2 is backed by a pool of government staff housing loans (GSHL), or Portfolio 2007-2. Direct monthly salary/pension deductions form the source of repayment for CMBS 2007-2 which minimise repayment risk.

The collateral pool performance of CMBS 2007-2 remains strong after 46 quarters of performance, supported by the portfolio’s historically low cumulative default rates (CDR) of the initial pool balance. As at end-August 2018, the CDR stood at 0.46%, well below MARC’s projection of 3.41%. GSHL defaults, which are classified as accounts in arrears for more than nine months, 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 assurance (MRTA). Meanwhile, the portfolio 2007-2’s delinquency rates during the current review period have been less volatile, ranging between 1.54% and 1.93%, partly due to timely system updates.

The cumulative prepayment rate on Portfolio 2007-2 stood at 15.32% as at Quarter 46, with the average quarterly prepayment rate remaining stable at 0.33% (Quarter 42: 0.34%). 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. While Cagamas MBS may face liquidity risk in the event of lower-than-expected prepayments, the risk is deemed very low due to its strong liquidity buffer. As at end-August 2018, its cash and cash equivalents of RM599.4 million is sufficient to meet its upcoming redemption of RM260.0 million under Tranche 5 due on August 22, 2019.

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 over-collateralisation; and
  • Low default rates of the collateral pool.

Challenge/Risk

  • Risk of negative carry from higher-than-expected prepayments.
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