CAGAMAS MBS BERHAD (CMBS 2007-1-i) - 2019

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

The rating affirmation reflects CMBS 2007-1-i’s substantial credit enhancement level of 168.7% as at October 31, 2018 (Quarter 47) based on an outstanding principal of non-defaulted home financing of RM1,097.0 million and combined cash and permitted investments of RM345.7 million. The sukuk programme has an outstanding amount of RM855.0 million as at end-October 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 2007-1-i is backed by a pool of government staff Islamic home financing (GSIHF), or Portfolio 2007-1-i. Direct monthly salary/pension deductions form the source of repayment for CMBS 2007-1-i which minimise repayment risk.

The collateral pool performance for CMBS 2007-1-i remains satisfactory after 47 quarters of performance, supported by the portfolio’s historically low cumulative default rates (CDR) of the initial pool balance. As at end-October 2018, the CDR stood at 0.54%, well below MARC’s projection of 4.27%. GSIHF defaults, classified as accounts in arrears for more than nine months, were mainly attributed to incomplete accounts reconciliation and pending assessment on the status of borrower accounts as well as pending claims on mortgage reducing term takaful (MRTT). Meanwhile, the portfolio 2007-1-i’s delinquency rates during the current review period have been less volatile, ranging between 1.17% and 1.52%, partly due to timely system updates.

The cumulative prepayment rate on Portfolio 2007-1-i stood at 12.48% as at Quarter 47, with the average quarterly prepayment rate remaining stable at 0.27% (Quarter 43: 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 has a strong liquidity buffer with its cash and cash equivalents standing at RM345.7 million as at October 31, 2018, sufficient to meet its upcoming redemption of RM245.0 million which is due on May 29, 2019.

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

Major Rating Factors

Strengths

• Robust credit enhancement supported by high over-collateralisation; and
• Satisfactory performance by the collateral pool.

Challenge/Risk

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