CAGAMAS MBS BERHAD (CMBS 2005-2) - 2019

MARC has affirmed its AAA rating on Cagamas MBS Berhad’s RM2,060.0 million asset-backed fixed rate serial bonds (CMBS 2005-2) with a stable outlook.

The rating affirmation essentially reflects CMBS 2005-2’s substantial credit enhancement level of 253.0% based on an outstanding principal balance of non-defaulted mortgages of RM933.5 million and combined cash and permitted investments of RM711.3 million. The bond programme has an outstanding amount of RM650.0 million as at end-June 2018.

Cagamas MBS is a wholly-owned special purpose vehicle of Cagamas Holdings Berhad established to undertake the securitisation of conventional and Islamic home financing originated by the Malaysian government. CMBS 2005-2 is backed by a pool of government staff housing loans (GSHL), or Portfolio 2005-2. Direct monthly salary/pension deductions form the source of repayment for CMBS 2005-2, minimising repayment risk.

The collateral pool performance of CMBS 2005-2 remains satisfactory after 53 quarters of performance, supported by the portfolio’s historically low cumulative default rates (CDR) of the initial pool balance. As at end-June 2018, the CDR stood at 0.57%, well below MARC’s projection of 5.35%. GSHL defaults, 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 2005-2’s delinquency rates during the current review period have been less volatile, ranging between 1.21% and 1.59%, partly due to timely system updates.

The cumulative prepayment rate on Portfolio 2005-2 stood at 18.0% as at Quarter 53, with the average quarterly prepayment rate remaining stable at 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-June 2018, its cash and cash equivalents of RM711.3 million is more than sufficient to meet its next redemption of RM385.0 million under Tranche 6 due on December 11, 2020.

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

• Robust credit enhancement level supported by high over-collateralisation; and
• Low default rates.

Challenge/Risk

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