CAGAMAS MBS BERHAD (CMBS 2005-1) - 2019

MARC has affirmed its AAA_IS 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.

The rating affirmation mainly reflects CMBS 2005-1’s strong credit enhancement level of 356.6% as at end-September 2018 (Quarter 54) with an outstanding principal of non-defaulted home financing of RM901.5 million and combined cash and permitted investments of RM524.8 million. Its cash and cash equivalents are sufficient to meet the payment on the final tranche of RM400.0 million which is due on August 7, 2020.

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 2005-1 is backed by a pool of government staff Islamic home financing (GSIHF), or Portfolio 2005-1.

The collateral pool performance of CMBS 2005-1 remains strong after 54 quarters of performance, supported by the portfolio’s historically low cumulative default rates (CDR) of the initial pool balance. As at end-September 2018, the CDR stood at 0.68%, well below MARC’s projection of 1.92%. GSIHF defaults, classified as 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 takaful (MRTT). 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 15.65% as at Quarter 54, 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 final tranche which matures in August 2020.

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

• Strong credit enhancement supported by high overcollateralisation; and
• Satisfactory performance of the collateral pool.

Challenge/Risk

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