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. 

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 58 quarters (at end-September 2019) supported by the portfolio’s historically low cumulative default rates of the initial pool balance. While defaults could increase, stemming from the impact of the COVID-19 pandemic, 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 16.62% as at Quarter 58, with the average quarterly prepayment rate remaining stable at 0.29%. 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 affirmed rating and outlook reflect CMBS 2005-1’s strong credit enhancement level which stood at 364.1% at end-September 2019. The outstanding principal of non-defaulted home financing stood at RM764.3 million and with combined cash and permitted investments of RM692.3 million, it has more than sufficient liquidity to meet the payment on the final tranche of RM400.0 million which is due on August 7, 2020.