CREDIT ANALYSIS REPORT

CAGAMAS MBS BERHAD - 2020

Report ID 60513 Popularity 1342 views 37 downloads 
Report Date May 2020 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 RM2,060.0 million asset-backed fixed rate serial bonds (CMBS 2005-2) with a stable outlook. 

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. 

The collateral pool performance of CMBS 2005-2 remains strong after 56 quarters (at end-March 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 2005-2 stood at 18.32% as at Quarter 56, with the average quarterly prepayment rate remaining stable at 0.33%. 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. 

The affirmed rating and outlook reflect CMBS 2005-2’s strong credit enhancement level which stood at 255.2% at end-March 2019. The outstanding principal of non-defaulted home financing stood at RM839.0 million and with combined cash and permitted investments of RM820.0 million, it has more than sufficient liquidity to meet its next redemption of RM385.0 million under Tranche 6 due on December 11, 2020. The bond programme currently has an outstanding amount of RM650.0 million.

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.

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