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

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. 

The collateral pool performance of CMBS 2005-1 remains strong after 51 quarters (at end-October 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 2007-1-i stood at 13.56% as at Quarter 51, with the average quarterly prepayment rate remaining stable at 0.27% (Quarter 47: 0.27%). 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 2007-1-i’s strong credit enhancement level which stood at 199.0% at end-October 2019. The outstanding principal of non-defaulted home financing stood at RM971.5 million and combined cash and permitted investments at RM248.0 million. The repayment on the next tranche of RM320.0 million on May 27, 2022 will be met by future collections and its cash balances. The sukuk programme currently has an outstanding amount of RM610.0 million.