MARC has affirmed its AAA rating on Cagamas MBS Berhad’s RM2,410.0 million asset-backed fixed rate serial bonds (CMBS 2007-2) 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 2007-2 is backed by a pool of government staff housing loans (GSHL), or Portfolio 2007-2. 

The collateral pool performance of CMBS 2007-2 remains strong after 50 quarters (at end-August 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 2007-2 stood at 16.03% as at Quarter 50, with the average quarterly prepayment rate remaining stable at 0.32% (Quarter 46: 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 2007-2’s strong credit enhancement level which stood at 316.7% at end-August 2019. The outstanding principal of non-defaulted home financing stood at RM623.7 million and with combined cash and permitted investments of RM500.3 million, it has more than sufficient liquidity to meet its next redemption of RM250.0 million under Tranche 6 due on August 22, 2022. The bond programme currently has an outstanding amount of RM355.0 million.