Rating action     
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.

Rationale       

The affirmed rating reflects CMBS 2005-2’s very strong credit enhancement level of 494.2% on CMBS 2005-2 based on an outstanding principal balance of non-defaulted mortgages of RM699.6 million and combined cash and permitted investments of RM610.1 million. The bond programme currently has an outstanding amount of RM265.0 million.

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. Direct monthly salary/pension deductions form the source of repayments for CMBS 2005-2, minimising repayment risk.

The collateral pool performance of CMBS 2005-2 remains strong, supported by the portfolio’s historically low cumulative default rates (CDR) of the initial pool balance. As at end-March 2020, the CDR stood at 0.25%, well below MARC’s revised projection of 2.15%. GSHL defaults, classified as accounts in arrears for more than nine months, were mainly due to pending assessment on the status of borrower accounts as well as pending claims on mortgage reducing term assurance (MRTA).

The cumulative prepayment rate on Portfolio 2005-2 stood at 19.27% as at Quarter 60, with the average quarterly prepayment rate remaining stable at 0.32%. Risk of negative carry from higher-than-expected repayments is mitigated by the conditional pass-through mechanism that allows for early redemption of the bonds in reverse order with the last tranche being paid first. Liquidity risk from lower-than-expected prepayments is deemed very low due to Cagamas MBS’ strong liquidity buffer. As at end-March 2020, its combined cash and permitted investments of RM610.1 million is more than adequate to meet its final redemption of RM265.0 million under Tranche 7 due on December 12, 2025.

Rating outlook     

The stable outlook is premised on our expectations of continued stable collateral performance and a sustained high credit enhancement level that remains supportive of the rating.

Rating trajectory

Downside scenario     
Downward rating pressure is very minimal given the more than sufficient outstanding principal balance of non-defaulted mortgages and accumulated cash balances to meet principal and interest payments.