Rating action     

MARC Ratings has affirmed its rating of AAA on Cagamas MBS Berhad’s RM2,410.0 million asset-backed fixed rate serial bonds (CMBS 2007-2) with a stable outlook.     

Rationale     

The rating incorporates CMBS 2007-2’s very high accumulated cash and permitted investments of RM597.0 million as at the reporting date of November 22, 2022, which is more than sufficient to cover the outstanding principal of the issuance amounting to RM105.0 million as well as its remaining coupon obligations of about RM25.5 million under tranche 7. The final redemption is due on August 20, 2027.     

Cagamas MBS 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. Direct monthly salary/pension deductions form the source of repayment for CMBS 2007-2.     

The collateral pool performance of CMBS 2007-2 has remained strong as reflected by the high credit enhancement level of 893.2%, supported by the portfolio’s historically low cumulative default rate (CDR) of 0.11% of the initial pool balance. The CDR is well below the initial projection. GSHL defaults, classified as accounts in arrears for more than nine months, were mainly due to pending assessment on the status of borrower accounts and pending claims on Mortgage Reducing Term Assurance (MRTA).     

The pool’s transaction terms allow for prepayments of the last two tranches upon meeting certain conditions; this option has not been exercised as the conditions have not been met. In particular, cash flow arising from the excess prepayments remained short of the projected amount while the outstanding principal of about 11.4% of the initial principal outstanding during the current review period is higher than the threshold of 10% that is required to allow for prepayment.     

Rating outlook/trajectory     

The stable outlook reflects the fully cash-collateralised position of CMBS 2007-2, among other key factors; the outlook is not expected to change over the redemption period.     

Key strengths