View Credit Analysis Report (6053630)

SubcategoryStructured Finance
Date Article2021-03-26 00:00:00
TitleCAGAMAS MBS BERHAD (CMBS 2007-2) - 2021
Rating action

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.


The affirmed rating reflects CMBS 2007-2’s very strong credit enhancement level of 324.0% as at August 31, 2020 (Quarter 54) with an outstanding principal of non-defaulted mortgage loans of RM510.9 million and combined cash and permitted investments of RM639.2 million. The bond programme currently has an outstanding amount of RM355.0 million.

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. Direct monthly salary/pension deductions form the source of repayment for CMBS 2007-2, minimising repayment risk.

The collateral pool performance of CMBS 2007-2 remains strong supported, by the portfolio’s historically low cumulative default rates (CDR) of the initial pool balance. As at end-August 2020, the CDR stood at 0.22%, well below MARC’s revised projection of 1.25%. GSHL defaults are classified as accounts in arrears for more than nine months, mainly due to pending assessment on the status of borrower accounts and pending claims on mortgage reducing term assurance (MRTA). 

The cumulative prepayment rate on Portfolio 2007-2 stood at 16.61% as at Quarter 54, with the average quarterly prepayment rate remaining stable at 0.31% (Quarter 50: 0.32%). 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. While Cagamas MBS may face liquidity risk in the event of lower-than-expected prepayments, the risk is deemed very low due to its strong liquidity buffer. As at end-August 2020, its combined cash and permitted investments of RM639.2 million is more than sufficient to meet its upcoming redemption of RM250.0 million under Tranche 6 due on August 20, 2022.

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. 

Key strengths
Strong credit enhancement supported by high over-collateralisation 
Satisfactory performance of collateral pool

Key risk

Risk of negative carry from higher-than-expected prepayments

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