MARC has affirmed the AAAIS rating of Cagamas MBS Berhad’s (Cagamas MBS) RM2,110.0 million mortgage-backed Sukuk Musyarakah issuance (CMBS 2007-1-i) with a stable outlook. CMBS 2007-1-i represents the fourth residential mortgage-backed securitisation issuance by Cagamas MBS. The affirmed rating reflects an increase in the transaction’s credit enhancement levels due to loan payoffs and amortisation in addition to the satisfactory performance of the securitised mortgage portfolio to date with regard to its stable delinquency and low cumulative default rates. Underpinning the stable performance of the pool is its weighted average seasoning of 5.8 years and the high credit quality obligors. The affirmed rating is also supported by the adequate monitoring capabilities of the transaction administrator, Cagamas Berhad (Cagamas).

Cagamas MBS is a limited purpose entity and a wholly-owned subsidiary of Cagamas Holdings Berhad (Cagamas Holdings) whose principal activities are restricted to securitising Government Staff Islamic Home Financing (GSIHF), originated under Islamic principles, from the Government of Malaysia (GOM), by issuing asset-backed securities. The collateral backing this transaction is a pool of eligible GSIHFs (Portfolio 2007-1-i) on which monthly mortgage installments are made via direct salary/pension deductions. The GOM’s Housing Loans Division, or Bahagian Pinjaman Perumahan (BPP), is the servicer of Portfolio 2007-1-i.

Based on Cagamas’ quarterly performance report for Portfolio 2007-1-i dated May 31, 2010 (the reporting date), CMBS 2007-1-i’s outstanding mortgage portfolio consisted of 25,359 fixed-rate mortgages with an outstanding pool balance of RM2,212.7 million, excluding RM8.04 million in defaults (loan amounts in arrears for more than 9 months); this compares to the portfolio’s position at issuance on January 31, 2007, which consisted of 26,061 fixed-rate mortgages worth RM2,538.2 million in total. Additionally, Cagamas MBS had redeemed its RM330.0 million Tranche 1 Sukuk under on May 27, 2010, and did not exercise its option to partially redeem Tranches 6 and 7 of CMBS 2007-1-i, leaving the total amount of outstanding Sukuk at RM1,780.0 million. Following this, credit enhancement level had increased to 125.9% on the back of cash and permitted investments of RM28.9 million in CMBS 2007-1-i’s Collection Account and the principal balance of performing mortgages within the collateral pool.

On the reporting date, the cumulative default rate for the collateral pool registered at 0.32%, which is significantly lower than MARC’s assumed cumulative default rate of 1.08% for the same period. The performance report attributes a majority of the defaults to withheld salary deductions for government staff who had been transferred to other departments or states. At the same time, the pool’s cumulative prepayment rate registered at 2.18% against MARC’s assumed cumulative prepayment rate of 2.47%. MARC notes that a lower prepayment rate does pose a liquidity concern if it were to persist on a protracted basis. However, MARC is of the opinion that much of this concern is presently moderated by the pool’s stable record of low defaults and the high level of credit enhancement supporting the Sukuk.
 
Going forward, MARC expects Portfolio 2007-1-i to continue to perform well based on the historical performance of the pool. Should Cagamas MBS choose to exercise its option to redeem the last two tranches of CMBS 2007-1-i on the next scheduled redemption date, a RM90 million cash balance must remain in the Collection Account post redemption. This ensures a minimum amount of liquidity protection for future interest and principal payments.

Contacts:
Ruben Khoo Sheng Luen, 03-2082 2265/ rubenkhoo@marc.com.my;
Sandeep Bhattacharya, 03-2082 2247/ sandeep@marc.com.my.