MARC has affirmed the AAA rating of Cagamas MBS Berhad’s (Cagamas MBS) asset-backed fixed rate serial bonds of RM2,060.0 million (CMBS 2005-2) with a stable outlook. The rating action affects the outstanding bonds of RM1,585.0 million. CMBS 2005-2 represents the third residential mortgage-backed securitisation issuance by Cagamas MBS. The affirmed rating reflects strong credit enhancement levels for the outstanding bonds based on a collection account balance of RM308.1 million and the collateral pool balance of performing mortgages of RM2,152.1 million. In addition, the collateral pool containing seasoned mortgages of high credit quality has demonstrated stable performance thus far. The affirmed rating also benefits from satisfactory management of collateral servicing and transaction administration.
 
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 housing loans (GSHLs), originated under both Islamic and conventional principles, from the Government of Malaysia (GOM), by issuing asset-backed securities. The collateral backing this transaction is a pool of eligible GSHLs (Portfolio 2005-2) 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 2005-2.

Based on Cagamas’ quarterly servicer report for CMBS 2005-2 dated March 14, 2011 (the reporting date), Portfolio 2005-2’s balance registered at RM2,169.6 million and consisted of 34,293 fixed-rate mortgages, each having an average size of RM63,267.70 and a weighted average maturity of 15.5 years. Since MARC’s last review in August 2010, the transaction’s credit enhancement level had increased to 155.21% owing to the collateral pool’s strong performance. Portfolio 2005-2 has performed above expectations, reflected by its low cumulative default rate of 0.61% against MARC’s assumed cumulative default rate of 5.14%. A majority of the defaults as of the reporting date are the result of data reconciliation lags and delays in salary and/or pension deductions due to changes in the employment statuses of borrowers. Meanwhile, the collateral pool’s cumulative prepayment rate of 6.90% remained within MARC’s range of assumed prepayment rates.
 
MARC’s cash flow analysis has shown that the bonds can still be adequately serviced under high-stress default scenarios for AAA-rated transactions, supported by available funds in the Collection Account which are sufficient to cover the scheduled redemption of RM270.0 million of Tranche 3 bonds on December 12, 2012. Cagamas MBS may exercise the option to partially redeem the final tranche of CMBS 2005-2 on the next scheduled redemption date on the condition that RM90 million remains in the Collection Account post redemption.
 
MARC’s stable outlook for CMBS 2005-2 is premised on both the expectation that the collateral pool will continue to show stable performance and the transaction’s high collateralisation ratio, which allows the bonds to withstand a large increase in mortgage defaults and loss rates. MARC considers the risk of shortfalls arising from unexpectedly high prepayments to be well mitigated by CMBS 2005-2’s sizeable accumulated liquidity reserves.

Contacts:
Ruben Khoo, +603-2082 2265/ rubenkhoo@marc.com.my;
Sandeep Bhattacharya, +603-2082 2247/ sandeep@marc.com.my.