RAM Ratings reaffirms AAA rating of Cagamas MBS's CMBS 2005-1, with stable outlook

Published on 01 December 2011
RAM Ratings has reaffirmed the AAA rating (with a stable outlook) of Cagamas MBS Berhad’s (Cagamas MBS) RM2.05 billion Sukuk Musyarakah Islamic residential mortgage-backed securities (2005/2020), known as CMBS 2005-1. The reaffirmation is premised on the available overcollateralisation (OC) ratio of 57.27% as at 31 March 2011, the overall performance of the collateral pool, and the structural support afforded by the transaction structure. The stable outlook reflects RAM Ratings’ belief that the pattern of defaults and losses as well as prepayments on the government staff Islamic home-financing facilities (GSIHFs) will continue to fall within our expectations.

The OC ratio is calculated against RM2.04 billion of outstanding GSIHFs and RM448.82 million of cash and permitted investments. “This level of OC provides sufficient protection against the risk of prepayment, negative variance of investment returns and defaults under an “AAA” stressed scenario,” explains Siew Suet Ming, RAM Ratings’ Head of Structured Finance Ratings.

As at 31 March 2011, the portfolio of GSIHFs comprised 34,094 accounts, with an average outstanding balance of RM59,948 per account; the weighted-average remaining term came up to 14.64 years. As at the same date, the cumulative net default rate for the underlying financing portfolio stood at 0.45% (as a percentage of the principal balance on the purchase date), below RAM Ratings’ base-case assumption.
Meanwhile, the cumulative prepayment rate on the underlying GSIHFs stood at 6.07%. Based on the current portfolio performance, we expect sufficient cash to be accumulated for the partial redemption of Tranche A6 in 2012 (the next scheduled maturity date of the sukuk). However, we note that the low levels of prepayment have heightened liquidity risk; should the portfolio of GSIHFs continue exhibiting the current trend of low prepayments and should Cagamas MBS exercise its option to prepay Tranche A6 of the sukuk on each maturity date, the transaction could face liquidity pressure in 2017, i.e. when Tranche A5 becomes due.

All said, however, we note that Cagamas MBS undertakes a liquidity analysis before any decision to exercise the option to prepay Tranche A6. As such, we believe that any prepayment of Tranche A6 would not be to the extent that it would have a material adverse effect on the transaction.

Media contact
Woon Tien Ern
(603) 7628 1040
tienern@ram.com.my