RAM Ratings reaffirms AAA rating of Cagamas MBS's CMBS 2004-1, with a stable outlook

Published on 08 December 2011
RAM Ratings has reaffirmed the AAA rating of Series 4 of Cagamas MBS Berhad’s (“Cagamas MBS”) RM1,555 million residential mortgage-backed securities (“RMBS” or “Bonds”), i.e. CMBS 2004-1, with a stable outlook. The Bonds are secured by a static portfolio of government staff housing loans (“GSHLs”) that are serviced via monthly deductions from the pensions of retired public-sector employees. The reaffirmation is premised on the available overcollateralisation (“OC”) ratio of 130.88% as at the latest reporting date of 20 October 2011, the overall performance of the collateral pool and the structural support afforded by the transaction structure.

The OC ratio is calculated against RM575.99 million of outstanding GSHLs and RM31.20 million repurchased GSHLs, together with RM189.35 million of cash balances 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” stress scenario,” explains Siew Suet Ming, RAM Ratings’ Head of Structured Finance Ratings.

As at 28 February 2011, the portfolio of GSHLs comprised 34,656 mortgage loans, with an average outstanding balance of RM16,620 per account; the weighted-average remaining term stood at 8.69 years. As at the same date, the cumulative prepayment rate came in at 11.05%, falling within our expectations. Meanwhile, 648 mortgages (with a total principal value of RM10.11 million) that were more than 6 months in arrears were mainly due to delayed notification to Bahagian Pinjaman Perumahan vis-a-vis borrowers who had passed away. Nonetheless, RAM Ratings does not expect the current level of delinquency to become a major concern because it represents only about 0.52% of the portfolio’s original principal balance.

On 20 October 2011, Cagamas MBS fully redeemed its RM290 million CMBS 2004-1 Series 3 Bonds. Following the redemption, RM345 million of the Bonds remain outstanding. RAM Ratings notes that Cagamas MBS did not exercise its prepayment option on the Series 4 Bonds on the same date, despite having met the minimum balance requirement of RM66 million after such prepayment. Based on the portfolio’s performance, our analysis indicates that the portfolio will be able to generate sufficient cash to cover the expected coupon payments on a timely basis, as well as the final principal repayment on the CMBS 2004-1 Series 4 Bonds on their maturity date.

Media contact
Lee Sook Wei
(603) 7628 1017
sookwei@ram.com.my