RAM Ratings reaffirms AAA rating of Cagamas MBS's CMBS 2007-1-i, with stable outlook

Published on 13 April 2012
RAM Ratings has reaffirmed the AAA rating of Cagamas MBS Berhad’s RM2.11 billion Islamic residential mortgage-backed securities (“RMBS”), i.e. CMBS 2007-1-i, with a stable outlook. The reaffirmation is premised on the available overcollateralisation (“OC”) ratio of 28.14% (as at the reporting date of 29 November 2011), supported by the overall performance of the collateral pool, and the credit enhancement afforded by the transaction structure. The stable outlook reflects RAM Ratings’ opinion that the trends in 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 RM2.03 billion of outstanding GSIHFs and RM246.69 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.

As at 31 July 2011, the portfolio of GSIHFs comprised 24,696 accounts, with an average outstanding balance of RM82,367 per account; the portfolio’s weighted-average remaining term came up to 16.76 years. As at the same date, the cumulative net default rate for the underlying financing portfolio stood at 0.43%, as a percentage of the principal balance on the purchase date – this is well below RAM Ratings’ base-case assumption. While the cumulative prepayment rate on the underlying GSIHFs stood at 3.85%, i.e. lower than RAM Ratings’ base-case assumption, prepayments in the last 2 years have been hovering at higher levels than the initial years. We expect prepayments to pick up as the pool becomes more seasoned through time.

More recently, it was announced that civil servants under the revised Malaysian Remuneration System (Sistem Saraan Malaysia) will receive 7%–13% salary increments, expected to be paid out sometime in April 2012. However, given that the profit rates on the GSIHFs are below current market levels and mounting concerns over the rising cost of living, RAM Ratings expects the salary adjustment to cause minimal spikes in prepayment levels.

As highlighted in our last review, a lower-than-assumed prepayment rate - albeit with no material impact on the transaction’s rating at this juncture - exposes the transaction to higher liquidity risk. On this front, RAM Ratings will maintain close monitoring of this transaction to ensure that its rating reflects the overall credit quality of the collateral pool and the credit support afforded by the structure.

Based on the closing cash balance of RM246.69 million (inclusive of permitted investments) as at 29 November 2011 and an expected monthly net cash inflow of approximately RM10 million, we expect the transaction to accumulate sufficient funds by 29 May 2012 to redeem the RM255 million Tranche 2 RMBS falling due. Upon full redemption of Tranche 2, RM1.525 billion of the RMBS (i.e. Tranches 3 to 7) will remain outstanding.

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