MARC AFFIRMS ITS AAA RATING ON CAGAMAS MBS BERHAD’S RM2,410.0 MILLION ASSET-BACKED FIXED RATE SERIAL BONDS (CMBS 2007-2)

Jun 19, 2012 -

MARC has affirmed its AAA rating on Cagamas MBS Berhad’s (Cagamas MBS) asset-backed fixed rate serial bonds (CMBS 2007-2) of RM2,410.0 million with a stable outlook. The rating action affects the outstanding bonds of approximately RM1,895.0 million. The affirmed rating on the residential mortgage-backed bonds reflect a strong credit enhancement level of 133.7% for the outstanding bonds, supported by the transaction’s collections account balance of RM452.5 million and the outstanding principal of non-defaulted mortgages of RM2,080.7 million. At the same time, CMBS 2007-2’s underlying collateral pool of seasoned and high credit quality mortgages has continued to perform well since MARC’s last review. 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 home financing and conventional housing loans of public sector employees originated by the Government of Malaysia (GOM). The collateral backing this transaction is Portfolio 2007-2, a pool of eligible government staff housing loans (GSHLs) on which monthly mortgage instalments are made via direct salary/pension deductions. The GOM’s Housing Loans Division, or Bahagian Pinjaman Perumahan (BPP), is the servicer of Portfolio 2007-2.

Based on the servicer’s quarterly report for CMBS 2007-2 dated February 22, 2012 (the reporting date), the outstanding principal of the collateral pool totalled RM2,093.9 million, representing 57,209 fixed-rate mortgages with an average size of RM36,601 each, a weighted term to maturity of 12.6 years and a weighted average seasoning of 11.7 years. Up to the reporting date, Portfolio 2007-2’s cumulative default rate had registered at 0.44% and was below MARC’s expected cumulative default rate of 1.73%. The majority of the RM13.24 million in defaults (loan amounts in arrears for more than 9 months) under the transaction are the result of data reconciliation lags and delays in salary and/or pension deductions due to changes in the employment status of government staff. At the same time, Portfolio 2007-2’s cumulative prepayment rate of 6.82% also fell within MARC’s assumed range of prepayment scenarios.

MARC’s cash flow analysis supports expectations that sufficient funds will be built up for Tranche 2 worth RM375.0 million on August 22, 2012. Cagamas MBS will be able to exercise the option to partially redeem the final tranche of CMBS 2007-2 on the next scheduled redemption date on the condition that RM90 million remains in the Collection Account post redemption. The cash flow analysis also demonstrates that the bonds are able to withstand ‘AAA’ default and prepayment scenarios for their remaining tenure. Notwithstanding, MARC acknowledges that actual liquidity levels could differ from projections due to differences between observed and simulated early redemption in relation to timing and redemption amount.

MARC’s stable outlook for CMBS 2007-2 is premised on the collateral pool’s stable performance and its high overcollateralisation ratio, which allows the bonds to withstand a large increase in mortgage defaults and loss rates.

Contacts:
Ng Chun Kean, +603-2082 2230/ chunkean@marc.com.my;
Jason Kok, +603-2082 2258/ jason@marc.com.my;
David Lee, +603-2082 2255/ david@marc.com.my.