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

Published on 25 January 2013

RAM Ratings has reaffirmed the AAA rating of Cagamas MBS Berhad’s (“Cagamas MBS”) outstanding RM345 million Series 4 under its 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 rating reaffirmation is premised on the available asset coverage for Series 4 in the form of an overcollateralisation (“OC”) ratio of 133.24% as at the latest reporting date of 22 October 2012, and the structural support afforded by the transaction structure. The higher OC ratio (28 February 2011: 130.88%) was underpinned by the portfolio’s sturdy performance. The OC ratio is premised on RM469.94 million of outstanding GSHLs and RM25.75 million of repurchased GSHLs, together with RM308.99 million of cash balances and permitted investments.

As at 29 February 2012, the portfolio of GSHLs comprised 29,779 mortgage loans, with an average outstanding balance of RM15,781 per account; the weighted-average remaining term stood at 8.31 years. As at the same date, the cumulative prepayment rate came up to 11.96%, i.e. within our expectations. Meanwhile, 777 mortgages (with a total principal value of RM10.75 million) were more than 6 months in arrears; this is equivalent to only about 0.56% of the portfolio’s original principal. Moving forward, we anticipate the portfolio to continue performing within our expectations.

Under Budget 2013, the Government had announced a pension increment and a one-time assistance for pensioners. RAM Ratings expects this “windfall” to have minimal impact on the transaction; we do not foresee prepayments to rise significantly as the interest rate on the GSHLs is below market levels. Additionally, Bahagian Pinjaman Perumahan will be restructured as part of the authorities’ plans to consolidate the fiscal deficit to ease the Government’s financial burden. We do not envisage any significant changes in underwriting standards for civil servants, other than in loan administration, collections and monitoring processes. RAM Ratings will closely monitor the relevant developments and make announcements when necessary.

On 20 October 2011, Cagamas MBS fully redeemed its RM290 million Series 3 under the Bonds. Following this, RM345 million of the Bonds (i.e. Series 4) remained outstanding. RAM Ratings notes that Cagamas MBS had not exercised its prepayment option on Series 4 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 Series 4 upon maturity. 

Media contact

Ang Jae Han

(603) 7628 1020

angjaehan@ram.com.my