RAM reaffirms AAA rating of Cagamas MBS’s CMBS 2007-2

Published on 25 January 2013

RAM has reaffirmed the AAA rating (with a stable outlook) of Cagamas MBS Berhad’s (“Cagamas MBS”) RM2.41 billion residential mortgage-backed securities (2007/2027), known as CMBS 2007-2. The reaffirmation is premised on the available collateral buffer in the form of a 43.36% overcollateralisation (“OC”) ratio as of the last reporting date of 22 August 2012, backed by the overall performance of the collateral pool and the structural features of the transaction. The stable outlook reflects RAM’s belief that the pattern of defaults and losses as well as prepayments on the government staff housing loans (“GSHLs”) will continue to fall within our expectations.

The OC ratio is calculated against RM1.99 billion of outstanding GSHLs and RM188.16 million of cash and permitted investments. This level of OC provides sufficient protection against the risk of prepayment, negative variance on investment returns and defaults under an “AAA” stressed scenario. As of the same reporting date, the cumulative net default rate for the underlying loan portfolio stood at 0.48% (as a percentage of the principal balance on the purchase date). The better-than-assumed default performance had, to some extent, compensated for the potential liquidity pressure stemming from the underlying GSHLs’ lower-than-assumed cumulative prepayment of 7.49% as of the same reporting date.

The transaction allows for optional prepayment on the last 2 tranches of CMBS 2007-2, i.e. Tranche 7 followed by Tranche 6 on each scheduled maturity date of Tranches 1 to 5. The early-amortisation option can be exercised using excess cashflow arising from higher-than-assumed prepayments, provided the accumulated cash in Collections Account 2007-2 exceeds RM90 million after prepayment. In the event the prepayment option becomes available, Cagamas MBS has undertaken to run a liquidity analysis before any decision to exercise the option. As such, we believe that any prepayment of Tranche 6 and 7 would not be detrimental to the rating of the transaction.

Under Budget 2013, the Government had announced an additional bonus of 1.5 months’ salary for the civil servants, with a minimum payment of RM500 to be paid over 3 instalments by January 2013. This was in addition to a pension increment and a one-off assistance for pensioners. Nonetheless, we envisage that the preferential interest rates on GSHLs and mounting concerns over the rising cost of living will moderate any spikes in prepayment levels. On a separate note, 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 will closely monitor the relevant developments and make announcements when necessary.

As at 29 February 2012, the portfolio of GSHLs comprised 56,254 mortgage loans, with an average outstanding balance of RM35,391 per account; the weighted-average remaining term came up to 12.25 years.

Media contact

Tan Han Nee

(603) 7628 1023

hannee@ram.com.my