MARC has affirmed its AAA rating on Cagamas MBS Berhad’s (Cagamas MBS) asset-backed fixed rate serial bonds of RM2,060.0 million (CMBS 2005-2) with a stable outlook

Jun 11, 2013 -
MARC has affirmed its AAA rating on Cagamas MBS Berhad’s (Cagamas MBS) asset-backed fixed rate serial bonds of RM2,060.0 million (CMBS 2005-2) with a stable outlook. The rating action affects outstanding bonds of RM1,315.0 million. The affirmed rating is consider the strong credit enhancement levels for the outstanding bonds based on the transaction’s collection account balance of RM382.7 million and collateral pool balance of performing mortgages of RM1,828.4 million. In addition, the rating affirmation reflects satisfactory collateral performance, in particular its healthy prepayment levels and low default rates.
Wholly-owned by Cagamas Holdings Berhad, Cagamas MBS is a special purpose vehicle incorporated to acquire government staff housing loans/home financing from the Federal Government of Malaysia (GOM) through the issuance of asset-backed securities or any other forms of securities. At closing, Cagamas MBS acquired RM2,898.7 million worth of housing loans from GOM, collectively known as Portfolio 2005-2, which mainly comprise mortgages of public sector employees. At the close of the transaction, the overcollateralisation for the securitisation was 140.72%. The GOM’s Housing Loans Division, or Bahagian Pinjaman Perumahan (BPP), is the servicer of the securitised pool of GSIHFs while Cagamas Berhad is the administrator for the transaction.
As at the reporting date of March 12, 2013, Portfolio 2005-2’s outstanding balance stood at RM1,847.1 million (March 12, 2012: RM2,007.0 million), translating to an average loan size of RM56,997.2 for 32,407 fixed-rate mortgages. Performing loans dropped to 88.89% from 94.22% of the outstanding pool balance on March 12, 2013 due to the significant increase in one-month delinquent loans amounting to RM152.3 million (March 12, 2012: RM66.3 million). MARC expects the delinquencies which were mainly the result of administrative and operational delays to normalise in subsequent months. Portfolio 2005-2’s cumulative default rate remains resilient at 0.65% after 29 quarters of performance, which is lower than MARC’s projected cumulative default rate of 2.47%.  The majority of defaults experienced have been the result of suspended salary and pension deductions arising from the changes in borrowers’ employment statuses, eg. employment suspension and death.  Meanwhile, Portfolio 2005-2 registered a cumulative prepayment rate of 10.41%, or an average quarterly prepayment rate of 0.36%.
Meanwhile, CMBS 2005-2’s credit enhancement level of 168.14% (March 12, 2012: 155.81%), which is supported by cash and permitted investment of RM382.7 million, continues to offer ample credit protection to the transaction. With the current funds in the collection account, CMBS 2005-2 should have sufficient liquidity to redeem the upcoming RM320.0 million Tranche 4 bonds maturing on December 11, 2015. Higher-than-expected prepayment risk is mitigated through the transaction structure which allows for early partial or full redemption of the final tranche of CMBS 2005-2 provided balances in the collection account post-redemption are maintained above RM90.0 million. Portfolio 2005-2 can still adequately service the outstanding bonds under the ‘AAA’ stress scenario which assumes that defaults are three times the base case anticipated for the transaction in addition to a 50% reduction in prepayment rates and 100% increase in prepayment rates.
The stable outlook reflects MARC’s expectation that Portfolio 2005-2 will continue to demonstrate stable performance in light of the high overcollateralisation ratio at transaction close which allows CMBS 2005-2 to withstand adverse performance of the collateral pool.
Contacts:
Ng Chun Kean, +603-2082 2230/ chunkean@marc.com.my;
Tan Eng Keat, +603-2082 2265/ engkeat@marc.com.my;
David Lee, +603-2082 2255/ david@marc.com.my