MARC AFFIRMS ITS AAA RATING ON CAGAMAS MBS BERHAD’S RM1,555 MILLION ASSET-BACKED FIXED RATE SERIAL BONDS (CMBS 2004-1); OUTLOOK STABLE

Jun 6, 2011 -

MARC has affirmed the AAA rating of Cagamas MBS Berhad’s (Cagamas MBS) asset-backed fixed rate serial bonds of RM1,555.0 million (CMBS 2004-1) with a stable outlook. The rating action affects the outstanding Series 3 and Series 4 of CMBS 2004-1, totaling approximately RM635.0 million. The transaction’s affirmed rating reflects strong credit enhancement levels for the outstanding bonds, supported by a collections account balance of RM408.5 million and the outstanding principal of non-defaulted mortgages of RM629.8 million. The collateral pool, which comprises highly seasoned mortgage loans of high credit quality, continues to show stable performance. 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 government staff housing loans (GSHLs), originated under both Islamic and conventional principles, from the Government of Malaysia (GOM), by issuing asset-backed securities. The collateral backing this transaction is a pool of eligible GSHLs (Portfolio 2004-1) granted to government pensioners and serviced by direct deductions from the borrowers’ pension accounts. The GOM’s Housing Loans Division, or Bahagian Pinjaman Perumahan (BPP), is the servicer of Portfolio 2004-1.

Based on Cagamas’ quarterly servicer report for Portfolio 2004-1 dated April 20, 2011 (the reporting date), the outstanding mortgage portfolio comprised 37,382 fixed-rate mortgages with an outstanding pool balance of RM638.8 million, compared to the portfolio’s position at issuance represented by 68,396 fixed-rate mortgages worth RM1,935.7 million in total. The transaction’s credit enhancement level has risen further since MARC’s last review in October 2010 to 168.9% for the RM635.0 million outstanding bonds. The substantial credit enhancement level is attributed to the strong performance of the collateral pool, which continues to register a low cumulative default rate of 0.46% versus MARC’s 5.53% assumed cumulative default rate. The stable performance of the collateral pool benefits from its weighted average seasoning factor of 17.9 years. The majority of defaults as of the reporting date arose due to causes which are administrative in nature, including delays in notification of borrowers’ deaths and pending MRTA insurance claims. MARC considers mortgages in arrears for nine months or more as defaults and mortgages in arrears for less than 9 months as delinquencies. At the reporting date, total delinquent mortgages constituted 1.7% of the initial mortgage pool balance.

MARC’s cash flow analysis on the transaction demonstrates that the bonds can still be adequately serviced under ‘AAA’ high-stress default scenarios, with support from available funds in the Collection Account which will more than cover the scheduled redemption of RM290.0 million of Series 3 bonds maturing on October 20, 2011. The analysis has also considered low and high prepayment scenarios, within which the mortgage pool’s cumulative prepayment rate of 17.09% falls. Cagamas MBS may exercise the option to partially redeem Series 4 of CMBS 2004-1 on the next scheduled redemption date on the condition that RM66 million remains in the Collection Account post redemption.

MARC’s stable outlook for CMBS 2004-1 is premised on the stable performance of the transaction’s collateral pool and its high collateralisation ratio which allows the bonds to withstand a large increase in mortgage defaults and loss rates. MARC considers the risk of shortfalls arising from unexpectedly high prepayments to be well mitigated by CMBS 2004-1’s sizeable accumulated liquidity reserves.

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