RAM reaffirms AAA/stable rating of Cagamas MBS’s CMBS 2005-2

KUCHING: RAM Ratings has reaffirmed the AAA/Stable rating of Cagamas MBS Bhd’s RM2.06 billion residential mortgage-backed securities ( 2005/ 2025) ( CMBS 2005-2).

Cagamas MBS is a limitedpurpose entity incorporated for the purpose of securitising government staff housing loans (GSHLs) and government staff Islamic home-financing facilities.

The reaffirmation of the rating is premised on CMBS 2005-2’s superior collateral coverage, with its over- collateralisation ( OC) ratio rising to 152.4 per cent as at the reporting date of December 12, 2017.

RAM said this was attributable to the securitised portfolio’s positive performance and the redemption of Cagamas MBS’s RM345 million Tranche 5 bonds during the review period, subsequent to which RM650 million remains outstanding.

“The portfolio’s OC ratio is backed by an outstanding mortgage principal of RM1.1 billion and RM515.9 million in cash and permitted investments,” RAM added. “The significant credit support provides an ample buffer against stressed default and prepayment levels under an AAA stressed scenario as well as negative variance on investment returns.

“Furthermore, the rating is supported by the non-discretionary repayment structure of the GSHLs, which reduces exposure to the credit risk of borrowers.”

During the review period, CMBS 2005-2’s monthly net default rate and monthly prepayment rate, on average, stood at 0.01 and 0.09 per cent, respectively. These translated into corresponding cumulative net default and prepayment rates of 0.53 per cent and 15.76 per cent, compared to our base level assumptions of 6.56 and 18.11 per cent.

The option to partially redeem the last two tranches, although permitted, has not been exercised as cashflow arising from excess prepayments has yet to meet the projected amounts, despite having fulfilled the minimum threshold of RM90 million in the Collections Account.

“The government (under the previous administration) had announced a slew of benefits in April 2018, including salary increases equivalent to one annual increment beginning July 2018 and a one per cent increment for pensioners in addition to the two per cent received since January 2018.

“However, these are currently under review by the new administration, though it recently had agreed to provide RM200 to RM400 in special aid to certain grades of civil servants and retirees.