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MARC affirms its AAAIS rating on Cagamas MBS Berhad's RM2,110 million asset-backed Sukuk Musyarakah issuance (CMBS 2007-1-i)

MARC has affirmed its AAAIS rating on Cagamas MBS Berhad's (Cagamas MBS) RM2,110.0 million asset-backed Sukuk Musyarakah issuance (CMBS 2007-1-i) with a stable outlook. The rating action affects outstanding Sukuk of approximately RM1,525.0 million, following the redemption of the RM255.0 million Tranche 2 Sukuk on May 29, 2012. The affirmed rating reflects a strong credit enhancement level of 127.5% for outstanding Sukuk observed at end-October 2011 totaling RM1,780.0 million, supported by a collection account balance of RM280.3 million and an outstanding collateral pool balance of RM1,989.81 million in non-defaulted home financings. The collateral pool, which comprises seasoned home financings of high credit quality, has continued to show stable performance over the period under review. 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 Islamic home financing and conventional housing loans of public sector employees originated by the Government of Malaysia (GOM). The collateral backing this transaction is Portfolio 2007-1-i, a pool of eligible Government Staff Islamic Home Financings (GSIHFs) on which monthly home financing instalments are made via direct salary/pension deductions. The GOM's Housing Loans Division, or Bahagian Pinjaman Perumahan (BPP), is the servicer of Portfolio 2007-1-i.

Based on the servicer's quarterly report for CMBS 2007-1-i dated February 28, 2012 (the reporting date), the outstanding principal of the collateral pool totalled RM2,001.39 million, representing 24,591 fixed-rate home financings with an average size of RM81,387 and a weighted term to maturity of 16.53 years. The weighted average seasoning of the collateral pool was 7.6 years. As of the same date, the home financing portfolio's cumulative default rate registered at 0.46% versus MARC's expected cumulative default rate of 1.83%. The majority of the RM11.59 million in defaults (home financing amounts in arrears for more than 9 months) under the transactions have been the result of data reconciliation lags and delays in salary and/or pension deductions due to changes in the employment status of government staff. Meanwhile, the collateral pool's cumulative prepayment rate of 4.42% remained within MARC's range of stressed prepayment assumptions.

The transaction's limited pass-through provision allows the use of excess cash flow after meeting the scheduled Sukuk repayments on Tranche 1 through 5 to make an early repayment on Tranche 7, followed by Tranche 6 provided that the collection account balance remains in excess of RM90 million after the early redemption. However, the early redemption condition has not been triggered as at the review date. MARC's cash flow analysis has demonstrated that the Sukuk are able to withstand 'AAA' default and prepayment stress scenarios for their remaining tenure. Notwithstanding, MARC acknowledges that actual liquidity levels could differ from projections due to differences between observed and simulated early redemption in relation to timing and redemption amount. The cash flow analysis also considers increases of 7% to 13% in civil servant salaries under the government's improved Malaysian Remuneration System, effective from April 2012 onwards. MARC views the salary increases to be a positive factor for the collateral pool's performance going forward and expects some increase in prepayment.

MARC's stable outlook for CMBS 2007-1-i is premised on stable performance of the transaction's collateral pool and its high overcollateralisation ratio, which offers ample protection against default and prepayment risk.

Contacts: Ng Chun Kean, +603-2082 2230/ chunkean@marc.com.my; Jason Kok, +603-2082 2258/ jason@marc.com.my; David Lee, +603-2082 2255/ david@marc.com.my.

[This announcement is available in the MARC corporate homepage at http://www.marc.com.my]

DISCLAIMER

This communication is provided by Malaysian Rating Corporation Berhad (MARC) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of its opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.

© Press Release 2012

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