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RAM Ratings reaffirms AAA/Stable rating of Cagamas MBS’s CMBS 2007-1-i

Published on 17 Jun 2020.

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RAM Ratings has reaffirmed the AAA/Stable rating of Cagamas MBS Berhad’s RM2.11 bil Sukuk Musyarakah Islamic residential mortgage-backed securities (CMBS 2007-1-i). Cagamas MBS is a limited-purpose entity incorporated for the purpose of securitising government staff housing loans and government staff Islamic home financing facilities (GSIHF). The repayment of the GSIHF stems from non-discretionary direct deductions of civil servant salaries and pensions, which reduce exposure to the borrowers’ credit risks.

The reaffirmation of the rating is premised on CMBS 2007-1-i’s strong and improved collateral support as reflected by a higher overcollateralisation (OC) ratio, attributed to the securitised portfolio’s better than expected loss performance. As at end-October 2019, the RM610 mil CMBS 2007-1-i was backed by a RM982.19 mil portfolio of securitised GSIHF, along with a cash balance and permitted investments totalling RM248.0 mil. This lifted the OC ratio to 101.67% (end-July 2018: 70.25%), which affords ample protection against the risk of prepayment and defaults on the underlying portfolio in an “AAA” stressed scenario, as well as negative variance on investment returns. The cumulative prepayment rate averaged below our base-case assumption during the review period, but was well compensated by the better than assumed default performance.

Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) – the servicer of the portfolio – announced on 8 April that it would not grant borrowers any financing moratorium, notwithstanding the six-month deferment of loan payments offered by banks to individuals and SMEs to minimise Covid-19-induced disruptions. We also understand that LPPSA has not allowed any request from borrowers to defer or restructure financing to date. Any form of relief, if granted, could affect the portfolio collection or delinquency rates. Our sensitivity analysis indicates, however, that the remaining principal and profit obligations under this transaction will be fully met, even in a six-month moratorium scenario. While the recent change in government is not expected to result in a downsizing of the civil servant staff force, the reshuffling and reassignment of civil servants could see higher incidences of transfers. This may possibly lead to increased administrative delays in deductions. We will continue to monitor developments closely and reassess the corresponding impact on the transaction, if required.

 

Analytical contact
Liew Kar Ling
(603) 3385 2586
karling@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2020 by RAM Rating Services Berhad



Rating Rationale

Ratings on Cagamas MBS Berhad CMBS 2007-1

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