RAM Ratings ups Cagamas SME rating to AAA

KUALA LUMPUR (Dec 16): RAM Rating Services Bhd has upgraded the
rating of Cagamas SME Bhd’s RM45 million Class C credit-linked notes
(CLN), from AA1 to AAA.

The rating agency said on Friday it had also reaffirmed the AAA
ratings of its RM75 million Class A Notes and RM30 million Class B
Notes.

RAM Ratings said all the long-term ratings have a stable outlook. The
Class A, Class B and Class C Notes are collectively referred to as “the
CSME 2007-1 CLN”.

“The rating upgrade for the Class C Notes is premised on the
available credit support that is over and above the required credit
enhancement as a result of lower-than-expected claims rates, as well as
the reduction in required credit enhancement as the transaction moves
closer to maturity,” it said.

RAM Ratings said this transaction involved the partial transfer of MALAYAN BANKING BHD []’s
credit risks – arising from a portfolio of up to RM600 million of loans
to small and medium-sized enterprises – to Credit Guarantee Corporation
Malaysia Bhd, Cagamas SME and Cagamas Bhd.

The CSME 2007-1 CLN had been issued in consonance with a bank swap
agreement between Maybank and Cagamas SME. Before any claim can be made
on these counterparties, the RM30 million first-loss piece retained by
Maybank (the threshold amount) would need to be exhausted.

As at end-June 2011, the portfolio contained 986 loans with a total outstanding principal of RM583.21 million.

Despite experiencing RM50.42 million of defaults, only RM13.31
million of net losses had been incurred as at end-June 2011; the net
losses had reduced the threshold amount to RM16.69 million as at the
same date.

“The available credit support for the Class A, Class B and Class C
Notes stood at 25.86%, 20.74% and 13.07%, respectively, which are above
the necessary credit enhancement for AAA rating,” said RAM Ratings’ head
of structured Finance Ratings explains Siew Suet Ming.