1. Astrea VI bonds are the latest bonds issued under the Astrea bond series.
2. The bonds are secured by cash flows from private-equity funds.
3. We expect the same strong demand as previous Astrea issues. Investment-grade credit ratings are expected for all Astrea VI Classes A-1, A-2 and B bonds.

Background

The Astrea VI bond is the sixth issuance in the Astrea Platform. It is issued by Astrea VI Pte. Ltd., a subsidiary of sponsor Astrea Capital VI Pte. Ltd. Astrea Capital is an indirect wholly-owned subsidiary of Azalea Asset Management Pte. Ltd., which is wholly-owned by Temasek Holdings. The bonds are asset-backed securities supported by cash flows from a US$1.5bn portfolio of investments in 35 private-equity funds. The funds invest in private equity (PE), an asset class where equity positions are acquired in private companies or publicly traded companies that may be acquired and privatised as a result of a PE transaction.

Highlights

1. Risk management. Astrea VI PE funds are mature and have a weighted average fund age of 5.8 years (Figure 3). Mature funds tend to be more cash-generative. Fund managers include established names like Bain Capital (7.9% of NAV), Warburg Pincus (6.4%) and TPG (5.6%). Buyout funds account for about 81% of the funds’ NAV. Buyout strategies historically have the strongest performances among PE strategies. They provide managers with greater control over the investee companies, in terms of managing costs and raising additional capital in times of financial stress. There are a total of 802 companies in the Astrea VI funds, none accounting for more than 3% of the total NAV, providing diversification.

2. Structural safeguards. Mandated Reserve Accounts for the Class A-1 and Class A-2 bonds make sure cash flows are set aside for redemptions at the scheduled call dates. The sponsor will share 50% of its entitled cash flows with the Reserve Accounts if the *performance threshold is met. In addition, a conservative maximum loan-to-value ratio of 50% is in place. If exceeded, the Reserve Accounts must be topped up or debt pared down. Finally, a credit facility provided by DBS Bank can be used to cover bond interest payments, certain fees and expenses, and capital calls in times of cash flow shortfalls. The bonds are expected to have investment-grade ratings by Fitch and S&P’s.

3. Strong bondholder and sponsor alignment. Bondholders are ranked near the top for priority of payments (Figure 2), above the sponsor. Cash flows generated by the PE funds flow to the bondholders early in the payout order. In 2020, the sponsor waived its entitled cash flows during the onset of COVID-19 to support the Astrea IV and V structures. The sponsor, wholly owned by Azalea, is indirect wholly owned by Temasek.

Demand for previous Astrea bonds was strong. The same is expected for the new Astrea VI. Astrea IV Class A-1 bonds were 7.4x subscribed and Astrea V Class A-1 bonds 4.5x subscribed. We expect bond yields to tighten once the new bonds start trading on the back of strong demand.