- Azalea marks its 10th anniversary in 2025, recording success with the numerous Astrea bond series as its flagship product.
- With Astrea III, Astrea IV and Astrea V fully redeemed, Azalea offers a strong track record with its PE bond proposition in the retail bond space.
- We see attractiveness in some of the Astrea USD bonds, offering great yields at relatively high credit ratings.
Azalea Asset Management (“Azalea”) recently hosted its Astrea Investor Day 2025 on 18 February 2025. The event primarily saw Mr. Justin Keh, Managing Director, Investments, and Mr. Lim Jun Jie, Director, Investor Solutions & Marketing, reviewing the Private Equity (“PE”) markets and the performance of their flagship product, the Astrea bonds.
Below, we highlight some of the key points raised during the Astrea Investor Day 2025 and briefly review the performances of the outstanding Astrea bonds.
An overview of Azalea and the Private Equity market
Azalea Asset Management marks its 10th anniversary, with the Group being established in 2015. It is a wholly-owned subsidiary of Seviora and indirectly owned by Temasek Holdings (Private) Limited. The Group has a long-standing focus on bridging the gap between retail investors and PE – Astrea III, the first of the Astrea series bonds brought to the retail market, was the brainchild of the Group’s vision. In addition to the Astrea bond series, Azalea manages the Altrium funds – a platform targeted to bring PE more accessible to investors in Singapore.
During the Astrea Investor Day 2025, Mr. Keh remarked that global economic growth in the recent period has seen stability amidst difficult macroeconomic conditions. There are some expectations of potential impact coming from Trump’s executive orders, although it remains early to assess the full extent.
With that being said, he further highlighted that PE has continued to show resiliency even in periods of stress – such as the Dot-Com bubble, the 2008 Global Financial Crisis and the recent COVID-19 pandemic. PE has been able to provide consistent returns across such periods and is anticipated to remain so in the face of uncertain macroeconomic environments.
Later on, Mr. Lim reflects that the Astrea investment portfolios typically are initially constructed with an average fund life of about 5 years (i.e. investing into PE funds of about ~5 years old). The rationale for this is because of the Private Equity J-curve, which sees net cash inflows generally starting from the sixth year onwards. This is quite crucial for the Astrea bonds, given the underlying need to provide adequate distributions back to the bondholders and towards the accumulation of reserves for redemption.
The Astrea PE Bonds
The Astrea PE bonds are asset-backed securities, using cash flow from the underlying PE investment portfolio to fund the distribution payments to bondholders. Using the latest Astrea 8 series as an example, coupons and principal repayment will be funded by the cash flows coming from the USD 1.5b portfolio invested across 38 PE funds. To date, Astrea III, Astrea IV and Astrea V have been successfully redeemed, reflecting a strong track record for the performance of the PE funds and the Astrea bond series.
The Astrea 8 series saw a simplified issuance structure – with both Class A-1 SGD tranche and Class A-2 USD tranche available for retail investors. The previous series typically consists of a Class A-1, Class A-2 and Class B tranche – with Astrea 7 being the first offering of the Class B USD tranche to retail investors, suitable for those seeking a higher-yielding option. The Class A-1 tranche remains the most senior among the various tranches, with distributions being prioritized towards the coupon and capital repayment of the Class A-1 bonds.
The Astrea bonds generally have a maturity of 10 years upon issuance (with Astrea 8 at 15 years instead), alongside a mandatory call date at the end of the fifth or sixth year depending on the tranche. Of the outstanding Astrea bonds, Astrea VI USD Class B is the only tranche without a scheduled call date but is expected to be redeemed after the redemption of the Class A tranches. The mandatory call depends on the amount of accumulated reserves present in the Reserves Account, and also if there are outstanding loans on the credit facilities. However, in the event of a non-call, bondholders are compensated with a 1% step-up in the respective coupon rates.
- Priority of Payments and Reserve Accounts – Cash flows from the underlying PE investment portfolio follow a priority order in terms of distribution, with bondholders being significantly prioritized within this payment schedule. With reference to the Astrea 8 bonds, after the necessary payment for expenses, interest payments for the Class A-1 and Class A-2 bonds would be set aside. Subsequently, distributions would be made towards the Reserves Account, with additional distributions being made if the Loan-to-Value (“LTV”) ratio has exceeded the maximum amount. Only after these payments, any subsequent remainder from the cashflow would be made to Equity Investor (i.e. Azalea).Other than that, the accumulation of reserves within the Reserves Account is another crucial feature for bondholders, as the reserves will be utilized for the mandatory redemption of the Astrea bonds. It helps to build bondholder’s confidence in the expected redemption upon the mandatory call date, with the accumulation of reserves typically reflected by the consistent upgrade in credit ratings.
- Maximum Loan-to-Value ratio – The LTV cap varies for different Astrea series, with Astrea VI and Astrea 7 having an LTV cap of 50% while the recent Astrea 8 has an LTV cap of 40%. The LTV cap ensures that the portfolio does not get over-collateralised with the use of debt, an additional layer of protection for bondholders. We believe the reduction from 50% to 40% further shows the commitment by Azalea towards placing bondholders’ interest first.In the event of an LTV breach, additional distributions will have to be made towards the Reserve Accounts to increase the cash reserves and thereby reduce the LTV ratio, before any distributions can be made to the Equity Investor. We saw this happening for the Astrea 8 portfolio given the lowered LTV cap, which will be further elaborated in the later section.
- Credit Facility – The Astrea bonds have access to credit facilities from Oversea-Chinese Banking Corporation (Astrea 8) and DBS Bank Ltd. (Astrea VI and Astrea 7), which allows the drawdown from the facility to fund certain expenses and capital calls for fund investment in the event of a shortfall. Thus far, we note that there are no outstanding credit facilities loans – i.e. Azalea has yet to utilize the credit facility feature, reflecting the consistency of cashflows and distributions across the years.
- Sponsor Sharing (only for Astrea VI currently) – Sponsor Sharing requires the additional distributions to be made to the Reserves Account, after meeting a certain performance threshold. This allows a faster build-up of reserves to redeem the bonds on the mandatory call date.
Overall, we believe these features are a strong reason why we have seen a growing popularity for the Astrea bond series. While the various risks associated with PE remain a necessary consideration, we see the attractive propositions – especially with the growing focus by Azalea to ensure bondholders’ interests are protected and prioritized.
Performance of the Astrea bond series
Over the years, the various tranches of the Astrea bonds saw credit rating upgrades (Chart 1), primarily due to the accumulation of cash reserves towards the expected redemption. The Astrea bonds generally have a high credit rating, with Astrea V and Astrea VI Class A-1 bonds rated ‘AA-sf’ by Fitch. The ratings reflect their respective LTV ratios and the bonds’ ability to withstand large transaction NAV declines without impacting their ratings.
Recently on 10 December, we saw the upgrade of Astrea VI Class A-2 bonds from ‘Asf’ to ‘A+sf’ owing to the decline in LTV ratio. At the same time, Fitch affirmed the remainder of Astrea V, Astrea VI and Astrea 7 various bond tranches, indicating that their respective ratings reflect their strong liquidity position, allowing them to continue to meet capital calls, expenses, and interest, even if distributions were to decline.
Chart 1 – Credit ratings and corresponding upgrades for the Astrea bond series
Astrea VI
With Astrea V fully redeemed on 20 December 2024, Astrea VI bonds are the “oldest” outstanding bonds across the various Astrea bonds. As of 4 September 2024, Astrea VI has seen cash distributions amounting to approximately 79% of the starting Portfolio Net Asset Value (“NAV”) – reflecting the strong returns observed across the years (Chart 2). Meanwhile, the LTV ratio for the Astrea VI portfolio stands at 20.4%.
The performance threshold for Sponsor Sharing has been met as of 18 September 2022, which has helped to accelerate the accumulation of reserves. The management has indicated that 92% of Class A bonds have been reserved and a bonus redemption premium of 0.50% will be paid to Class A-1 bondholders upon the successful redemption of the bond. With a pro-forma balance of USD 473.5m in Astrea VI Reserve Accounts as of 20 December, we expect the Class A bonds to be fully reserved by the next distribution payment.
Astrea 7
As of 13 November 2024, the Astrea 7 portfolio has seen cash distributions of approximately 41% of the initial portfolio NAV over five semi-annual payment distributions. 51% of the Class A bonds have been reserved owing to the accumulation of cash reserves, while the LTV stands at 34.6% - down from the initial LTV of 39.6% upon the initiation of the portfolio.
Astrea 8
The Astrea 8 portfolio saw the announcement of the payment distribution on 6 January 2025, with the payment scheduled for 19 January. It made cash distributions amounting to ~14% of the initial portfolio NAV, with approximately 17% of the Class A bonds reserved.
For Astrea 8, the LTV ratio saw a breach above the 40% limit, making additional distributions into the portfolio necessary. As the scheduled USD 46m payment to the Reserves Account was insufficient to reduce the LTV below 40%, an additional USD 22m payment was made to reduce LTV further – with the additional payment contributed from the supposed distributions to the Equity Investor.
With that said, the breach in LTV appears not because of a drop in cumulative portfolio NAV and distributions. Instead, it was a result of foreign exchange fluctuations, resulting in an overall higher USD debt across the half-year as the Class A-1 bonds are denominated in SGD. Despite so, we believe foreign exchange risk remains minimal for bondholders other than the potential impact on LTV, as Azalea indicated that the interest payments and capital repayments have been currency-hedged.
Chart 2 – Performance of outstanding Astrea portfolios
Recommendations
Table 1 – Astrea Class A-1 SGD Bonds
|
Issue |
Ask Price |
Yield to Call/ Maturity |
Years to Call/ Maturity |
|
99.826 |
3.17%* / 3.78% |
1.07 / 6.07 |
|
|
102.283 |
3.07% / 4.39% |
2.26 / 7.26 |
|
|
104.642 |
3.21% / 3.93% |
4.41 / 14.411 |
|
|
Sources: Bondsupermart, iFAST
Compilations. Data as of 24 February 2025. |
|||
Across the SGD bonds, retail investors may consider the Astrea 8 ASTLC 4.350% 19Jul2039 Corp (SGD) - Class A-1 with a yield to call of ~3.2% to lock in yields over the medium term. Amidst the lack of options across the SGD retail bond space, the Astrea 8 Class A-1 appears to be one of the better ones – offering good yields with a great credit rating of ‘A+sf’ by Fitch.
Particularly,
we believe this could be an alternative to the Singapore Government Securities,
offering a slight spread at the expense of some credit risk. With Azalea’s
track record of redeeming the Class A-1 bonds on the mandatory call date, we
expect the Astrea 8 Class A-1 bonds to highly likely be redeemed earlier as
well.
Table 2 – Astrea Class A-2 and Class B USD Bonds
|
Issue |
Ask Price |
Yield to Call/ Maturity |
Years to Call/ Maturity |
|
97.85 |
5.35% / 4.38% |
1.07 / 6.07 |
|
|
97.80 |
- / 4.78%* |
- / 6.07* |
|
|
99.50 |
5.59% / 6.05% |
2.23 / 7.26 |
|
|
103.033 |
4.98% / 5.97% |
3.26 / 7.26 |
|
|
105.965 |
5.07% / 5.74% |
5.41 / 14.41 |
|
|
Sources: Bondsupermart, iFAST Compilations. Data as of 24 February 2025. |
|||
*The Astrea VI Class B bonds do not have a scheduled call date but are expected to be redeemed as soon as there are sufficient reserves after the redemption of the Class A tranche. Assuming that the Astrea VI Class B bonds would be redeemed exactly 1 year after the mandatory call date for Astrea VI Class A bonds, we estimate the yield to call to be approximately about 5.5%. A delay of the redemption by another half-year will result in the yield to call falling to ~5.3%.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a position in ASTLC 3.250% 18Mar2031 Corp (USD) - Class A-2 and ASTLC 6.000% 27May2032 Corp (USD) - Class B. The analyst who produced this report holds an NIL position in the abovementioned securities.
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