Fitch Assigns Astrea III Expected Ratings; Issues Presale

NEW YORK--()--Fitch Ratings has assigned Astrea III Pte Ltd, a collateralised fund obligation sponsored by Astrea Capital Pte. Ltd, expected ratings as follows:

--SGD234m Class A-1 notes: 'A(EXP)sf';

--USD170m Class A-2 notes: 'A(EXP)sf';

--USD100m Class B notes: 'BBB(EXP)sf'.

Astrea Capital Pte. Ltd (the sponsor) is a subsidiary of Azalea Asset Management Pte. Ltd, which is ultimately owned by Temasek Holdings (Private) Limited. Astrea III owns interests in a globally diversified pool of private equity funds. The issuance consists of notes backed by the cash flows generated by the funds.

The transaction consists of approximately USD1.14bn net asset value (NAV) of funded commitments and USD201.4m of unfunded capital commitments across 34 private equity funds. The notes are expected to be marketed to non-U.S. institutional and high net-worth investors and listed in Singapore.

Final ratings are contingent on the receipt of information conforming to the documents already received.

KEY RATING DRIVERS

Astrea III's private equity portfolio is well-diversified across 34 funds of various vintages, managed by 26 general partners (GPs), with 592 underlying investments across different sectors and regions, tempering the market cyclicality that drives private equity fund performance.

The rated notes will make up approximately 39% of the NAV at issuance, providing a sufficient level of overcollateralisation (OC), which will act as a cushion in case private equity distributions do not materialise as expected. Loan-to-value (LTV) tests will trap cash to cap leverage at descending thresholds during the course of the transaction.

Key structural protections include reserve accounts for the repayment of the class A notes, a trust account to support capital calls, a liquidity facility to cover interest and expenses, and currency hedges.

In Fitch's view, the sponsor and its affiliates and manager have the capabilities and resources needed to sponsor and manage this transaction. Astrea III is the third in a series of similar transactions launched by the sponsor and its affiliates.

The sponsor's and noteholder's interests are strongly aligned, as the sponsor currently holds the entire equity stake (presently 55% of NAV) in Astrea III, which it will retain for the duration of the transaction. Further, the sponsor has a non-financial motivation in mind, with the goal of contributing to the development in Singapore of investment products based on private equity funds.

RATING SENSITIVITIES

Private equity transactions have many inherent risks, including the uncertainty of income distributions, illiquid nature of investments, high concentration in funds with a buyout strategy, leverage, lack of reliability in NAV calculations and other unforeseen circumstances.

The ratings for the notes may be subject to downgrade as a result of the portfolio structure's sensitivity to the potential variability of key model assumptions. One key model assumption is the distribution of cash flows, which are uncertain and therefore may come in lower than model projections, creating a risk that the funds will not generate enough overall cash to repay noteholders.

Another key model assumption is the financial health of the transaction's counterparties. A rating downgrade of a counterparty may materially affect the rating on the notes, given the reliance of the issuer on counterparties to provide functions, including currency hedging and acting as a bank account provider.

Finally, payments on the currency hedges that are larger than expected may leave less cash flow available to pay interest on the notes, fund the reserves account and meet capital calls, leading to increased reliance on the liquidity facility and capital calls trust account. Such an event could happen in scenarios such as high exchange rate volatility or underperformance in the European markets, which would negatively impact the European funds and subsequently the ability to deliver euros in the euro hedge transaction.

DUE DILIGENCE USAGE

No third-party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY

As the timing and size of the cash flows is unknown, Fitch used historical data from a well-known third party data provider, which covers all performance quartiles of buyout and growth equity funds with vintages ranging from 1990 to 2014 to model expected distributions, capital calls, and NAVs of the private equity funds.

Key Rating Drivers and Expected Rating Sensitivities are further discussed in the corresponding presale report entitled "Astrea III Pte. Ltd", published today.

Additional information is available on www.fitchratings.com.

Astrea III Pte Ltd.
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882834

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 14 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744175

Exposure Draft: Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 Apr 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878412

Exposure Draft: Counterparty Criteria for Structured Finance and Covered Bonds - Derivative Addendum (pub. 14 Apr 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878499

Rating Closed-End Funds and Market Value Structures (pub. 11 May 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881003

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005650

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005650

Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst:
Greg Fayvilevich, +1-212-908-9151
Senior Director
Fitch Ratings
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Brian Knudsen, +1-646-582-4904
Associate Director
or
Committee Chairperson:
Roger Merritt, +1-212-908-0636
Managing Director
or
Media Relations:
Hannah James, +1-646-582-4947
New York
hannah.james@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Greg Fayvilevich, +1-212-908-9151
Senior Director
Fitch Ratings
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Brian Knudsen, +1-646-582-4904
Associate Director
or
Committee Chairperson:
Roger Merritt, +1-212-908-0636
Managing Director
or
Media Relations:
Hannah James, +1-646-582-4947
New York
hannah.james@fitchratings.com