Temasek-linked PE bond earns one-notch upgrade from S&P

A SERIES of private-equity (PE) bonds offered by a Temasek Holdings vehicle has received a one-notch upgrade to its credit rating from Standard & Poor's (S&P).

Astrea III's Class A-1 notes, the most senior of four concurrent bond series. are now rated "A+ (sf)" from its previous "A (sf)" grade. In July, Fitch Ratings also upgraded that series of notes to "Asf" to "A+sf". The "sf" suffix refers to a structured financial instrument.

S&P's upgrade reflects the reserve account balance of over US$180.4 million in cash held by issuer Astrea III, a collateralised fund obligation set up by Temasek's Azalea Asset Management unit. S&P also noted that Astrea III has also been meeting its interest payments on time.

Azalea chief executive Margaret Lui said in a statement: "The strong performance of Astrea III can be attributed to the unique Astrea platform which allows senior bondholders an opportunity to receive regular income while enjoying the benefits of risk mitigation and portfolio diversification."

Astrea III is backed by cash flows from 34 underlying private equity funds. Investors gain exposure to those funds by purchasing bonds issued by Astrea III. Those bonds are differentiated by seniority and redemption times.

The initial issuance, to institutional and accredited investors in 2016, comprised S$228 million of class A-1 notes with a yield of 3.9 per cent; US$170 million of class A-2 notes yielding 4.65 per cent; and US$100 million of class B notes yielding 6.5 per cent; and US$70 million of class C notes yielding 9.25 per cent.

All four series of notes have a maturity of 10 years, but the class A-1 notes are expected to be redeemed by Year 3 and the class A-2 notes by Year 5. The class B and C notes may be redeemed early only after the Class A bonds have been fully repaid.