Virus prompts Astrea IV structure's 'de-risk'

Singapore

MORE money has been set aside for the future redemption of Temasek-owned Azalea Group's Astrea IV Class A bonds, to "de-risk" the structure amid a coronavirus pandemic.

Some US$53 million was added to the reserves accounts, on top of a scheduled US$40 million and another US$1 million paid in to manage the portfolio's loan-to-value (LTV) ratio.

"With the uncertainty over how long the pandemic may last or when the disruptions may end, the sponsor has deemed it prudent to de-risk the Astrea IV structure," Azalea said in an update to bondholders on Monday.

"It has requested the manager to direct cash otherwise due to itself under the priority of payments on this distribution date to accelerate the reserving of amounts in the reserves accounts."

Still, Azalea added: "For the current distribution period, the structure has received sufficient cash to service its bond obligations."

That was even as it noted that private equity (PE) assets in the Astrea IV portfolio "have not been spared" by the global economic and business disruption from the deadly pandemic.

"If the divestment slowdown continues, the PE funds will generate less distributions for Astrea IV to service its bond obligations," Azalea warned.

While cash flows for the Astrea IV PE funds come from the sale of portfolio companies, the manager said that it cannot predict the funds' divestment activities amid the pandemic.

Azalea added that if there are not enough cash flows in future distribution periods, key bond obligations will be serviced through safeguards such as drawing on existing bank facilities to pay for senior expenses and interest expenses, as well as deferring unfilled scheduled reserves.

The issuer had a liquidity facility of US$100 million as at June 1, and a capital call facility of US$106 million. Bank facilities were not drawn down during the latest distribution period.

With the top-ups, the reserves accounts had a balance of US$209 million as at June 14. Including what has been paid into the reserves accounts, the LTV ratio stood at 42.4 per cent.

The PE-backed Astrea IV bonds carry an annual coupon of 4.35 per cent for the Class A-1 tranche, 5.5 per cent for the Class A-2 tranches and 6.75 per cent for the Class B tranche.