(The) Boring Investor

It has been exactly a season since I last blogged. My last post was on Astrea IV 4.35% bonds. Coincidentally, Astrea’s management, Azalea, has recently launched the IPO for Astrea V 3.85% bonds. A year has passed One. What do I believe about Astrea bonds? If you read last year’s post on Would I Spend money on Astrea IV 4.35% Bonds?

I had not been too keen on Astrea IV 4.35% bonds. A large area of the reasons had to do with Private Equity (PE) bonds being a new asset course and there is too little time to properly analyze whether it would be a good investment. Given the time constraint, I relied on whatever understanding I had about account of money and leveraged buyout funds and concluded that I’d not be trying to get the IPO.

Thus, when the IPO for Astrea V 3.85% bonds was launched this week, the first thing I examined was whether it offers similar safeguards as Astrea IV 4.35% bonds. It offers. Still, it’s important to re-iterate that being PE bonds, Astrea bonds are not traditional bonds which are important to understand the potential risks of the root assets. Below is a listing of the risks that I know of.

Area V bonds invest in 38 PE funds run by indie PE account managers. 80% of the Astrea V investments are in buyout money. As discussed in Would I Spend money on Astrea IV 4.35% Bonds? Typical debt is in the region of 6-7 times Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA).

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High obligations at the root PE funds, few with a Fund of Fund structure, underestimates the true, look-through LTV percentage of the Astrea bonds. Area V has a collection value of USD1,342M. This is an important physique that can be used to compute the LTV ratio. Following the debacle of the Hyflux preference shares and perpetual securities, it became clear that asset beliefs shouldn’t be taken at face value. 902M as at end of Financial Year 2017 cannot be sold at near to book value. Considering that PE investments are illiquid property, what is the assurance that the portfolio value of Astrea V is actually as mentioned?

This question was posted through the Astrea Investor Day in Jan 2019 and during the public roadshow on Astrea V bonds conducted with SGX Academy on Saturday. Azalea’s management replied that the NAV of PE money is examined by reputable auditors. In addition, there are supplementary marketplaces where PE funds are traded. The value at which they are traded is close to the NAV reported by the PE fund managers. Furthermore, when the PE investments are removed, Azalea cross-checks the sale value against the reported NAV. In most cases, the sale value exceeds the reported NAV.