ASSETCO PLC
Fitch Ratings has assigned final ratings and Rating Outlooks to Astrea
RATING ACTIONS
Entity / Debt
Rating
Prior
Astrea
Class A-1 Bonds
LT
A+sf
New Rating
A+(EXP)sf
Class A-2 Bonds
LT
Asf
New Rating
A(EXP)sf
Class
LT
BBB+sf
New Rating
BBB+(EXP)sf
Page
of 1
VIEW ADDITIONAL RATING DETAILS
Transaction Summary
Astrea 7 is a private equity collateralized fund obligation (PE CFO) sponsored by
KEY RATING DRIVERS
Loan to Value (LTV): The class A-1, A-2 and B bonds make up approximately 19.9%, 29.1% and 39.6% of cumulative LTV to the NAV at issuance, respectively, providing a sufficient level of credit enhancement at the indicated rating levels. An LTV test will redirect cash flows to de-lever the transaction at a constant 50% threshold during the transaction's life.
Stressed Cash Flow Analysis: Fitch measured the ability of the structure to withstand weak performance in the underlying funds in combination with adverse market cycles. Class A-1 and A-2 bonds were able to withstand fourth-quartile-level performance in the underlying funds under all of Fitch's ratings scenarios, indicating 'Asf' category stress. Class B bonds were able to withstand third-quartile-level performance in the underlying funds under all of Fitch's ratings scenarios, indicating 'BBBsf' category stress.
Liquidity: The transaction's liquidity position is adequate, and is expected to improve further as the portfolio continues to season. In recent quarters, the portfolio started generating positive net cash flows, and the transaction's liquidity position is also supported by a contingent liquidity facility (
Portfolio Composition: The portfolio of alternative investment fund interests is diversified by vintage, geography, manager, fund, underlying holdings and sector. As of
Transaction Manager and Sponsor: Fitch believes that Azalea has the capabilities and resources required to manage this transaction. Azalea's management team has extensive experience in and institutional knowledge of the PE industry, in addition to experience structuring previous PE CFO transactions. The sponsor and bondholders' interests are strongly aligned, as the sponsor holds the entire equity stake (approximately 60% of NAV) in Astrea 7. During the market volatility in 2020, the sponsor took voluntary actions beyond what was required by transaction documentation of two existing Astrea deals to support senior bonds. Fitch's ratings do not rely on any such future support, but the historical track record is viewed as incrementally positive.
Counterparties: Certain structural features of the transaction involve reliance on counterparties, such as the credit facility provider, account banks and hedge counterparties, and the ratings on the bonds could be negatively affected in the event of a key counterparty downgrade. Fitch believes this risk is mitigated by counterparty replacement provisions in the transaction documents that align with Fitch's criteria.
Ratings Linked to Eligible Investments: Moneys in reserves accounts for the benefit of class A-1, A-2 and B bonds will be invested in securities or bank deposits, as specified in transaction documentation. As these investments can have long-dated maturities and could have a material impact on the performance of the rated bonds, ratings of the Astrea 7 A-1, A-2 and B bonds will be capped at and linked to the ratings of investments in the reserves accounts.
If investments in the reserves accounts are downgraded below the rating levels of class A-1, A-2 and B bonds at a future date, a corresponding downgrade to the ratings of class A-1, A-2 and B bonds could occur, absent mitigating actions. At launch, these investments are expected to be rated at the same level or higher than the ratings of class A-1, A-2 and B bonds, and therefore, do not constrain the ratings of the bonds.
Asset Isolation and Legal Structure: Legal opinions reviewed by Fitch indicate the issuer is structured as a special-purpose, bankruptcy-remote entity. The issuer has 100% of the member interests in the
Rating Cap at 'A+sf': Fitch has a rating cap at 'A+sf' for PE CFO transactions, driven by the less proven nature of the PE CFO asset class relative to other structured finance asset classes, the uncertainty related to investment performance and the timing of cash flows, the variability of asset valuations and lags in performance reporting.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The ratings of the bonds may be downgraded if cash flows materialize at levels lower than modeled in Fitch's stress scenarios. A material decline in NAV that, in Fitch's view, would indicate insufficient forthcoming cash distributions to support the bonds could also lead to rating downgrades;
The ratings of class A-1 and A-2 bonds may be downgraded if they fail Fitch's 'Asf' modelling scenarios on a sustained basis;
The rating of class B bonds may be downgraded if it fails Fitch's 'BBBsf' modeling scenarios on a sustained basis;
A ratings downgrade of a counterparty may also materially affect the ratings of the bonds given the reliance of the issuer on counterparties to provide functions, including providers of the credit facility and bank accounts;
Fitch relied in its analysis on the legal documentation and opinions for the transaction. If any relevant party to the transaction does not follow its responsibilities and procedures as described in the documentation, the ratings on the bonds may be affected;
The ratings of the class A-1, A-2 and B bonds may be downgraded if the ratings of any of the eligible investments in the reserves accounts are downgraded below 'A+', 'A' and 'BBB+', respectively, absent mitigating factors.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Fitch has an 'A+' rating cap for PE CFOs. Therefore, positive rating sensitivities are not applicable for the class A-1 bonds;
The rating of the class A-2 bonds may be upgraded if it continues to pass Fitch's 'Asf' modeling scenarios, with sufficient cushion, and the LTV decreases materially;
The rating of the class B bonds may be upgraded if it passes Fitch's 'Asf' modeling scenarios, with sufficient cushion, and the LTV decreases materially.
Best/Worst Case Rating Scenario
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
DATA ADEQUACY
As the timing and size of the cash flows is uncertain, Fitch used historical alternative investment fund performance data from a well-known third-party data provider, which covers all performance quartiles of the various fund strategies and vintages ranging from 1990 to 2020, to model expected distributions, capital calls and NAVs of the underlying funds.
Date of Relevant Committee
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool was not prepared for this transaction. Offering Documents for this market sector typically do not include RW&Es that are available to investors and that relate to the asset pool underlying the trust. Therefore, Fitch credit reports for this market sector will not typically include descriptions of RW&Es. For further information, please see Fitch's Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.
Additional information is available on www.fitchratings.com
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.
APPLICABLE CRITERIA
Private Equity Collateralized Fund Obligations (PE CFO) Rating Criteria (pub.
Fitch's Foreign-Currency Stress Assumptions for Residual Foreign-Exchange Exposures in Covered Bonds and Structured Finance - Supplementary Data File (pub.
Global Structured Finance Rating Criteria (pub.
Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub.
Structured Finance and Covered Bonds Counterparty Rating Criteria (pub.
APPLICABLE MODELS
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).
Third-party Model (1)
ADDITIONAL DISCLOSURES
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy
ENDORSEMENT STATUS
Astrea7 Pte . Ltd.EU Endorsed,UK Endorsed
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