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Volta Finance Limited - Net Asset Value as at 30 April 2020
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Volta Finance Limited (VTA / VTAS) – April 2020 monthly report
NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES
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Guernsey, 14 May 2020
AXA IM has published the Volta Finance Limited (the “Company” or “Volta Finance” or “Volta”) monthly report for April. The full report is attached to this release and will be available on Volta’s website shortly (www.voltafinance.com).
PERFORMANCE and PORTFOLIO ACTIVITY
In April, after the significant mark to market impact of the COVID-19 crisis in March, we had a modest rebound in terms of valuation. Volta’s NAV* total return performance in April was +5.7%.
The monthly performances** were, in local currency: +0.3% for Bank Balance Sheet transactions, +10.0% for CLO Equity tranches; +12.1% for CLO Debt; -9,9% for Cash Corporate Credit deals (this bucket compromises of funds that have one-month delay in publishing their NAV); and +0.6% for ABS.
At the end of the month, the average price for CLO Equity tranches was 43.0% and 33.4% respectively for USD and Euro positions, 59.7% for USD CLO debt (no Euro CLO debt positions were held by Volta).
These general market prices mark downs incorporate the expectation that a number of CLO Equity tranches will start suffering partial diversion of cash flows as early as in July, the next quarter payment dates for most positions, with further deterioration in October due to the increasing excess CCC bucket in CLOs. For Volta’s positions specifically we have identified, at present, only one position that might suffer a partial diversion of cash flow in July. If this remains the case, Volta’s positions should significantly outperform the wider market for July cash flow receipts. Rating agencies recently confirmed that they have already reviewed their ratings for 80 to 90% of loans and certainly the pace of loan downgrades has significantly reduced during the recent weeks, lowering the probability that Volta will suffer additional unexpected diversion of cash flows in July.
Now that April trustee reports have been collected, it appears that 20% of the USD CLO Equity universe suffered a partial or full diversion of cash flows in April. None of Volta positions saw any diversion and cash flows were received in full on all positions. The average CCC/Caa3 bucket is now 8% for S&P and 6% for Moody’s with levels of around 3% less for EUR deals. That said, even though European CLO Equity outperformed USD CLO Equity in April, the average price for EUR CLO Equity positions is still far below that for USD deals. We believe that this reflects the lower liquidity and lower risk appetite in Europe than in the US.
As mentioned in our interim communication of 24th March, our first priority was to secure Volta’s liquidity and solvency. Whilst, as at the end of April the repurchase agreement was still in place for $10m, this has now been repaid. Given the modest level of commitments to existing positions and the very low level of currency hedging still in place, the liquidity demands on the Company can now be met comfortably from expected cash flows. Overall in April, Volta received €7.9m from coupons and interest, with the decline accounted for solely by falling short term interest rates.
Therefore, the Company has been able to declare a dividend. At the end of March, ratings agencies were downgrading loans at an unprecedented pace and considerable uncertainty existed for the Company regarding cash flows and the economic outlook. Now that the full April cash flows have been received and the acute liquidity and volatility conditions seen in late March have eased, the Company has declared a dividend of €0.10 per share, payable 16th of June, which corresponds to roughly 8% of the latest NAV. The balance of net cash flows received, other than a modest working capital balance, will be re-invested.
As at the end of April 2020, Volta’s NAV was €195,7m or €5,35 per share (including €20,4m in cash). The GAV stood at €207,1m with nearly €11,4m liabilities.
Regarding the medium to long term performance outlook, our view is that rating agencies, will continue to downgrade loans through to the end of 2020, even if the pace of downgrades reduces somewhat. Therefore, the CCC bucket will continue to increase. In April defaults began to pick up in both the US and European credit markets. Including loans and bonds, Moody’s recorded 35 defaults in the US YTD of which 15 were in April; in Europe there have been 7 YTD of which 5 were in April. We expect this trend to continue. Rating agencies are forecasting default rates to reach between 5 and 10% for the US loan market in 2020 but recognize, as we have noted previously, that defaults might be spread through time.
This scenario means that we might find in the USD CLO market (situation is expected to be better in Europe), that many CLOs are near breaching either the Reinvestment test (when breached, 50% of the amount that should have been paid to the Equity is diverted to be reinvested) or the most Junior OC test (when breached, 100% of the amount that should have been paid to the Equity is diverted to reimburse the most senior debt tranche) while strongly benefiting from loan reinvestment at discount (before the OC test is breached or once it is cured).
Typically, a CLO suffering, through a given year, 3% default (with 50% recovery) but being able to reinvest 15% of the portfolio in loans at an average 90% purchase price, might not see any deterioration of its tests (all other things being equal). Although it is speculative, it seems plausible that the most active and solid CLO managers might navigate through this environment (defaults spread through years with loans trading at discount as well for years) without causing too much pain to CLO Equity investors. For the moment and for the foreseeable future, with the positions we hold in Volta performing better than the broad market, we might be able to follow this hypothetical path.
*It should be noted that approximately 19.5% of Volta’s GAV comprises investments for which the relevant NAVs as at the month-end date are normally available only after Volta’s NAV has already been published. Volta’s policy is to publish its own NAV on as timely a basis as possible in order to provide shareholders with Volta’s appropriately up-to-date NAV information. Consequently, such investments are valued using the most recently available NAV for each fund or quoted price for such subordinated note. The most recently available fund NAV or quoted price was for 13.0% as at 31 March 2020, 4.2% as at 31 December 2019 and 2.2% as at 30 September 2019.
** “performances” of asset classes are calculated as the Dietz-performance of the assets in each bucket, taking into account the Mark-to-Market of the assets at period ends, payments received from the assets over the period, and ignoring changes in cross currency rates. Nevertheless, some residual currency effects could impact the aggregate value of the portfolio when aggregating each bucket.
CONTACTS
For the Investment Manager
AXA Investment Managers Paris
Serge Demay
serge.demay@axa-im.com
+33 (0) 1 44 45 84 47
Company Secretary and Administrator
BNP Paribas Securities Services S.C.A, Guernsey Branch
guernsey.bp2s.volta.cosec@bnpparibas.com
+44 (0) 1481 750 853
Corporate Broker
Cenkos Securities plc
Andrew Worne
Daniel Balabanoff
Rob Naylor
+44 (0) 20 7397 8900
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ABOUT VOLTA FINANCE LIMITED
Volta Finance Limited is incorporated in Guernsey under The Companies (Guernsey) Law, 2008 (as amended) and listed on Euronext Amsterdam and the London Stock Exchange's Main Market for listed securities. Volta’s home member state for the purposes of the EU Transparency Directive is the Netherlands. As such, Volta is subject to regulation and supervision by the AFM, being the regulator for financial markets in the Netherlands.
Volta’s investment objectives are to preserve capital across the credit cycle and to provide a stable stream of income to its shareholders through dividends. Volta seeks to attain its investment objectives predominantly through diversified investments in structured finance assets. The assets that the Company may invest in either directly or indirectly include, but are not limited to: corporate credits; sovereign and quasi-sovereign debt; residential mortgage loans; and, automobile loans. The Company’s approach to investment is through vehicles and arrangements that essentially provide leveraged exposure to portfolios of such underlying assets. The Company has appointed AXA Investment Managers Paris an investment management company with a division specialised in structured credit, for the investment management of all its assets.
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ABOUT AXA INVESTMENT MANAGERS
AXA Investment Managers (AXA IM) is a multi-expert asset management company within the AXA Group, a global leader in financial protection and wealth management. AXA IM is one of the largest European-based asset managers with 753 investment professionals and €801 billion in assets under management as of the end of April 2020.
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This press release is published by AXA Investment Managers Paris (“AXA IM”), in its capacity as alternative investment fund manager (within the meaning of Directive 2011/61/EU, the “AIFM Directive”) of Volta Finance Limited (the "Volta Finance") whose portfolio is managed by AXA IM.
This press release is for information only and does not constitute an invitation or inducement to acquire shares in Volta Finance. Its circulation may be prohibited in certain jurisdictions and no recipient may circulate copies of this document in breach of such limitations or restrictions. This document is not an offer for sale of the securities referred to herein in the United States or to persons who are “U.S. persons” for purposes of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”), or otherwise in circumstances where such offer would be restricted by applicable law. Such securities may not be sold in the United States absent registration or an exemption from registration from the Securities Act. Volta Finance does not intend to register any portion of the offer of such securities in the United States or to conduct a public offering of such securities in the United States.
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This communication is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net worth companies, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). The securities referred to herein are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents. Past performance cannot be relied on as a guide to future performance.
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This press release contains statements that are, or may deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "anticipated", "expects", "intends", "is/are expected", "may", "will" or "should". They include the statements regarding the level of the dividend, the current market context and its impact on the long-term return of Volta Finance's investments. By their nature, forward-looking statements involve risks and uncertainties and readers are cautioned that any such forward-looking statements are not guarantees of future performance. Volta Finance's actual results, portfolio composition and performance may differ materially from the impression created by the forward-looking statements. AXA IM does not undertake any obligation to publicly update or revise forward-looking statements.
Any target information is based on certain assumptions as to future events which may not prove to be realised. Due to the uncertainty surrounding these future events, the targets are not intended to be and should not be regarded as profits or earnings or any other type of forecasts. There can be no assurance that any of these targets will be achieved. In addition, no assurance can be given that the investment objective will be achieved.
The figures provided that relate to past months or years and past performance cannot be relied on as a guide to future performance or construed as a reliable indicator as to future performance. Throughout this review, the citation of specific trades or strategies is intended to illustrate some of the investment methodologies and philosophies of Volta Finance, as implemented by AXA IM. The historical success or AXA IM’s belief in the future success, of any of these trades or strategies is not indicative of, and has no bearing on, future results.
The valuation of financial assets can vary significantly from the prices that the AXA IM could obtain if it sought to liquidate the positions on behalf of the Volta Finance due to market conditions and general economic environment. Such valuations do not constitute a fairness or similar opinion and should not be regarded as such.
Editor: AXA INVESTMENT MANAGERS PARIS, a company incorporated under the laws of France, having its registered office located at Tour Majunga, 6, Place de la Pyramide - 92800 Puteaux. AXA IMP is authorized by the Autorité des Marchés Financiers under registration number GP92008 as an alternative investment fund manager within the meaning of the AIFM Directive.
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