Volta Finance Limited - Net Asset Value as at 30 April 2020
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
***** 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 ManagerAXA
Investment Managers ParisSerge Demayserge.demay@axa-im.com+33 (0) 1
44 45 84 47
Company Secretary and
AdministratorBNP 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
WorneDaniel BalabanoffRob Naylor+44 (0) 20 7397 8900
***** 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.
*****
ABOUT AXA INVESTMENT
MANAGERSAXA 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.
*****
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.
*****
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.
*****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.
*****
- Volta - Monthly Report - April 2020
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