Multi asset investment fund Volta Finance – record high cash flow

Volta Finance Ltd (LON:VTA) recently published their Annual Report and Audited Financial Statements 2021 for the twelve months to 31 July 2021.

Please find below commentary provided by AXA Investment Managers (“AXA IM”) Paris as Investment Manager of Volta. This commentary is not intended to, nor should be construed as, providing investment advice. Potential investors in the Company should seek independent financial advice and should not rely on this communication in evaluating the merits of investing in the Company. The commentary is provided as a source of information for Shareholders of the Company but is not attributable to the Company. The full report is attached below. 

KEY MESSAGES FROM THE INVESTMENT MANAGER

Commentary on Performance

At the time of writing, we are 18 months after the worst of the COVID-19 crisis. Volta is showing the benefits of the strategy which has been pursued over the last three years. Deciding to increase the share of CLO equities, at the detriment of non-CLO positions, was the right thing to do when considering the following:

  • The amount of cash flow Volta received from its assets has never been so high
  • The overall performance over the last few years (even including the cost of the COVID-19 crisis) has been good: +10.5% (6.2% annualized) since end of November 2019 for the NAV
  • Volta was able to maintain its dividend policy (paying a quarterly dividend in the region of 8% to the NAV)

As at the end of July 2021, CLO positions represent close to 85% of Volta’s assets and we continue to invest in both CLO equity and CLO debt in order to continue to transform Volta to make Volta more attractive and comprehensive for investors. Our conviction is that part of the discount at which Volta’s shares are trading, relative to the published monthly NAV, is due to the difficulty for some investors to embrace the variety of assets in which Volta was investing for more than a decade. Being an almost pure CLO fund, while maintaining the flexibility and the opportunity to choose between CLO debt and CLO equity, should help attract more investors as it is simpler to understand.

In response to the COVID-19 crisis, central banks and governments brought billions to the table to support both the economy and financial markets. Even though the situation is different from the situation following the Global Financial Crisis (GFC) in 2008, we may see similar consequences i.e. billions of savings available to finance companies’ debt and equity, so we may experience several years without any significant corporate debt issues. This was already the case in the US following the GFC and in Europe following the Euro-sovereign crisis with several years without any particular stress.

Another key point for CLO investment is the debate regarding the potential resurgence of inflation. Our conviction is that, due to the way we produce and consume to fight climate change, we may in the coming years see a higher inflation regime than what we saw over the last two decades. Changing for “better” energies (issuing less CO2) as well as the need for a kind of de-globalisation (less transportation) may imply higher prices. At the same point in time some of the risks associated with climate change (floods, fires) will continue to materialize meaning that the uncertainty regarding growth is increasing. We may see for years a higher inflation as central banks will be forced to maintain lower rates to finance the need for change and the cost associated with climate catastrophes. This situation is mostly favourable to debt as inflation is facilitating debt erosion while maintaining low rates and dovish monetary policies facilitate debt refinancing. Obviously, some businesses may be impacted. This has for years driven our efforts to promote ESG and sustainable investment practices as much as we can through incorporating, and pushing third party CLO managers to incorporate, non-financial sustainability risks in their credit selection, while trying to avoid financing businesses that are at risk because of E, S or G factors.

Overall, we are optimistic about the strategy for the coming years, at least from the point of view that globally we may enjoy several years with limited default rates for loans both in the US and in Europe.

Commentary on Cash Flow Generation

Despite some volatility with the COVID-19 crisis, Volta’s ongoing cash flows are on a global positive trend reaching a new high at the end of July 2021, measured over the past six months:

Though the last figure (€27m as at the end of July) is inflated by two exceptional payments in relation with two resets we conducted in June and July, the trend is clearly up for several years and it is reasonable to expect Volta’s interest and coupons to stabilize in the area of €24m per six-month period, considering the current portfolio composition.

This pace (€24m per six-month period) represents circa 18% per annum based on the current NAV. A significant portion of these cash flows are from Volta’s CLO equity bucket and it is clear that part of this percentage is there to compensate, on a long-term basis, par erosion that may materialize through years on CLO equity positions. Under reasonable assumptions the projected IRR of Volta’s assets, as at the end of July, was close to 13%. Almost one third of the current ongoing cash flow exists to compensate probable future par erosion. As long as such par erosion does not materialize, these cash flows in excess of projected IRR are, month after month, contributing to a NAV increase.

Please find a link to the full Annual Report here https://www.voltafinance.com/media/31848/volta-finance-limited-2021-annual-report-and-accounts.pdf

AXA Investment Managers Paris has been the Investment Manager of Volta Finance Limited (LON: VTA) (“Volta”) since inception. Volta Finance’s investment objectives are to preserve capital across the credit cycle and to provide a stable stream of income to its Shareholders through dividends. For this purpose, Volta pursues a multi-asset investment strategy on deals, vehicles and arrangements that provide leveraged exposure to target Underlying Assets (including corporate credit, residential and commercial mortgages, auto and student loans, credit card and lease receivables).

Click to view all articles for the EPIC:
Or click to view the full company profile:
Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn
Volta Finance

More articles like this

Volta Finance

KBRA releases monthly CMBS Trend Watch

CMBS private label pricing volume totaled $6.5 billion for December, bringing total issuance in 2021 to $110 billion. This is more than double the 2020 issuance of $54.2 billion. We currently have visibility of up to 21 deals

Volta Finance

A boost for CLOs

Collateralized loan obligation (CLO) managers were also buoyed by the overall improvement in ratings profiles. CLOs remained resilient in 2020, but CLO structures—which are created by pooling together non-investment grade loans—were affected by the large-scale downgrades that swept

Volta Finance

Volta Finance announces a fourth interim dividend

Volta Finance Limited (LON:VTAS) has today announced a fourth interim dividend for the financial year commencing 1 August 2020.  The Company announces that it has declared a quarterly interim dividend of €0.15 per share payable on 27 January 2022 amounting

Volta Finance

CLO market continues to exceed previous issuance records

With 2021 year-end approaching, issuance in the U.S Collateralized Loan Obligation (CLO) market continues to exceed previous issuance records and our full-year forecast of $140bn. Through the end of November, we observed combined new issue ($177bn) and refi/reset

Hardman & Co

Volta Finance Simple Simon Says (Analyst Interview)

Volta Finance Ltd (LON:VTA) is the topic of conversation when Hardman & Co Analyst Mark Thomas caught up with DirectorsTalk Interviews. Mark talks us through his latest note on the company entitled ´Simple Simon Says´, explains focus why

Volta Finance

What Is a Collateralized Loan Obligation

A collateralized loan obligation (CLO) is a single security backed by a pool of debt. The process of pooling assets into a marketable security is called securitization. Collateralized loan obligations (CLO) are often backed by corporate loans with

Hardman & Co

Volta Finance: Simple Simon Says

In this note, we explore three aspects of Volta Finance plc (LON:VTA) portfolio, highlighting their simplification – simplified. Firstly, unless there is a compelling, opportunistic case, new investments will be in CLO structures only, and not in other

Volta Finance

Credit Suisse Brings Property CLOs Popular in US to Europe

Credit Suisse Group AG completed Europe’s first commercial real estate collateralized loan obligation, according to lawyers involved in the deal, breaking into a market that’s more than doubled in the U.S. The bank on Friday sealed a deal

Volta Finance

Volta Finance impressive annual results delight Chairman Paul Meader

Volta Finance Ltd (LON:VTA) recently published their Annual Report and Audited Financial Statements 2021 for the twelve months to 31 July 2021. Please find below the Chairman’s statement from Non-Executive Independent Director of the Company, Paul Meader. The full

Volta Finance

Structured products fund Volta Finance rises on 16.4% YTD total return

AXA Investment Managers Paris has published the Volta Finance Ltd (LON:VTA) monthly report for October. The full report is attached below.  NOT FOR RELEASE, DISTRIBUTION , OR PUBLICATION, IN WHOLE OR PART, IN OR INTO THE UNITED STATES PERFORMANCE and PORTFOLIO ACTIVITY October’s