AXA Investment Managers Paris has published the Volta Finance Ltd (LON:VTA) monthly report for October. The full report is attached below.
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PERFORMANCE and PORTFOLIO ACTIVITY
October’s performance was positive at 1.2%. The year-to-date total return of the Company is 16.4%. This good performance was mainly driven by the high volume of cash flows we received from our assets in October. Turning to the details, the monthly asset class performances** were: +0.6% for Bank Balance Sheet transactions, +1.8% for CLO equity tranches; +1.0% for CLO debt; -0.2% for Cash Corporate Credit and ABS (together representing 3.0% of NAV).
As usual, October is a relatively high-volume month in terms of interest and coupons with the equivalent of €8.5m being received. On a 6-month rolling basis to the end of October, Volta received the equivalent of €26.4m. This was a new high for Volta, representing a 19.7% annualised cash flow yield, based on the end of the month NAV.
With ongoing cash flows continuing at a pace close to or higher than 20% (annualised), Volta’s strategy is providing a performance that is very different from other double-digit performing assets like common equities. Our performance is mainly dependent on the current and ongoing cashflows rather than a multiple-like PE ratio that may be affected by an upward revision in the level of yields.
Regarding Volta’s current main exposure, our performance is firstly dependent on default rates in loan markets. In this respect, we were expecting some improvement after the stress of the Covid Crisis. It is fair to say that the decline in the rates was faster than expected. At the end of October, the 12-month default rate was at 0.2% for US loans and 0.8% for European loans. Companies can more easily refinance their debt and M&A activity is frequently providing an exit strategy to some of the stocks that suffered the most from the Covid crisis. Whatever the exit strategy being pursued so far, many loans found a way to refinance and the maturity wall is being extended towards 2027-2028, reducing significantly the probability of default for the coming few years. The conclusion of this is that we are very constructive at least for 2022 and 2023. At some point, we expect to see the default rate slightly higher but considering the pace at which loans are refinancing, it is difficult to imagine default rates being significantly above 1.5% in the next two years. We are back to a classic postcrisis situation: billions that have been made available in the economic/financial systems are providing prolonged support to the type of assets we are investing in.
In October, Volta Finance crystallized an opportunity that we locked in several months ago. We led the pricing of a European CLO in Q3 2020 and obtained the right to require the issuance of a B tranche on this deal at 95% of par. This tranche has been issued and purchased by Volta in October while we are almost certain this CLO will be reset (and the B tranche being called at par) in December with a settlement in January 2022, the next payment date for this CLO. In addition, we purchased two BB tranches in CLO, one European equity tranche, and are still working on opening a new US CLO warehouse to benefit from the large supply in the US loan market (which is preventing loan spread tightening).
As at the end of October Volta held about €3m of cash available for re-investment. As at the end of October 2021, Volta’s NAV was €268.0m or €7.33 per share.
*It should be noted that approximately 8.0% 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 NAV on as timely a basis as possible 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 notes. The most recently available fund NAV or quoted price was 1.7% as at 30 September 2021, 5.5% as at 31 July 2021, and 0.8% as at 30 June 2021. ** “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 crosscurrency rates. Nevertheless, some residual currency effects could impact the aggregate value of the portfolio when aggregating each bucket.
Please find a link to the full October report here https://www.voltafinance.com/media/31954/volta-october-monthly-report.pdf
AXA Investment Managers Paris has been the Investment Manager of Volta Finance Limited (“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).