Volta Finance Analyst Q&A: Dividend yield uplift (LON:VTA)

Volta Finance plc (LON:VTA) is the topic of conversation when Hardman and Co’s Analyst Mark Thomas caught up with DirectorsTalk for an exclusive interview.

Q1: Your recent report on Volta Finance sits behind a disclaimer, what can you tell us about that?

A1: It is just the standard disclaimer that many investment companies have. In essence, for regulatory reasons, there are some countries (like the US) where the report should not be read. In the UK, because CLOs are not a simple asset class, the report should only be looked at by professional/qualified investors.

Q2: You called your recent piece Volta’s seven yield uplifts. What can you tell us about it?

A2: In this note, we explore the dividend yield uplift that the company offers investors.

It is generated from six asset yield uplifts inherent to its model, including i) structured debt yields above mainstream debt, ii) CLO’s’ yield above structured debt, iii) their flexible mandate generating yields above the CLO market as whole, iv) current re-investments are at an above-average yield over the market, v) re-investment yields offering a material pick-up against maturing business, and vi) a pick-up in the company’s dividend is expected with retentions, and as asset valuations approach, forecast cashflows and sentiment-driven discounts reduce.

Q3: So, fundamentally, you are saying the company can pay a big dividend because it is in the highest-yielding bits of the CLO market. Can you tell us some more about that?

A3: It is a three-stage process: structured debt yields more than unstructured debt; CLOs offer a better risk-adjusted return than average structured debt; and Volta can pick the best bits of the CLO market.

Taking the first point, it is important to understand why structured debt delivers superior nominal and risk-adjusted returns, and how these factors may vary with time. We believe the key driver is using intellectual capital (rather than economic capital), which can exploit illiquidity and other mis-priced risk opportunities, as well as add value in the structuring process itself. The key drivers to mis-pricing include sentiment, uncertain outlooks, mis-valued recovery potential, illiquidity and forced sellers.

Second, if we look at CLOs against structured debt, corporate loans are receiving central bank and government support, Cov-lite documentation is reducing the probability of default and critically extending time to default, corporates are being more active in seeking waivers in advance of when they need them, and there has been an increase in PE backing providing more financially robust backers. All of that gives a good risk-adjusted return for CLOs. 

Finally, Volta Finance has a flexible mandate, and so can pick off the best bits of the CLO market.

Q4: And, in your report, you say the relative advantage increased sharply in 2020. Why is that?

A4: The extraordinary level of government and central bank support drove down risk-free rates, and investment-grade debt quickly recovered to pre-crisis levels. More complex debt, though, continued to reflect market uncertainties, and so offered much wider spreads. In the spring, the illiquidity and unknown recovery differentials were much wider than in the past. There is still an element of that, but not as much as earlier in the year. The bottom line is that the projected yield is now ca.18%, when, at the end of financial years 2017 and 2018, it was 10%, and just 11.6% in July 2019.

Click to view all articles for the EPIC:
Or click to view the full company profile:
Facebook
Twitter
LinkedIn
Hardman & Co

More articles like this

Volta Finance

The power of CLOs: Higher yields and built-in risk protection

Given their higher relative yields, “built-in” risk protection and historical outperformance in periods of rising rates, now is a good time to better understand collateralized loan obligations (CLOs), how they’re structured and how they fit within

Volta Finance

CLOs belong in your core bond portfolio

Over the past several years, CLOs within a core bond portfolio would have provided additional yield—without adding duration—as well as increased returns and lower volatility. Why do so many active core bond managers invest in collateralized

Volta Finance

Perspectives on Securitized Credit

Securitized credit markets closed out 2022 with positive momentum that carried over into early 2023. Still, the past year was the most stressful period for securitized markets—outside of the global pandemic-induced meltdown in early 2020—since the

Volta Finance

Where to find income within fixed income

After a year of significant rate hikes in 2022, there are many investment strategies offering higher yields within the fixed income universe. Some advisors are returning to the corporate bond market, where a diversified portfolio can

Volta Finance

CLOs start 2023 with higher yields and spreads

CLOs and loans significantly outperformed other credit asset classes in 2022, and the asset class enters the new year at materially higher yields and spreads versus one year ago. The VanEck CLO ETFoutperformed the J.P. Morgan CLO

Volta Finance

Attractive yields should outweigh growing concerns

We believe many of the issues that confronted the leveraged credit markets in 2022 will persist into 2023, though we hope to see resolution of certain issues as the credit cycle matures. Notable macro themes for 2023

Volta Finance

What is a CLO?

CLOs provide an efficient, scalable way of investing in floating-rate loans while offering structural protection that has historically performed well through multiple credit cycles. A collateralized loan obligation (CLO) is an actively managed securitized product backed

Volta Finance

Commercial real estate finance markets in 2022

In U.S. markets, CBRE notes that while there has been a general decline in commercial mortgage market liquidity, deals continue to close.  Life companies and private equity debt funds have capital to deploy, while multi-family agency

Volta Finance

What is the meaning Of Collateralized Loan Obligation?

Have you ever heard of a Collateralized Loan Obligation (CLO)? If you’re looking to take out a loan, understanding the ins and outs of collateralized loan obligations is a must. With their increasingly popular use, it

Volta Finance

CLO market come back to life next year

It’s getting to be a cliché, but 2023 could be a pivotal year for commercial real estate — basically because of what happened last year.  The market entered 2022 with high hopes. There were readily available

Volta Finance

Collateralized Loan Obligations (CLO)

What are Collateralized Loan Obligations (CLO)? Collateralized loan obligations (CLO) are securities that are backed by a pool of loans. In other words, CLOs are repackaged loans that are sold to investors. They are similar to

Volta Finance

Favouring securitized sectors

In late October 2022, the 10y-3m Treasury yield curve inverted for the first time since 2019 and continued to invert further through November. This has left investors contemplating a recession and wondering how to position their

Volta Finance

CLOs rally

Global prices for bonds backed by leveraged loans are rallying from a short-lived, UK-centered selloff that’s changing investor perceptions about the $1.2 trillion collateralized loan obligation market. In Europe, Ares Capital Corp. and OakTree Capital Group