Volta Finance Ltd
Volta Finance Ltd

Volta Finance Ltd (LON:VTA, LON:VTAS) is a closed-ended limited liability company registered in Guernsey under the Companies (Guernsey) Law, 2008 (as amended). The Company is an authorised collective investment scheme in Guernsey, regulated under The Protection of Investors (Bailiwick of Guernsey) Law, 1987.

Investment objectives

The Company’s investment objectives are to seek to preserve capital across the credit cycle and to provide a stable stream of income to its Shareholders through dividends that it expects to distribute on a quarterly basis.

Volta Finance seeks to attain its investment objectives predominantly through investment in a diversified portfolio of structured finance assets. The Company’s investment strategy focuses on direct and indirect investments in, and exposures to, a variety of assets selected for the purpose of generating overall stable and predictable cash flows for the Company, with the view to attaining the Company’s investment objectives.

Volta Finance Ltd

The Investment Manager

AXA IM is a multi-expert asset management company within the AXA Group, a global leader in financial protection and wealth management, which has a team of experts concentrating on the structured finance markets. AXA IM is authorised by the Autorité des Marchés Financiers (the “AMF”) as an investment management company and its activities are governed by Article L. 532-9 of the French Code Monétaire et Financier. AXA IM was appointed as the Company’s Alternative Investment Fund Manager (“AIFM”) in accordance with the EU Alternative Investment Fund Management Directive (“AIFMD”) on 22 July 2014.

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Volta Finance Ltd

Volta Finance Ltd share price

Fundamentals

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News

Volta Finance

Volta Finance income fund sees YTD returns up 10.9% in August report

AXA IM has published the Volta Finance Ltd (LON:VTA) monthly report for August 2024.

PERFORMANCE and PORTFOLIO ACTIVITY

Dear investors,

Volta Finance recorded a net performance of +0.1% in August bringing the year-to-date return at +10.9%. This needs to be compared with broader Credit markets: US and Euro High Yield indices returned respectively +6.3% and 5.6% since January 1st, 2024.

August turned out to be quite the volatile month as global markets were impacted early on by rates hikes in Japan as well as July US Non-farm payrolls data, which came in far below expectations. Slower job growth coupled with rising unemployment at 4.3% – the highest reading since October 2021 – triggered a spurt in volatility as growth outlooks were back on focus. Sentiment improved when US job creation reports showed positive dynamics and wage growth; this paved the way for more confidence into the soft landing rhetoric and eased the markets’ nervousness. The FED also suggested potential rate cuts if necessary, providing further relief.

Credit markets reacted strongly to these macroeconomic concerns with High Yield indices moving up and down through the month. Similarly, the US CDX High-Yield experienced levels moving from +330bps to +382bps then +322bps at the end of the month. On the Loan side, Euro Loans closed slightly weaker, 10 cents down at 97.85% vs. July (Morningstar European Leveraged Loan Index), while their US counterparts were up at 96.75%.

No time off for Primary CLOs, circa USD 47bn of issuance in the US and EUR 4bn in Europe were recorded. IG spreads moved sideways with AAAs pricing +130bps context while non-Investment Grade BB-rated tranches were wider in the +[600-650]bps context in Europe and +[575-625]bps in the US. In terms of performance, we noted that CLO markets continued to outperform broader Credits on a year-to-date basis: US BBBs total returns reached +7.98% and BBs total returns +12.49%.

In terms of fundamentals both US and European default rates reduced in August vs. July, reaching 0.78% for both jurisdictions (excluding liability management exercises). In terms of tail risk, the proportion of CCC-rated Loans within CLO collateral portfolios was slightly lower at 5.6% in US CLOs and 3.6% in Europe.

Although the CLO Equity investments provided the fund with a steady cashflow distribution, the low mezzanine tranches of CLO debt widened in sympathy with broader Credit markets but failed to recover fully by month end, mainly due to an oversupply of new issuances compared to actual demand, especially in the context of summer holidays. As a result, the cashflow generation over the last 6 months remained strong at €29.9m equivalent of interests and coupons, representing c.23% of the month’s NAV on an annualized basis.

In terms of activity, Volta Finance purchased €0.8m of Euro Equity in the Secondary market and a $4.7m US Equity top-up in the context of the Reset of an existing position in the portfolio. Debt-wise, Volta purchased $1.5m of BBB and $3.8m of BB-rated risk from the Primary markets.

Volta’s underlying sub asset classes monthly performances** were as follow: +1.1% for Bank Balance Sheet transactions, +1.8% for CLO Equity tranches, +0.5% for CLO Debt tranches and 0.0% for Cash Corporate Credit & ABS***, cash representing c.5% of NAV. The fund being c.25% exposed to USD, the depreciation of USD vs EUR had a negative impact of -0.6% on the overall performance.

As of end of August 2024, Volta’s NAV was €261.2m, i.e. €7.14 per share.

*It should be noted that approximately 4.62% 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 4.62% as at 31 July 2024.

** “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.
*** The cash Corporate Credit and ABS bucket is currently made of 3 legacy assets representing 0.7% of GAV.

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Interviews

Volta Finance Competitive Advantages Axa IM Brings as Manager (VIDEO)

Volta Finance Ltd (LON:VTA, LON:VTAS) is the topic of conversation when Hardman & Co Analyst Mark Thomas joins DirectorsTalk Interviews.

Mark talks us through his recent report on Volta entitled ‘The benefits of having AXA IM as the manager’, tells us about AXA IM’s presence in the CLO market, what scale brings to Volta investors, why this adds value in practice and any risks associated with investing.

https://vimeo.com/894461303

Volta Finance Ltd (LON:VTA, LON:VTAS) objective is to seek to preserve capital across the credit cycle and to provide a stable stream of income to its Shareholders through dividends that it expects to distribute on a quarterly basis.

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Question & Answers

Analyst Notes & Comments

Hardman & Co

Volta Finance: Robust returns and discounted value highlight investment opportunity

Volta Finance Ltd (LON:VTA) monthly to its FY-end of July reported an NAV total return of 19.7% while annualised cash receipts are 22% of the July NAV, consistent with levels seen since mid’22. For 16 consecutive months, it has generated positive NAV returns. In this note, we detail the different elements that have driven this performance. We note both positive markets and incremental value added by the manager. To put Volta’s returns into perspective, YTD to end-July, there has been a +10.8% total NAV return, more than twice the level of high-yield debt markets (US and Europe), which returned ca.4.5%. The discount appears anomalous with such a performance.

  • Positive CLO markets: We believe investors should “follow the cash”. Receipts into CLO structures have been strong, with low default rates from good corporate profitability and cashflow, and many borrowers passing on inflation to customers. Cash leaving CLO structures reflects refinancing and resetting opportunities.
  • Value added by AXA IM: AXA IM adds value with its scale, bringing i) specialist expertise to identify mis-priced opportunities and manage risk, ii) a broad network with informational advantages, and iii) business introduction and pricing opportunities. We also highlight its portfolio construction/asset selection.
  • Valuation: Volta Finance trades at a double discount: its share price is at a 26% discount to NAV, and we believe its MTM NAV still includes a further sentiment-driven discount to the present value of expected cashflows. Volta targets an 8% of NAV dividend (10.1% 2024E yield, on current share price).
  • Risks: Credit risk is a key sensitivity. In this note, we examine the valuation of assets, highlighting the multiple controls to ensure its validity. The NAV is exposed to sentiment towards its own and underlying markets. Volta’s long $ position is only partially hedged.
  • Investment summary: Volta Finance’s NAV and the discount to NAV may be volatile over time. Fundamental long-term returns have been robust: 8.0% p.a. (dividend reinvested basis) since inception. Volta’s performance relative to that of its peers, and the market it operates in, have been strong. Returns for investments made after the financial crisis were double those in prior years.

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Hardman & Co

Insights from Volta Finance’s report and accounts: Strong Returns, Resilience and Valuation

In this note, we review the key information and messages investors should take from the recent Report and Accounts. In particular, we note the detailed explanations as to how Volta Finance Limited (LON:VTA) is delivering strong returns. This performance reflects the sound fundamentals of the CLO investment market and the value specifically added by the manager (reaffirming the issues we identified in our note, The benefits of having AXA IM as the manager). In terms of outlook, the expected relative resilience of the portfolio was also noted. By way of example, the CLO managers in which Volta invests, are expected to mitigate the impact of anticipated market-wide lower recoveries through investing in better-quality underlying assets.

  • Strong current position: Volta Finance’s current cash receipts are over 20% of NAV, reflecting low defaults (strong corporate cashflows and profitability, ability to pass on inflation to date), low locked-in CLO borrowing costs, CLOs being floating-rate investments and Volta’s portfolio positioning in recent years into CLO equity.
  • Resilience: The rating agency’s/Volta’s/our confidence in a relatively low expected level of defaults reflects i) a strong starting position, including high cash cushions in CLO structures, ii) a preponderance of private equity (PE), iii) inflation still being friend, not foe, iv) covenant-lite documentation, and v) diversification.
  • Valuation: The Company trades at a double discount: its share price is at a 24% discount to NAV, and we believe its mark-to-market (MTM) NAV still includes a further sentiment-driven discount to the present value of expected cashflows. Volta targets an 8% of NAV dividend (10.4% 2024E yield on current share price).
  • Risks: Credit risk is a key sensitivity. We examined the valuation of assets, highlighting the multiple controls to ensure its validity, in our initiation note, in September 2018. The NAV is exposed to sentiment towards its own and underlying markets. Volta’s long $ position is only partially hedged.
  • Investment summary: Volta Finance is an investment for sophisticated investors, as both the NAV and the discount to NAV may be volatile over time. We note the closest competitor to Volta has had a more stable NAV valuation due to a different asset valuation approach. Fundamental long-term returns have been robust: 8.0% p.a. (dividend reinvested basis) since inception. Volta’s performance relative to that of its peers has been strong, and returns for investments made after the financial crisis were double those in prior years.

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Volta Finance: CLO Investing – the benefits and risks in plain English (VIDEO)

Volta Finance (LON:VTA) is the topic of conversation when Mark Thomas, Analyst at Hardman & Co joins DirectorsTalk Interviews.

Mark talks us through his recent report entitled ‘An easy guide to the benefits of CLOs’, explains what a CLO is, explains the benefits of investing in CLOs in plain English, mentions the risks and how Volta takes the opportunity.

https://vimeo.com/823365117

Volta Finance Ltd (LON:VTA, LON:VTAS) objective is to seek to preserve capital across the credit cycle and to provide a stable stream of income to its Shareholders through dividends that it expects to distribute on a quarterly basis.

Read More »

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Data policy – All information should be used for indicative purposes only. You should independently check data before making any investment decision and or seek professional advice. DirectorsTalk cannot guarantee that the data is accurate or complete, and accepts no responsibility for how it may be used.