Volta Finance (Mkt Cap £224m)
Cautious short-term outlook
Volta's NAV return in March was 0.9%. The mark-to-market performance of the various portfolio sub-sectors was +1.8% for CLO equity, +1.5% for CLO debt, +0.7% for synthetic corporate credit, -10.9% for cash corporate credit and 0.2% for ABS.
Cash corporate credit reduced NAV by 0.4% in March. Cash corporate credit was impacted by the final payment of a German SME CDO that depended on the value of a pool of defaulted SME loans. Cash flows from the investment have been well ahead of expectations in recent years.
Volta invested a total of €13.4m in the month in two USD CLO debt tranches, a new USD CLO equity position and a drawdown under the risk retention vehicle investment. The expected yield on new investments was 10.7% compared to a yield of 5.5% on the €10.8m of CLO debt tranches sold in the month.
Cash is still relatively high at 9% of NAV and reflects the manager's caution on credit market valuations. The manager has also added a short S&P 500 position representing 2.5% of NAV to protect against short-term market volatility.
Volta continues to deliver attractive returns with a NAV return of +3.2% for Q1 2017 and +22.3% over the past 12 months. The company is on track to deliver another year of double-digit NAV performance. The manager has consistently used hedging and portfolio positioning to protect returns during periods of market volatility. The shares currently trade on an 11.4% discount to NAV|
Volta Finance (Mkt Cap £250m)
0.9% NAV gain in March
Volta has published an early estimate of its NAV at 31 March 2017 which indicates growth of 0.9% over the month to €8.51. The monthly report will follow in due course around the 20 April.
Volta continues to deliver attractive returns with a NAV return of +3.2% for Q1 2017 and +22.3% over the past 12 months. The company is on track to deliver another year of double-digit NAV performance. The company's recent interim report projects the portfolio IRR at 10.4% and the manager has consistently outperformed the portfolio projections in recent years. The shares currently trade on an 11.9% discount to NAV.|
Volta Finance (Mkt Cap £234m)
0.9% NAV return in February
Volta's NAV at 28 February 2017 was €8.58 per share which represents an increase of 0.9% over the month.
The mark-to-market performance of the various portfolio sub-sectors was +0.2% for CLO equity, +0.5% for CLO debt, +1.8% for synthetic corporate credit, +1.5% for cash corporate credit and 0.1% for ABS.
Volta invested a total of €15.7m in February in six USD CLO debt tranches and a drawdown request on the risk retention vehicle that was announced in January.
Cash has increased to 10% of NAV as the manager's view is that credit markets are now quite fully valued and better opportunities should emerge in due course.
We calculate approximately half of the NAV return in the month was attributable to FX gains given the 2.1% appreciation of the US Dollar (portfolio exposure is 24% US Dollar). Volta continues to generate attractive returns and is well-placed to deliver another year of double-digit NAV performance. The shares currently trade on an 12.9% discount to NAV.|
Volta Finance (Mkt Cap £234m)
FX gains drive NAV growth
Volta has published an early estimate of its NAV at 28 February 2017 which indicates growth of 0.8% over the month to €8.57. The monthly report will follow in due course around the 20 March.
We calculate the majority of the NAV return in the month was attributable to FX gains given the 2.1% appreciation of the US Dollar during the month. Volta is well-placed to deliver another year of double-digit NAV performance. The shares currently trade on an 12% discount to NAV and offer an 8.2% prospective dividend yield.
|Its Tetragon HTtp://www.tetragoninv.com/about-us/about-us-overview
|Never heard of TFG, davebowler will try and fine time to take a look|
|Have you looked at TFG.L, Cerrito and atholl91?|
Slower start to 2017
January was a weaker month for both Carador and BGLF, returning 0.8% and 0.1% over the month respectively following a strong 2016 for both funds and the sector as a whole.
The year started strongly for the sector with the JP Morgan CLOIE post-crisis B-rated index up 10.9% in January. As CLO debt rallied CLO equity valuations were softer, driven by concerns around loan refinancings and an increased supply of CLO equity paper in the secondary market. CLO issuance in January totalled $1bn through two US CLOs and one €0.4bn European CLO. Refinancing and reset activity volumes totaled $8.0bn in the US and €1.3bn in Europe.
Blackstone also announced this morning its intention to raise further capital under the 12 month placing programme announced in March 2016. The issue price will be €1.02, which constitutes a 2% premium to January NAV after adjusting for the dividend declared on 20 January, to be paid on 24 February. The number of new shares to be issued will be decided and announced following the close of the placing on 2 March 2017.
Carador now trades at a 1.9% premium to NAV, with Blackstone trading at a 2.4% premium; this compares to a -2.1% discount for the peer group. The CLO funds offer a 10% average prospective dividend yield and believe it represents one of the more attractive sub-sectors in the alternative funds universe given relatively low default outlook for the market. Volta and Fair Oaks remain our top picks in the sector.|
|Thanks to DB. I've sold some of my VTA as the discount doesn't seem to shift and I am Euro bearish. Bought some more CIFU & FAIR due to USD and better yields. Still think FAIR has the best Manager in this space but will be interesting to see how its fund raising goes Cerrito.|
|Thank you very much Dave Bowler for posting that note which as a holder of VTA,FAIR and CIFU I read with interest.
IMO they are right to say that CLO products are very attractive compared to most other fixed income products; that is not saying very much given the to me poor fixed income prospects.
They correctly note the good default history over the recent past for the industry-especially excluding energy loans-and comment on the lack of interest rate duration risk.
As in the past FAIR have said that an interest rate increase would have a reasonably important impact on the portfolio, I read note 21 of the VTA last AR more thoroughly than I had in the past; they did not quantify what would be the impact of an interest rate move . They did say that CLO equity(24% of portfolio) would be hit by any increase in rates given the floors and that floating rate assets would benefit from any increase. Incidentally this note 21 refers to the VTA holding in Alba UK Mortgage pool-which holders of QWIL/ERII will remember.
On a broader level, the article did confirm my feeling that things are going very well for the sector at the moment…but is there scope for it to get much better?? For that reason I am not buying anymore and do not currently plan to participate in the FAIR equity raise(and it will be interesting to see how that goes)-nor am I selling
In the next days we will be getting Jan 31 NAV figures and I am expecting a good increase|
|General opinion of CLO's from;
Partner, Head of Distribution
020 7015 8912
TwentyFour Asset Management
It has been a very strong start of the year for risk assets as cash is being put to work but supply has been relatively limited, creating a strong technical backdrop. Within ABS, one of the best performing sectors has been mezzanine CLOs, where spreads have tightened 25-100 basis points for BBB to B rated bonds, and a greater degree of tiering has opened up between managers and vintages. 2013-2015 deals in particular are being priced to mature at the end of their 2 year non-call periods and prices have naturally gravitated towards par.
New and refinanced CLOs are being printed at roughly 3.5-4.0% yield for BBB, 6-7% for BB and close to 9% for single-B rated bonds. However, loan issuance remains subdued hence CLO managers are struggling to ramp up new deals and get the old ones fully invested. For this reason you would expect single-Bs to price wider, as investors are taking the risk that the manager will not be able to ramp the deal efficiently, and it increases the chances of next year’s credit skeletons finding their way into the underlying collateral pool (as Mark wrote about last Friday). Last week CVC priced their new CLO, Cordatus 8, with the underlying portfolio being just 33% of the deal ramped. Although CVC is a very well respected CLO manager, we believe that there is better value in the older CLOs that are currently being refinanced, as the investor has greater transparency surrounding the collateral and there is less exposure to the primary loan market, where yield levels are tight and leave little margin for any market price correction.
We have been selective sellers so far this year in the 2014/2015-vintage BB CLOs (trading at 99-100 with a coupon below Euribor + 550bps), in favour of the 2016 refinanced transactions that are trading close to par with Euribor +650-700bps coupons. The downside in any sell-off is limited as ramping a CLO in the first half of 2016 was attractive, due to the relative value of the underlying loans during that period. This does not take away from the fact that there is a lot of option value in potential call stories. We also recognise the value in selective single-B rated classes, where some tranches are trading at a discounted price in the mid-80s (due to their lower coupons at issuance).
Underlying loan performance has been strong over the past year, aided by general improvement in ratings and a default rate of virtually zero. Despite the rally in the underlying loans, we think CLOs remain very attractive compared to most other fixed income products, with the added benefit of CLOs exhibiting no interest rate duration risk. With no obvious pick-up in leverage loan issuance and limited CLO primary supply, the strong market technical looks set to continue, hence our view that the outperformance of the CLO sub-sector is unlikely to change anytime soon.|
Positive trend continues in December
Volta Finance and Carador Income Fund have reported positive NAV performance for the month of December (Volta +1.4%, Carador +3.1%). This maintains the trend of strong monthly returns since the CLO market recovery began in March 2016.
In December, all post-crisis CLO tranches experienced a positive month with BB and B US debt tranches rising 2.7% and 4.5%. These tranches have delivered a return of 21.7% and 23.6% in 2016 respectively.
Three CLO funds have reported figures to the end of December (BGLF is yet to report) and it has been a strong year for the sector with an average NAV return of 20.1% across the three funds. Fair Oaks Income Fund has generated a return of 24.9% in 2016 followed by Carador (20.1%) and Volta (15.2%).
Carador has also announced a dividend of $0.0275 per share for Q4 2016 bringing total dividends for the year to $0.095 per share. This is ahead of target dividend of $0.09 per share as the re-weighting of the portfolio between mezzanine and equity tranches during the year has enabled a higher distribution.
After a turbulent start to 2016, the CLO market has benefited from significant spread tightening to deliver a year of healthy returns. CLO spreads have tightened for a number of reasons including a higher allocation from investors seeking floating rate exposure. There was a significant level of refinancing activity ahead of the risk-retention deadline in the US. Almost $50 billion of refinancings occurred in 2016 with $37 billion of this taking place in Q4. The resulting lower weighted average cost of the debt tranches can provide a meaningful uplift to the IRR expectation of equity tranches investors.
The CLO funds trade on an average 2.4% discount to NAV and offer a 10% prospective dividend yield. We believe this represents one of the more attractive sub-sectors in the alternative funds universe given relatively low default outlook for the market and the ability to capitalise on relative value opportunities. Volta and Fair Oaks remain our top picks in the sector.|
|Liberum on CLOs;
Fair Oaks Income Fund (Mkt Cap £250m)
26.4% NAV return in 2016
Fair Oaks Investment Fund's (Fair Oaks) NAV per share was $1.005 as at 30 December 2016, a 3.8% monthly return including dividends. The company declared a dividend of 5.75 USD cents per share in December that brings the total dividend for the year at 13.45 USD cents per share.
The shares will go ex-dividend on 12 January 2017.
The JP Morgan CLOIE post-crisis B rated index was up 4.5% in December. Fair Oaks’ positive monthly performance was driven by both equity and mezzanine investments. Market default rates in the US decreased slightly to 2.06%.
Fair Oaks has confirmed its intention to proceed with the proposals under which Shareholders will be offered an option (but will not have an obligation) to extend the duration of their investment, and also with a further equity raise through a C share. The documentation in respect of the proposals is expected to be published in early March, with a deadline for elections under the proposals and applications under the fund raise in late March.
Fair Oaks believes that control positions in new CLOs have the potential to offer one of the most compelling investment opportunities in credit markets at this point in the cycle given supportive loan fundamentals and tight CLO liabilities.
Fair Oaks' 2016 NAV total return was 26.4% validating Fair Oaks' strategy and the significant investment opportunities CLOs present. We expect the positive NAV performance to continue based on the strong credit performance of the equity investments during the year and the opportunistic investment in mezzanine tranches. Fair Oaks currently trades on a 2.7% discount to its December NAV against the peer group average of 3.1%. The current yield is 13.8%.|
Strong monthly returns continue
The monthly results for Blackstone/GSO Loan Financing (Blackstone) and Carador Income Fund (Carador) continue the run of strong monthly results for the sector, with NAV up 1.96% and 2.16% respectively. The strong positive performance comes against a backdrop where equity markets have hit all time record highs following the US election and US Treasuries lost 2.67% in November (the worst performance since 2009). Fixed income weakness has carried over to credit, with investment grade credit losing a similar 2.68% during the month (Barclays U.S. Corporate Index); high yield credit lost 0.07% over November (Credit Suisse High Yield Index), while leveraged loans performed better, gaining 0.32% (Credit Suisse Leveraged Loan Index).
November issuance outpaced that seen in October and was the most active month for US CLO issuance since June 2015, with demand boosting issuance before the introduction of US risk retention rules in December. US volumes totalled $10.9 bn through 21 issues, the European market was also active with five new issues totalling €2.0 bn. Spreads continue to tighten, with the most recent European CLO reduced its AAA spread from 145bps to 85bps.
The CLO sector is one of the most attractive on a relative basis in our alternatives universe. There is potential for further yield compression in the short-to-medium term and the underlying cash return from CLOs has been strong given that defaults remain low. The CLO funds trade on a peer group average discount of -5.1%, which has narrowed c.1% over the past month. Carador trades in line with the average, at a discount of -5.4%, while Blackstone is tighter at -1.4%. The sector has an average prospective dividend yield of 10.4%.|
Double-digit NAV returns likely for 2016
Three of the CLO funds have announced October performance figures this morning with a continuation of the recent trend of strong monthly returns. CLO debt tranches were broadly positive during the month with BB and B tranches in the JP Morgan CLO Index rising 0.9% and 1.6% respectively. According to the index, CLO equity prices lost -1.3% in the month although this mainly reflects quarterly distributions during October. The majority of the London-listed funds experienced positive returns from their CLO equity investments.
All three funds (Volta, Fair Oaks and Carador) with mark-to-market valuation policies experienced strong returns in the month. Fair Oaks Income Fund was the best performing fund in October (+2.6%) and over the past 12 months (+14.8%).
CLO issuance reached its highest level since June 2015 during October as demand from investors helped to boost issuance before the introduction of US risk retention rules. Equity investors should benefit as spreads on senior tranches tightened to 143bps (161bps in June) on US CLOs and as low s 98bps on European CLOs.
The CLO funds trade on an average 6.0% discount to NAV and offer a 10.6% prospective dividend yield. We believe this represents one of the more attractive sub-sectors in the alternative funds universe given relatively low default outlook for the market and the low exposure to oil and gas / energy. Volta and Fair Oaks remain our top picks in the sector.
|The biggest risk recently was the likelihood of a £Sterling bounce from an oversold 1.10....rallied to 1.16 last week, knocking 5% off the Sterling price. Quite likely further to go...|
|Had a close read of the Annual Report just out.
I found the commentary on Principal Risk Factors very useful and the Chairman’s statement.
I was surprised that I could find no info on defaults in the portfolio(especially as we do not get this info in the Monthly Report) or of Shareholders with 3%+.
They also gave no figures on the projected impact on the portfolio of a change in interest rates-something I was looking for- but did note the following from the Risk section quote Given that the Company’s investments have floating interest rate characteristics, risk arising from interest rate volatility is modest unquote-would have preferred it if it had been quantified.|
Positive performance in September
Volta's NAV per share as at 30 September 2016 was €8.2 including the dividend of €0.15 paid in the month. The September NAV is higher by 1.4% compared to the August NAV mainly due to positive performance in most credit and equity markets.
In September, Volta sold four positions (two USD CLO debt and two European CLO debt) with expected yields close to 4.5%; no purchases were made. The company generated cash of €1.0m in interest and coupons during the month bringing the total cash holdings to €8.0m. The mark-to-market variations in September were +1.2% for Synthetic Corporate Credit deals, +1.8% for CLO Equity tranches, +1.7% for CLO Debt tranches, +1.8% for Cash Corporate Credit deals, and, +0.7% for ABS.
Carador Income Fund
Carador's NAV per share as at 30 September 2016 was $0.7466 a 1.6% increase to August NAV per share. In the quarter, the company received estimated net cash flows of $20m or 0.0371 per share increased by 14% compared to Q2 2016.
Carador traded $101m in nominal value during the month of September and the weighted average risk-adjusted IRR for all investments is approximately 14.1%. The company also sold three tranches of 1.0 BBs and three tranches of 2.0 Income Notes at a weighted average risk-adjusted IRR of approximately 10.38%. As at September 2016, the portfolio comprised 73.93% of NAV in Income Notes and 26% of Mezzanine Notes.
The Q3 2016 dividend of $0.0225 per share will be paid on 2 November 2016.
The CLO issuance grew this quarter and could potentially pick up before the risk retention requirement starts to apply at the end of December. The high yield and loan markets continue to advance and should allow CLO funds to maintain their positive performance. Volta is trading at a 10% discount approximately to its September NAV and Carador at 2.9%. The average for the sector is 2.8%, with Fair Oaks trading at a 2.3% premium.|
Volta Finance Ltd.
2.8% NAV growth as market rally continues
Volta's NAV was €8.09, up 2.8% over the month in line with the post-Brexit rally in credit markets which extended into August. The growth was driven by positive mark to market valuation changes in most asset classes, notably of +3.1% for CLO debt tranches, +2.4% for CLO equity tranches, +4.4% for cash corporate credit deals and +3.3% for ABS.
The company received €1.4m in interest and coupon payments. The company is now considered fully invested, with €3.4m in cash or cash equivalents, although it continues to see opportunities in mezzanine and equity CLO tranches, RMBS tranches, as well as cash corporate credit and synthetic corporate credit.
The company continues to improve its portfolio and rotate out older positions with lower yields. The weighted average life of the portfolio is now 3.5 years, which the company aims to continue to extend.The company is now trading at 12.4% discount to the end of August NAV, this compares to a -3.2% average peer group discount. The current yield is 9%.|
|Liberum;Specialist FinanceCLO FundsPost-Brexit rally continuesEventCarador Income Fund and Blackstone/GSO Loan Financing have both published NAV reports for August, reporting monthly gains of 2.99% and 0.13% respectively. This follows a similarly positive month for Fair Oaks Income Fund which reported a 2.3% NAV return for August last week. ? The post-Brexit rally and positive sentiment in credit markets extended into August as European loans returned 0.88% and high yield rose 1.86% for the month. The JP Morgan CLOIE post-crisis B-rated index was up 7.4% in August. Spreads continue to tighten across the asset class as a result of strong demand, The spread to maturity for the index was 11.7% at 31 August in line with 31 December 2015 levels and European CLO 2.0 secondary spreads also closed the month inside year-end 2015 levels. Loan and CLO new issuance was minimal in Europe over the month of August, although this is likely to ramp up in September. Issuance in the US was strong with 13 new CLOs ($5.9bn) issued. Post period end BGLF announced that it has increased it's target dividend yield to an annualised rate of 0.10 per share as income has increased as the portfolio has have rotated out of senior secured loans into CLOs. Liberum viewThe CLO sector is one of the most attractive on a relative basis in our alternatives universe. There is potential for further yield compression in the short-to-medium term and the underlying cash return from CLOs has been strong given that defaults remain low. Carador is now trading at par, with BGLF at a small discount of -0.8%. The CLO funds peer groups now trades on an average discount to NAV of -2.4%, which has tightened in from -3.7% over the month, reflecting the attractiveness of the sector, which offers a 9.5% prospective dividend yield. |
|Just very difficult to buy any of these as liquidity is low.|
|I was going to enquire when the quarterly dividends were to start but here it is...
€0.15 dividend declared for Sep 16: ex-div 8 Sep 2016; paid 27 Sep 2016.|
Strong July for CLO funds
Carador Income Fund and Blackstone/GSO Loan Financing have both published NAV reports for July with monthly gains of +6.5% and +0.3% respectively. These gains follow large monthly uplifts for Fair Oaks Income Fund (+13.2%) and Volta Finance (+5.5%) over the same period.
CLOs experienced a positive month with junior post-crisis CLO positions rising sharply. BB tranches returned 10.6% and B-rated tranches rose 8.4% as spreads tightened during the month. The JP Morgan CLO Index of post-crisis equity tranches returned 3.2% during the month.
The CLO market is benefiting from positive sentiment in credit markets as evidenced by rising loan prices and an improved outlook from market forecasters. The default rate over the past year in the US market is 2.3% (0.89% excluding energy) and forecasters have raised expectations of CLO issuance in 2016 in Europe and the US. Primary markets have benefited from spread compression as demonstrated by Blackstone GSO's Griffith Park CLO with AAA notes priced at Eurobor +1.23% (27bps tighter than the level achiebved on the Elm Park CLO which closed in April).
We regard the CLO sector as one of the most attractive on a relative basis in our alternatives universe. There is potential for further yield compression in the short-to-medium term and the underlying cash return from CLOs has been strong as defaults remain below historic levels. This is the ultimate driver of returns as CLOs benefit from a term leverage structure. The CLO funds trade on an average 3.7% discount to NAV and offer a 9.7% prospective dividend yield.|