Volta Finance Share Discussion Threads

[davebowler] 18/4/2024 03:42

Liberum Structured CreditFair Oaks Income Good time to be allocating to CLO equityAnalyst: Shonil ChandeMkt Cap £183m | Share price $0.56 | Prem/(disc) -0.9% | Div yield 14.3%EventFair Oaks Income's NAV per share increased by 0.7% (+3.8% NAV TR YTD) in the monthly period to 31 March 2024, to $0.565. We summarise some of the main monthly market indicators below:US loan default rate: Decreased from 1.41% to 1.14% m-o-m.European loan default rate: Decreased from 1.86% to 1.65% m-o-m.Distress ratio (loans trading below 80c, a potential indicator of the direction of future defaults): Declined in the US from 5.08% to 4.95% and in Europe from 2.80% to 2.78%.Liberum viewAnother good update underlining why FAIR's CLO equity-focused strategy is an attractive place to allocate to given the lowering default rates in the broader leveraged loan markets, high distributions, relatively benign macro and the fact that CLO equity valuations have the potential to follow the normalisation path seen in CLO mezzanine debt.?This is a performing CLO equity portfolio that is attractively valued, with potential for higher valuations. We note the manager's comment (factsheet) that "the weighted average price for US CLO equity in the Master Fund's portfolio has decreased from 39.6c to 36.2c in the last 12 months while the weighted average loan bid price has risen from 93.7c to 96.6c in the same period and ii) cash-flow multiples: c. 3.5x based on March's valuations and annualised quarterly cash-flows."The chart below is a sensitivity based on the CLO portfolio, as at 31 December 2023. It shows the significant slack embedded into the valuation of the US CLO equity portfolio. We also note that the high yields in CLO equity are driven by the excess distributions to the equity holder once all liabilities are paid to debt tranches. The underlying loans that fund the CLO equity and CLO liabilities are senior secured bank loans that side above high yield debt and preferred stock and underlying loan spreads are typically in the 2.5%-4% range. We are BUYers with a target price of $0.66.

[cerrito] 17/4/2024 20:14

Yes v good update on strong first quarter.
Surprised-not sure if I should be- that CCC represents 7.1pc of US portfolio.
I note that in the six months to March 24 they generated e27.1m of interest and coupons. The equivalent figure in the 6 months to March 23 was e22.1m and e21.3m in 6 months to March 22.
What will this do to the share price ??I ask myself

[cwa1] 28/3/2024 11:33

XD day today, as noted above pay day is 25/4

[bluemango] 21/3/2024 09:28

Increased quarterly dividend, up from 13.5c to 14c. Payable 25th April.

Makes FY dividend 0.56 Eur, or around 11% yield.

[cerrito] 18/3/2024 20:00

Interesting once again no mention of defaults.
I assume it is because they think of it as a non story but would be good to get confirmation.
I have written to the company asking them to comment on defaults next month.

[cerrito] 16/2/2024 21:01

Good increase in NAV to E6.89 at 31.1.24, the highest since 30.4.22. I would have preferred it if they had commented on defaults in their monthly report.

[cerrito] 17/1/2024 22:13

Pretty impressive increase in NAV in 2023 from E5.84 to E6.7 but still well below the 31.12.21 NAV of E7.27

[cerrito] 18/12/2023 23:03

Today's November report v upbeat compared to the softness they reported on at the end of September

[bluemango] 07/12/2023 13:35

Increased Q4 dividend announced, payable 25th January, .135 Eur. If annualised that makes an annual payment of 0.54 Eur, an increase of 3.8%.

[yieldsearch] 30/11/2023 15:30

hxxps://www.twentyfouram.com/insights/clo-metrics-remain-robust-as-leveraged-loans-beat-expectations?utm_source=Pardot&utm_medium=Email+Organic&utm_campaign=Blog&utm_term=UK+Wholesale&utm_content=Organic+Email

[cerrito] 16/10/2023 22:38

The following para of the monthly report issued today caught my eye.
Yes at the end of September the mood in the markets did shift and we need to brace ourselves for the NAV to decline in the coming months. I guess logically I should sell and I would if the shares were more liquid. Zero interest in buying given the rough seas ahead.
Not sure if the September tailwind of being long USD against the Euro will last that much longer.

quote
September recorded another strong month for leveraged loans with US and European markets moving up again (ELLI was up 1.1% while US LLI was up c.1.0% according to Pitchbook LCD) even though some market softness started to show at the end of the month alongside other credit markets. This impacted some of our US CLO debt exposures that were marked lower at the end of the month
unquote

[davebowler] 28/9/2023 10:19

Liberum on FAIR -

Analyst: Joachim Klement

Mkt Cap £176m | Share price $0.53 | Prem/(disc) -9.2% | Div yield 15.2%

Event Half-year report confirms quality of investment portfolio

Fair Oaks Income released its interim report for the six months ended 30 June 2023. For the reporting period, the NAV total return was 9.0% compared to -5.3% in the same period 2022. The NAV total return for the realisation shares was 9.7% (vs. -5.0% in the same period 2022). The increase in Nav has continued in the months since June. The August NAV was $0.581 for the 2021 shares for an additional 3% appreciation in NAV in the last two months.

Over the period, the Master Fund received total distributions of $33.2m (H1 22: $45.0m). Distributions in January were negatively impacted by large movements in Libor and Euribor which affected the CLO assets and liabilities differently due to timing issues. Distributions recovered in April. The focus on originating and controlling CLO subordinated notes has resulted in fundamental performance above the market average. Origination and control allowed the Master Funds to veto specific loans when the transactions were launched and to monitor and influence the CLOs over time. Lower fees in primary investments also allowed CLO managers to construct more conservative portfolios with no need to reach for yield. As a result, the Master Funds have benefitted from underexposure to sectors such as retail or energy.


Liberum view

In our in-depth note in August (Fair Oaks Income (BUY, TP $0.7) - Attractive CLO equity return outlook (43 pgs)) we emphasised the opportunity in CLO markets at the moment. As FAIR is marking its CLOs to market rather than mark-to-model, the downside is already reflected in the price and the ongoing recovery in loan markets leads to a significant pull on NAV higher. Add tot hat the sector-leading dividend yield of 15.4% and we recommend BUYing the fund with a TP of $0.66.

[bluemango] 20/9/2023 08:56

Q3 dividend maintained at €0.13, payment 12th Oct.

[davebowler] 16/8/2023 09:57

Liberum commentary on FAIR -
Strong distribution momentum from second highest yielding AIC fund at NAV
Analyst: Shonil Chande

Mkt Cap £170m | Share price $0.53 | Prem/(disc) -11.4% | Div yield 15.0%

Event

Fair Oaks Income’s NAV per share increased by 2.5%, to $0.598, in July 2023. This represented a 2.5% increase in the month (+11.8% YTD). Quarterly distributions received by the Master Fund in July totalled $21.1m, reflecting a 21.6% annualised yield on NAV and a 24.4% yield on yesterday’s closing price. Distributions have been increasing over recent months, with the portfolio benefitting from an increasing arbitrage spread of the underlying loan pool over the cost of CLO financing.

Based on July 2023 distributions, we calculate that the CLO equity portfolio was valued at a 4.0x multiple to cash flows, with the USD CLO equity portfolio valued at 2.9x and the EUR CLO equity valued at 4.9x.





Default rates in the US increased by 0.4ppts to 1.75% and by 0.53ppts to 1.51% in Europe. The European increase was due to Casino defaulting on a €1.4bn of senior debt.

The forward-looking distressed rate declined from 8.47% to 7.55% in the US and increased from 4.13% to 4.17% in Europe. This measures the proportion of loans trading below 80c, and a decline is a forward-looking indicator that suggests improving sentiment towards leveraged loans. FAIR’s July factsheet notes the potential impact on European and US leveraged loan indices from issues at Altice Group.

Significant overcollateralisation headroom

The overcollateralisation tests continue to leave significant headroom before a breach would kick in and divert cash flows away from CLO Equity tranches. As an approximation and assuming a 70% recovery rate in the event of default, we estimate that a c.13% cumulative default rate would be required before the 4.0% overcollateralisation threshold was breached. This is an indicative calculation based on the most recent weighted-average overcollateralisation cushion of 4% divided by the 30% loss from each default.

FAIR’s ‘GFC scenario’ models a gross return of 6% based on NAV and 11% based on the share price, as at 31 July 2023.

FAIR’s CLO equity assets have consistently demonstrated stronger credit performance than the broader CLO market, which in turn has significantly outperformed other corporate debt categories on returns and default rates. There is additional de-risking via a shareholder-friendly structure.

Liberum view

Distribution momentum is strong and leveraged loan indices have performed well over the past several weeks. Given that the US CLO equity portfolio’s mark-to-market valuation stands at a median 34%, de-risking is built into the valuation and there is potential for valuations to improve.



FAIR’s shares have been amongst the best performers over the past year with the 27% share price TR ranking third amongst alternative funds (ex-3i). We believe the shares continue to present attractive value given the underlying strong distributions, and the potential for higher US CLO equity valuations.



FAIR’s share repurchase programme, in place since last October, has driven a significant reduction in its bid-ask spread in absolute terms and relative to peers. We believe it is attractively positioned compared to most peers and that the relative discount is not justified, in most cases.

[cwa1] 20/7/2023 08:24

XD today, pay day 3/8

[cerrito] 05/7/2023 10:30

The FT report that fund manager CVC setting up new US800m fund which as per my reading of the article will be solely invested in the equity tranche of CLO's.
The funds will be deployed in the primary rather than secondary markets and will be used to fund CVC managed CLO 's.

[cerrito] 13/6/2023 18:40

Given the May turbulence, a creditable performance in May with the NAV getting to an 11 month high.
In the management report they refer to a positive YTD performance of 11pc whereas the share price YTD is down 0.42pc.
The current share price of e4. 76/e5.2 shows a good discount to the end May NAV of e6. 34.
I see today and yesterday in London just 2600 shares combined in sterling and euro for traded it for presumably more in Amsterdam.

[davebowler] 17/5/2023 10:05

Liberum on FAIR-

Default rates remain below expectations
Analyst: Shonil Chande

Mkt Cap £156m | Share price $0.48 | Prem/(disc) -17.9% | Div yield 16.7%

Event

Fair Oaks Income's NAV per share at 30 April 2023 was $0.5847, representing a total return of 1.1% in the month (+5.7% YTD). Default rates continue to be significantly lower than the forecasts for 2023 issued at the end of 2022. The default rate in the US remained stable at 1.3% while in Europe it rose from 0.4% to 0.6% in April. The distressed ratio in the US remained at 8.7% and in Europe it dropped from 6.4% to 6.1%. CLO valuations continue to lag other assets, potentially as a result of investors modelling unduly negative market scenarios.



Liberum view

The resilience in default rates is notable and challenges the assumptions made in company models to calculate the NAV. The company points out that in early 2020, the median price of the Master Fund's US CLO equity investments fell from 67 cents to 30 cents based on predictions of increasing loan defaults due to the pandemic. However, the median price recovered to 63 cents by spring 2021 when it became clear that default rates would not increase as expected. Today, the median price of the same investments is 32 cents, indicating once again a substantial recovery potential in the NAV if default rates continue to remain below projections.

We continue to be Buyers of the fund with a target price of $0.60 (+25% upside from current share price)

[cerrito] 12/5/2023 17:34

I wonder if the good result6s for April just announced will reverse the weakening in the share price we have seen in last week or so.
The use of the word may in the following quote seemed rather vague and made me uncomfortable.
Did it make you folks uncomfortable??
quote
We still consider that the most likely scenario for 2023 is to close the year with higher but manageable default rates: from current 0.6% in Europe and 1.3% in the US at the end of April toward something in the 1/1.5% context for European loans and 2/2.5% for US loans. The levels, even modestly higher levels, may not cause any issue for CLO Equity quarterly payments (no interruption/diversion of payments in 2023 and most probably in 2024 as well).
unquote

[cerrito] 17/4/2023 11:15

Just read the Chairman 's and Investment Manager' s statements in the interims and I hope their optimism is justified. A good point about the double discount, but that said I will not be buying more.
Part a reflection as they pointed out in their last two monthly newsletters they expect CLO prices to drift down in the immediate future. We are in stormy seas and I have no real feel as to the Managers and what makes them tick as their IR strategy is not orientated towards UK private investors like me. I was interested to read the following comment on simplification which is something I had forgotten about and I suspect they are right that shareholders have not grasped the new situation, which perhaps  says something about their  IR. 

Quote
Considering all that, the Company continues to pivot towards pure CLO investments benefiting from the high cash flows associated with a larger CLO equity bucket. We view this strategy as offering transparency and simplicity to our shareholders relative to an allocation mixing different and sometimes less transparent asset classes.  We are not certain yet if our shareholders have grasped the new level of simplicity although Volta shares outperformed the NAV performance by 1.6% exhibiting some discount compression.
 unquote