Volta Finance Share Discussion Threads

[genista71] 06/2/2019 10:41

Surely the covenant lite nature of the portfolio is an accident waiting to happen?

[davebowler] 22/1/2019 09:01

Liberum;

CLO funds

December NAVs suffer from widening credit spreads

Event

The CLO funds have reported NAV declines for December, principally due to the impact of widening credit spreads on CLO debt and equity tranches. The US and European leveraged loan markets produced returns of -2.3% and -1.3%, respectively in December compared to -2.3% and -0.9% for US and European high yield markets.

Technical pressures were partly responsible for the reduction in loan prices. Retail loan funds and ETFs experienced a record $11.6bn of outflows during December. The average loan price of the US S&P/LSTA Leveraged Loan Index fell from 96.8 to 93.8 over the month, weighing on CLO equity NAVs. Average loan prices have recovered to 96.0 in January.


Returns in the month ranged from -9.1% for Carador Income Fund (-10.5% NAV return in 2018) to -0.1% for Blackstone/GSO Loan Financing (+6.7% NAV return in 2018). The Blackstone/GSO Fund uses a mark-to-model valuation approach (as opposed to mark-to-market for peers), which results in a smoother NAV return profile.

CLO funds - 2018 NAV returns



Dec-18

2018

Prem/(Disc)

Blackstone/GSO Loan Financing

-0.1%

6.7%

-15.5%

Fair Oaks Income Fund

-1.2%

0.4%

-9.1%

Volta Finance

-4.8%

0.0%

-13.2%

Carador Income Fund

-9.1%

-10.5%

-5.8%

Marble Point Loan Financing

n/a

-8.4%

-2.3%



Source: company data

We note the confident outlook commentary from the managers of Fair Oaks and Volta, who have been deploying capital in recent weeks following the market sell-off. In addition, the underlying CLO managers have been able to reinvest cash and prepayments in loans at lower prices. Fair Oaks believes the current market weakness is similar to Q1 2016, which was a relatively short market correction. Market expectations for US loan defaults remain relatively benign at 1.5-2.5%. The loan market has grown significantly over recent years but a relatively small proportion of the market matures before 2022 (only 9% of outstanding loans mature before 2022).

[cerrito] 20/1/2019 15:49

No surprise that VTA highlighted their exposure to the retail sector-3.8% of VTA's underlying assets.
I had half expected them to comment on O&G exposure but I guess given the currency composition of their portfolio they have little to the US O&G sector.
I note that FAIR in their December report do not highlight this-they have done so in the past. CIFU have yet to issue their December report.
Both FAIR and VTA are confident that any increase in 2019 delinquencies will be v modest.

[cerrito] 20/1/2019 14:06

Just read the December 31 report.
Pretty ballsy as in December they ran cash down as they invested E15m net of sales. Also note that 32% of portfolio is CLO equity-the highest percentage since I started tracking in Feb 2016.
Also see that percentage in Euros at 72% highest over last 18 months.

[cerrito] 03/1/2019 17:59

mince came on due date into Cannaccord and Barclays

[joan of arc] 03/1/2019 12:56

Have you received your Dec 20 divi payment as I am still waiting for mine from IG?

[hpcg] 21/12/2018 12:09

Time to buy this is out the other side, ideally at a massive discount to NAV.

[davebowler] 21/12/2018 10:35

Finn the same article Volta Nav was - 1.4% over the month and +5.7%over the year.

[davebowler] 21/12/2018 10:32

CLO Funds  LiberumWeak November for CLO equity EventThe CLO funds have reported NAV declines for November, mainly due to mark-to-market declines for CLO equity positions. The US and European leveraged loan markets produced returns of -0.82% and -0.72%, respectively in November compared to -0.9% and -1.8% for US and European high yield markets. Returns in the month ranged from -4.7% for Carador Income Fund (-1.5% NAV return to date in 2018) to -0.1% for Blackstone/GSO Loan Financing. The Blackstone/GSO Fund uses a mark-to-model valuation approach (as opposed to mark-to-market for peers), which results in a smoother NAV return profile. 

[cerrito] 26/11/2018 17:36

Good points Kenny
Interesting to compare the shareholder register:FAIR in 2016 ie before the corporate restructuring was Old Mutual at 17% and Coller(who do not take prisoners) at 10%. CIFU in2016 ie once again before the restructuring, like VTA just listed nominee rather than beneficial shareholders. That said the biggest nominee had 15% of the shares suggesting that unlike VTA there was no dominating shareholder.
The ratio of expenses to fund size last year for VTA was about 3%. Once again using 2016 the comparable figure for FAIR-when it was smaller than VTA- was 2.5% and for CIFU 1.7%. In 2015 when I guess CIFU had to pay a performance fee CIFU’s ratio was 2.5%.
Anyway as you suggest Kenny CIFU’s management and shareholding structure seems very cosy-but not sure if the discount big enough to attract an Elliot type institution.

[skyship] 25/11/2018 08:06

Two very well stated opposite views.

Personally I am a fence-sitter having decided to sell my position in Sept/Oct at slightly over E7.00 when there was the start of talk about strains in the debt markets.

I am tempted to buy back in, but for the time-being prefer to hold a little more cash rather than take both the currency risk and the sector risk.

Cerrito - love the "ceteris paribus" - will use that from now on! Bizarrely I did Latin at "A" Level, but not being in the legal profession very soon forgot all I had learned...

[kenny] 25/11/2018 01:29

Thanks for your post Cerrito.

I recently looked at Volta because, on paper at least, it is starting to look interesting.

However, there is one major negative – fees and costs are absorbing about 20% of the company’s net income! That is not a typo; for the last reported six-month period, net income was €28.4m before expenses of €5.7m.

Those expenses include director’s remuneration of €0.5m for the six months. What the hell are you paying directors of an investment company €1m a year for, when you have an investment manager taking over €8.2m a year for managing the fund?

I am not going to invest in Volta because it is only being run to provide fees for Axa, the directors and the other parties involved. This might sound like an unkind interpretation.

A kinder view may be that the fees are disproportionate because the fund is too small. However, in view of managements insistence that they are not going to use funds to buy back shares or consider a wind up, I think my view is the correct interpretation. If they were more willing to look after shareholders by buying back shares in the market, that would reduce assets under management and therefore the fees they are extracting annually.

Further, there is not much of a margin of safety to absorb a couple of bad years in the markets they invest in (should that occur), when all of the management – internal and external - are so greedy. In that event, I would guess that the dividend gets cut and shareholders suffer, rather than high management costs being cut.

Good luck to all holders, who I guess are hoping for a wind up in order to be rescued from the steep discount to NAV. However, experience suggests that asset managers do not put shareholders’ interests ahead of their own. Many would rather keep collecting the annual fees even as they are running the fund to lower and lower values.

[cerrito] 24/11/2018 19:41

I note the fall in the share price over the last days-especially yesterday; I have read the October report and see that they are still gungho on CLO equity and indeed even talking about taking it up to 40% of the portfolio..note CLO equity was 30 % of portfolio at October end and 22% this time last year. Given that the FT has been saying that generally corporate credit is expensive(fair enough bonds rather than loans) and general concern for the future, perhaps Mr Market feels this is the wrong time to go into CLO equity.
Just caught up with the AR for the year to end July dated October 29. Not surprisingly gugho on CLO equity and make comment that unless default rates rise notably and persist the dividend should be sustainable.
The Chairman also commented on the discount( as he has done in reports past) which widened in October and presumably will widen further in November unless the NAV gets hit big time. Rules out tenders and buy backs-( despite a push for this by several shareholders). I have some sympathy with this and says the key is to make shares more popular ie the Hardman/Edison research and having a sterling quote. This will reduce the discount, ceteris paribus, but not sure by how much. Axa Group has 30% of the shares as at the end of October 2018 and page 56 tells us that Euroclear had 57% of the shares and BONY Nominees 16.4% and there is some rather historic info on beneficial holders. The notes say that the company has a perpetual life which I take to mean that there are no continuation votes as we get with certain UK Investment Trusts.
Went through the Principal Risk Factors and nothing caught my eye.
Cash dividends paid in the FY to July 2018 were once again E22.6m compared to coupons and dividends received in cash of E38m and opex of E5.7m. My strong sense is that no dividend increase is on the horizon.
I fund the IM report interesting.
Measured how we got the 7.8% increase in NAV performance-interest and coupons received were 12.6% of July 2017 NAV and the two biggest negatives were unrealized losses at 2.6% and operating expenses of 1.9%.
The best performing asset were CLO warehouses at 14.1% but that had an average weight of just 3.1%. The biggest asset was US$ Clo Debt with a return of 11.2% on an average weight of 39.3%.
IM says assets have a projected yield of around 10%, with leverage taking it up to 10.8%. This assumes default rates of 2%pa-once again no specific default figures given except to say that over last 10 years have been substantially below these figures. Says that quote anticipate that the overall performance of Volta’s portfolio could be 1% to 2% in excess of above projected yield. Unquote.
Once again would encourage holders of VTA(and similar companies) to read this AR. I have enough for now but will be watching both the Euro price and the FX markets as a £ based investor to see if I should buy more.
PS
comments welcome

[cerrito] 26/10/2018 00:04

On reflection one reason to partially explain why 58% of the portfolio as at end September was NR/NA rated compared to 6.9% for FAIR at the same date was the difference in portfolio composition.
For example, VTA had 15.2% in synthetic corporate credit and 2.5% in CLO warehouse and I guess by their nature they would not have been rated,
The same comments may apply to the 2.6% in cash corporate credit and 4.9% in ABS.
I guess the easiest thing to do would be to phone up the company which I will try to do.

[horndean eagle] 24/10/2018 22:12

Market volatility is ultimately good for clo equity as long as they manage to keep defaults in check. A good wobble would do them good. The problem they have is their shares are at the mercy of poor liquidity which means they would get whacked. A good opportunity to top up but not when you have a huge slug already.

[hpcg] 24/10/2018 16:20

Yieldsearch - wise words. High returns are an indication of high risk, even more so in fixed interest than equities as the downside is that much more catastrophic. This end of the business cycle is the wrong time to be in high risk lending IMO. Some commentators are starting to get nervous as a result of Eurozone PMI readings; this isn't for me until they start surprising to the upside.

[yieldsearch] 23/10/2018 23:51

NR/NA = Non rated/ not applicable. Typically for the VTA assets that are not rated, most likely equity piece of CLO or regulatory arbitrage tranche.

A CLO is a company buying loans and issuing notes. Notes are rated from AAA to BB or B, and the company can usually issue a large part of debt (if the company buy 100 of loan, it could issue likely 90 of debt rated AAA to BB. the 10 remaining is the equity , and because it is very risky, it cant be rated). It is most likely this 10 that is the NR portion of the portfolio. You will see also in this example that you are facing potential credit loss on 100 , and the amount of equity is 10: massive gearing.


A rating breakdown is to some extent providing you a indication of risk: if all the assets are NR not rated, this would imply that they are very risky and should justify a high yield on those assets and also large dividend on the VTA fund. This also imply that you trust the underlying rating.

I like VTA and the investment manager but reduced my exposure. FAIR is good, CIFU i have stayed away from blackstone.

[cerrito] 23/10/2018 22:24

Thanks Yieldsearch for posting that article.
I wonder if the weakness of VTA in last few days connected with fact that as they say in their latest monthly for the first time for many years CLO equity tranches are 30%+ of their GAV.
I also see that VTA in the last few months have followed FAIR but not CIFU and enclosed a ratings breakdown. I see that 58% is NR/NA and 38% BB,
Silly question>Anyone know why more than 50% of portfolio is NR/NA??
Thanks

[horndean eagle] 23/10/2018 10:14

Lack of liquidity causing usual problems again for VTA. Back to year lows. The company should really have a discount control mechanism in place. Otherwise could see some further large spikes lower.

[yieldsearch] 18/10/2018 21:41

https://www.bloomberg.com/news/articles/2018-10-18/investors-on-the-clo-front-line-get-cold-feet-as-returns-dry-up

[stemis] 16/9/2018 22:30

Research note is good. I like some exposure in this sector and hold shares in AGNC, TICC and CIFU. As CIFU are winding up (after a decent 10%+ pa return over 6 years), at first glance VTA looks like a good place to put the cash.

[horndean eagle] 16/9/2018 16:10

Apologies. Its share price return I was referring to They are assuming you re-invested dividends at prevailing price and hence performance returns overstated because share price got smashed up heavily and so prevailing returns amplified.

Glad to see they are pushing themeslves a little more by dragging in paid for research. They still need to do more. Discount is way out of line with peers.