Volta Finance Share Discussion Threads

[davebowler] 02/4/2020 10:53

Liberum;
Concerns over loan downgrades lead to dividend cancellation

Mkt Cap £114m | Prem/(disc) -52.6% | Div yield 17.5% (pre-cancellation)

Event

Volta Finance has cancelled the dividend that was due to be paid on 28 April (ex-date was due to be today). The dividend was to be financed mainly from payments from CLO equity positions in the coming weeks. There is increased uncertainty over the short term cash flows from the CLO equity investments because of the increased pace of loan downgrades by ratings agencies.

The expected cash flows from the company's investments was expected to be c.€9m (€9.1m in January) and the dividend payment was €5.6m. The company is seeking to conserve liquidity and expects to fully repay the repo facility through existing cash balances. Depending on the amount of cash payments received in the coming weeks, the dividend payment could have resulted in Volta being a forced seller in a difficult market.

If near term cash flows are not impacted, the board will consider whether a dividend should be declared.

Liberum view

Volta's dividend cancellation follows Fair Oaks Income Fund's suspension of the monthly dividend. Fair Oaks also cited the risk of lower cash flows from subordinated CLO notes as the underlying CLO managers may be required to divert cash flows to purchase additional loan collateral due to increased credit downgrades and defaults.

CLO structures include a number of protections that are designed to protect senior noteholders from losses including overcollateralisation tests, interest coverage tests and limits on CCC-rated loans (typically 7.5%). Cash flows for equity and mezzanine trances may be diverted away from equity and mezzanine tranches in order to ensure tests remain in compliance. S&P Global estimated that 19% of US broadly syndicated CLO loan pools comprised B-rated loans. An increase in downgrades combined with trading losses as managers are forced out of CCC-rated loans could lead to a CLO failing its minimum overcollateralisation test and begin diverting cash flows from the equity tranche. Rating agencies were criticised for acting too slowly in the 2008-09 financial crisis and are likely to be much quicker in responding with downgrades this time around.

Volta's discount based on the February NAV is -52.6%. The discount narrows to -22.6% if we use the intra-month NAV estimate of €4.60 at 23 March due to mark-to-market weakness. Other indicators point to a large NAV drop for CLO funds in the upcoming monthly reports, including the Palmer Square CLO BB Index (32% decline in March) and Chenavari Toro Income Fund's guidance of a 40% to 60% decline for European CLO BB and B mezzanine tranches).

[pejaten] 02/4/2020 07:32

Another dividend bites the dust. I guess not unexpected

[hpcg] 01/4/2020 17:17

Uninvestable at the moment but could be an absolute bargain down the line if it survives. Perhaps an equity raise would be time to get in? Recoveries are actually much stronger than the market prices in. Usually. This includes some of the portfolio that will definitely be impaired such as auto, consumer credit and student. It looks like cash and liabilities match. I honestly don't have the skill or insight to look through the CLO equity without it being spelled out as per your request Cerrito.

I can't honestly remember when I sold here. It was definitely on the chart though as there are experts who would have a good pulse on risk as can be seen from the precipitous fall just recently.

[cerrito] 01/4/2020 00:05

The company havre reverted saying they are actively looking into this.
It can be a bit tricky because the overall portfolio may have x pc exposure to a troubled industry but what I want to know how much does it have of a troubled industry in equity CLO.

[cerrito] 31/3/2020 14:26

VTA give us pretty good information but nothing on their industry concentrations. I have written asking this to be included certainly in the soon to be published interims and better in the monthly.
Those of you who feel you need this info at this time may want to do the same.

[davebowler] 26/3/2020 09:38

Liberum;
CLO Funds

Note: Mark-to-market pain ahead

Event

Leveraged loan funds have underperformed CLO funds by 7% in the period since 19 February. We expect this to reverse as NAV updates come through for CLO funds. Funds with CLO equity exposure can expect NAV drawdowns of more than 30% in March. The US stimulus package has provided some respite for corporate debt markets, but investment grade instruments are the main beneficiaries. Concerns remain over a rise in downgrades and defaults for high yield and leveraged loans.

[cerrito] 24/3/2020 10:01

Reading this morning's update, which I found very clear, with its focus on liquidity I thought they were preparing the ground for cutting/deferring the dividend and I see that my fears were misplaced.
That said, they could have made a convincing case that there are so many panicky sellers in the market that the cash being used for the dividend would be better employed buying bargains.
In hindsight I have goofed here and did not sell soon enough so have more of these than is good for me and have decided to sit tight.

[davebowler] 12/3/2020 10:54

Liberum;
Mkt Cap £185m | Prem/(disc) -23.6% | Div yield 10.8%

Event

Volta Finance's NAV per share fell by 2.6% in February to €7.49 per share. Mark-to-market performance across the company's asset classes was -3.8% for CLO equity, -2.1% for CLO debt, -0.1% for cash corporate credit and +0.4% for bank balance sheet transactions.

Credit market volatility was the driver of the loss in the month with US and European leveraged loan indices down by 1.3% and 0.9% respectively. The manager has noted liquidity for US loans remains significantly higher. Cash on the balance sheet at the month-end represented 10% of NAV


Liberum view

Given the weakness in loan prices in March to date, the NAV is likely to see a further fall in March due to declines in CLO equity NAVs. Leveraged loan indices have fallen by a further 4.1% and 3.3% in the US and Europe to date in March. Funds investing in CLOs can expect to experience an increased impact due to the leverage within the structures. For example, VTA's NAV return in December 2018 was -4.8% and the US loan market's return was -2.5% for the same period. The last period of sustained dislocation in loan pricing was during H2 2015 and Q1 2016. The loss experienced by the funds was approximately 2-4x more than the US loan market over this period.


The increased macro uncertainty has raised fears over the prospect of downgrades and defaults in the loan market. It may be some time before we see a significant movements in default rates due to the prevalence of cov-lite loans and because a relatively small proportion of the loan market matures before 2022.

[stemis] 11/3/2020 16:35

"The low rating comes as investors are increasingly concerned about the implications for the US corporate bond and loan market as a result of the crash in oil prices."

[davebowler] 10/3/2020 17:39

‘Cheap’ trusts Ticker Share price premium (- discount) to net asset value % Average 12-month premium (- discount) % Z-score
Volta Finance VTA -27.4 -13.7 -8.4

[cerrito] 28/2/2020 13:37

CWA1
Agreed and one wonders why they were not instituted earlier.
In the meantime the share price fall could be worse
I wonder how VTA has been impacted by the issues at the Invesco Senior Floating Rate Fund and if the exits from this Fund has caused the Fund to dump loans and hence weaken the price. Perhaps we will get a comment in the Manager's monthly commentary.
For my sins I have not sold-or indeed bought -recently and I do not currently anticipate buying or selling.

[cwa1] 28/2/2020 07:27

Modest and sensible(IMO) change to dividend arrangements:-

Volta Finance Limited ("the Company") hereby announces a first interim
dividend for the financial year commencing 1 August 2019 and a small
change to the Company's dividend policy.

In recent years, the Company has sought to pay a total dividend of
EUR0.62 per share per annum, paid quarterly each December, March, June
and September, alternating between EUR0.15 and EUR0.16 per quarter.

The Company will continue to seek to pay dividends of approximately 8%
of NAV per annum, absent a notable change in circumstances. This will
also still be paid quarterly. However, henceforth, and commencing with
this dividend declaration, for simplicity this will be paid in a regular
amount of EUR0.155 per share and the payment date will move
approximately one month later, to January, April, July and October.

This change of payment date reflects the cash flow receipts by the
Company from its underlying holdings, particularly CLOs, which are
concentrated in those months. Moving the payment dates should
significantly reduce the need to sell holdings to meet dividend payments
and then later reinvestment following receipt of cash flows or the
alternative of cash drag. The Investment Manager estimates that this
change of payment date should enhance total shareholder returns by
around 0.10-0.15% per annum and the Board finds this a compelling
increase in return for what is, in effect, a small administrative
change.

Accordingly, the Company announces that it has declared a quarterly
interim dividend of EUR0.155 per share payable on 28 April 2020
amounting to approximately EUR5.7 million. The ex-dividend date is 2
April 2020 with a record date of 3 April 2020 and a payment date on 28
April 2020.

The Company has arranged for its shareholders to be able to elect to
receive their dividends in either Euros or Pounds Sterling.
Shareholders will, by default, receive their dividends in Euros, unless
they have instructed the Company's Registrar, Computershare Investor
Services (Guernsey) Limited ("Computershare"), to pay dividends in
Pounds Sterling.

[cwa1] 03/2/2020 11:11

Hardman research:-



Investment summary: Volta is an investment for sophisticated investors, as
there could be sentiment-driven, share-price volatility. Long-term returns have
been good: ca.10% p.a. returns (dividend reinvested basis) over five years. The
current portfolio-expected cashflow IRR is above this level. The dividend yield of
9.5% will be covered, in our view, by predictable income streams.

[davebowler] 22/1/2020 09:08

Liberum:CLO Funds Positive end to a volatile 2019EventThe majority of the CLO funds have reported NAV figures for December with mark-to-market uplifts across the sector (average NAV increase of 3.3%). Loan markets were relatively strong (US +1.7%) on the back of positive economic news and favourable technical factors (low new issue supply and steady demand from CLOs). The 12-month default rate for loans also remains low at 1.4%. Returns in the month ranged from 1.8% for Blackstone/GSO Loan Financing to 5.0% for Marble Point Loan Financing. This is broadly as expected as Blackstone/GSO Fund uses a mark-to-model valuation approach and should produce a lower return than peers during periods of strong mark-to-market gains. Overall in 2019,  Blackstone/GSO's 14.4% NAV return was the highest in the sector as peers suffered from weak CLO equity valuations.  

[yieldsearch] 13/1/2020 23:55

yes it is an honourable mention but in my view it is very misleading.
to quote the article, "the last decade" started in 2009, which is at the bottom of the GFC...
taking VTA for instance, it was at 0.41 in Jan 2009 and now it is at 6.50.. so tremendous growth?
Well for the poor people who owned VTA in May 2007, it was trading at 9.25!! so it went from 9.25 to 0.41 in less than 2 years

[cerrito] 13/1/2020 21:28

Thanks for that davebowler and no surprise that the volatility of return at 59.22 was the second highest with a big gap between that and the third biggest volatility Polar at 23.85.
I have never owned Tetragon Finance and I see their vol is 91.37 so no point holding unless you have nerves of steel.

[davebowler] 10/1/2020 13:00

Honourable mention here as one of the top 20 -

[yieldsearch] 25/11/2019 21:23

www.bloomberg.com/amp/opinion/articles/2019-11-21/clos-cracked-like-no-other-credit-market-so-now-what

[davebowler] 14/11/2019 09:27

Liberum on Fair Oaks:Technical pressures remain on the CLO market as evidenced by a fall of 11% in the JP Morgan B-rated CLO index in October. The loan market was also relatively weak amid concerns over an increase in downgrades and an expectation of an increase in defaults from low levels. Fair Oaks intends to increase the Master Fund's allocation to US CLO mezzanine notes to capitalise on price weakness. Fair Oaks has retained cash from investments exits in 2019 as primary CLO equity investments have not offered sufficient returns. The price of US CLO B and BB notes has fallen to levels not seen since 2016 and currently offer yields of 14% and 10% respectively. The company also expects to distribute two further dividends of 0.7 cents for the year, bringing the total to 8.4 cents. This is lower than 2018 (11.15 cents) and reflects an increased level of cash held in addition to greater volatility in the period. Liberum viewThe decision to increase the company's exposure to US CLO mezzanine tranches mimics the company's strategy in 2016 following a similar price adjustment in the market. This was one of the key reasons behind the 24.9% NAV return in 2016. Fair Oaks approach to current investment opportunities contrasts with Volta Finance, which is increasing CLO equity exposure at the expense of CLO debt tranches. Volta believes CLO equity offers a superior play in a volatile loan market as the equity tranches are able to benefit by reinvesting in loans at a discount to par in this environment. 

[cerrito] 13/11/2019 21:00

What with £ gaining against the euro and the continued decline in the NAV which is now E7.49 the lowest since June 2016, the £ price is under pressure.
Do not see myself buying or selling at these prices but for those with no or v small exposure worth a look.