Volta Finance Share Discussion Threads

[rambutan2] 13/7/2020 15:36

Yieldsearch, thanks for that info, stupidly I'd not bothered to look at the Amsterdam quote, assuming it would be even worse than the London one.

[yieldsearch] 13/7/2020 11:18

Sky: The uk version is always illiquid, order should be placed on the one listed on euronext.

Euronext order book is showing 4.40/4.45

[skyship] 13/7/2020 11:09

Has VTA always had this absurd spread? Don't recollect that last time I held...

[davebowler] 13/7/2020 09:30

Liberum;
Increased confidence on cash flows

Mkt Cap £147m | Prem/(disc) -21.8% | Div yield 9.8%

Event

Volta Finance's NAV per share at 30 June 2020 was €5.87, representing a 6.9% NAV total return in the month. The company's NAV total return in Q2 is +18.0% following the 32% NAV decline in March. Mark-to-market performance across the company's asset classes was +9.5% for CLO equity, +13.0% for CLO debt, -0.6% for cash corporate credit and -6.2% for ABS. Average prices for CLO equity and debt tranches have continued to recover. The USD CLO debt tranches are now prices at 71.8% (vs. 63.2% at the end of May).


The manager remains confident on the outlook for portfolio cash flows. All of the USD CLO debt tranches are receiving full coupons and none have been downgraded. 10 debt tranches are "Watch Neg" with Moody's or S&P, although the manager does not expect any loss on these positions during this crisis.

The next quarterly cash payments are due on the CLO equity positions in the coming weeks. One of Volta's equity tranches is expected to experience a cash flow diversion. 3 of the remaining 46 CLO equity investments were close to breaching a reinvestment test in April but these have seen improvement during the market recovery in May and June and now have larger cushions.

The manager expects an increase in M&A activity in the coming months as a result of the high level of private equity capital. This could drive strong prepayments at par, including some loans trading at a discount.

Liberum view

Volta's manager, AXA IM, remains notably upbeat on future cash flow generation and the likelihood of valuation uplifts. This was reflected in the reinstatement of the quarterly dividend which has subsequently increased by 10%. The manager has typically been cautious on guidance and has tended to under-promise and over-deliver. Market expectations of loan defaults have softened over the quarter. Default rates are now expected to rise to c.5% by the end of year, compared to initial expectations of c.10%. Over the quarter to June, the default rate in the US loan market has risen from 1.8% to 3.2%.

[cerrito] 10/7/2020 18:48

I agree Yieldsearch that the situation is far less dark than it seemed a few months ago.....but one feels there will be twists and turns coming up.

[yieldsearch] 10/7/2020 18:30

Nav up. Ok/good disclosure

[hpcg] 26/6/2020 09:49

I must admit I am getting a bit tempted to buy, but I have to admit I would be entirely reliant on the statements of the company, together it has to be said Fed and to an extent ECB activity. Pondering.

davebowler - I echo the thanks of others, your research posting is extremely helpful.

[davebowler] 26/6/2020 09:21

Liberum-10% uplift in quarterly dividend Mkt Cap £150m | Prem/(disc) -18.6% | Div yield 9.6%EventVolta Finance has declared a dividend of €0.11 per share for Q2 2020. This is 10% ahead of last quarter's dividend and reflects the mark-to-market improvement in NAV in recent months. The manager recently guided towards an annual distribution of 8% of NAV and NAV per share has risen by 10% since March. The dividend could increase further in coming quarters as we expect additional near-term NAV uplifts. The price reaction of CLO equity tranches is closely correlated with the movement in loan market prices with typical betas of between 2 and 3. We also note the ongoing strength of loan markets in June to date (+1.8% for US and +2.0% for Europe). CLO debt tranches have experienced yield compression since the end of May (the Palmer Square CLO BB Index has increased by 12.5% since 31 May). We also note the recent bullish outlook statement from the manager, pointing to the likelihood of further valuation gains and improved expectations on cash flows to CLO equity tranches.  

[yieldsearch] 26/6/2020 08:44

Next DVD announced:

Interim Eur0.11 (equivalent to annualised 8% of NAV)

Payment date: 29.07
Ex dvd date: 02.07
Record date: 03.07

and yes thanks davebowler for posting research, always appreciated!!

[cerrito] 11/6/2020 17:33

Thanks as always for posting that davebowler and as Liberum says Volta were more bullish than normal.
I read the comments about breaching the reinvestment test different from Liberum, who said that none of their positions suffered any diversion. For me VTA specified the USD position but did not comment on the larger Euro position. Not sure how you all read it.
Looks good but for various reasons I do not envisage either buying more or selling in the foreseeable future.

[davebowler] 11/6/2020 09:54

Liberum;
Mark-to-market recovery set to continue

Mkt Cap £151m | Prem/(disc) -17.2% | Div yield 8.6%

Event

Volta Finance's NAV per share rose by 4.5% in May to €5.59. Mark-to-market performance across the company's asset classes was +5.7% for CLO equity, +5.8% for CLO debt, -3.5% for cash corporate credit and +0.8% for ABS. Average prices for CLO equity tranches were 42.6c and 38.3c respectively for USD and Euro positions. USD CLO debt tranches were priced at 63.2c.


The default rate in loan markets has risen to 3.1% in the US and 1.4% in Europe. Market expectations for the end of 2020 are c.5% for the US and 3.5% in Europe. This is significantly lower than recent projections of c.10%. 20% of the US CLO universe was in breach of reinvestment tests, resulting in a partial diversion of cash flows away from the equity tranche. None of Volta's positions have suffered any diversion. Furthermore, the manager expects loan defaults to remain at a level that could enable the maintenance of full payments for the CLO equity tranches.


Volta is now almost fully invested following a €3m investment of a newly issued Euro CLO BB tranche. The tranche was purchased at 90% of par with a discount margin of 911bps. The manager believes it is now trading close to par.

Liberum view

We expect further material NAV uplifts in the coming months for the funds with CLO equity and debt exposure. The price reaction of CLO equity tranches is closely correlated with the movement in loan market prices with typical betas of between 2 and 3. Volta's 4.5% NAV increase is likely to be followed by significant uplifts for Fair Oaks Income Fund and Marble Point Loan Financing. We also note the ongoing strength of loan markets in June to date (+2.4% for US and +2.3% for Europe).

New CLO BB tranches have experienced 150 bps of yield compression since the end of May. The Palmer Square CLO BB Index has also increased by 12.9% since 31 May. The manager has typically been cautious when it comes to guidance but yesterday's statement was notably bullish, pointing to the likelihood of further valuation gains and improved expectations on cash flows to CLO equity tranches.

[cerrito] 28/5/2020 12:20

Interview with Hardman analyst

[rambutan2] 15/5/2020 03:36

Worth a listen:

S8 E12 What the CLO market can tell us about the state of corporate credit ft Joe Mezyk

[yieldsearch] 14/5/2020 18:42

April 2020 report:

VTA Nav end april 2020: Eur5.35 per shares

Only one VTA position might suffer cash flow diversion due to CCC bucket

Seems that VTA did much better than the market in USD Clo equity: 20% suffered diversion vs none of VTA positions

USD CLO potential cure of tests through reinvestment at discount. would be beneficial for clo equity investors like VTA.

[yieldsearch] 13/5/2020 15:34

FT Big Read
focused on senior bond and nochu but good explanation of the triple C bucket


CLOs: ground zero for the next stage of the financial crisis?

[cerrito] 11/5/2020 10:34

Pleasantly surprised that the dividend has been reinstated even if reduced.
Being the 11th of the month I would have expected to know the NAV at 30.4- even if this figure has to be taken with a pinch of salt in these markets.

[hpcg] 11/5/2020 10:06

There were certainly some positives in the RNS, but also a dose of reality. One needs an excellent insight into CLO cash flow trends I think. I can't really see the benefit of buying at this time.

[holts] 11/5/2020 09:31

Something is better than nothing I suppose

[davebowler] 17/4/2020 09:10

Liberum on FAIR;
Liberum view

Earlier this week, the managers of Fair Oaks and Volta Finance outlined the potential for high returns from the current depressed valuations, as in 2009. Based on current valuations, Fair Oaks models a 21.2% gross IRR for the portfolio after stressing the loan-level assumptions (9% default rate in year 1, 3.5% thereafter with 60% recovery rate). We note the manager of NB Global Floating Rate Income Fund expects a lower default rate (5-7%).

The structure of the Fair Oaks Income Fund offers a high level of protection for shareholders given the likelihood of capital being returned from H2 2021. The General Partner of Master Fund II has the ability to extend the commitment period by a further year to June 2021. Following the end of the commitment period, all principal repayments from underlying investment have to be returned to shareholders. The principals of Fair Oaks intend to personally invest $0.65m in Master Fund II alongside a new commitment in the fund. We also note the c.4% increase in US and European loan indices to date in April, offering the potential for a partial NAV recovery this month.

Specialist Equity

[cerrito] 16/4/2020 17:02

davebowler
Thanks from me as well.
While the month end NAV figure will be the best guess, it seems to me that this pricing is more of an art than a science and thing will have changed since month end.
The most striking thing for me of the VTA month end was the big increase in US$denominated assets which I am going on the basis reflects the fact that as they have stated they are not hedging their US$ into euros.
One rather incidental feature for me of my VTA holding was exposure to the Euro but what with everything else going on this is not a big issue for me.
There seem to be a few more trades reported on the LSE website than we have seen in the past but not currently planning to buy or sell.

[yieldsearch] 15/4/2020 09:38

Thank you for posting this, i have copied in the FAIR chat

[davebowler] 15/4/2020 09:13

Liberum;
Large mark-to-market NAV impact in March

VTA: Mkt Cap £123m | Prem/(disc) -23.4% | Div yield n/a - Suspended

FAIR: Mkt Cap £144m | Prem/(disc) 9.8% | Div yield n/a - Suspended

Event

Volta Finance and Fair Oaks Income Fund have both reported large NAV writedowns for the month of March:

Volta Finance's NAV per share fell by 32.4% in March to €5.06. Mark-to-market performance across the company's asset classes was -36.9% for CLO equity, -41.3% for CLO debt, +0.1% for cash corporate credit and -4.5% for bank balance sheet transactions. Average prices for CLO equity tranches were 43.6c and 28.9c respectively for USD and Euro positions. USD CLO debt tranches were priced at 54.3c.

Fair Oaks Income Fund's NAV total return in the month was -50.5%. The average valuation for BB and B rated CLO tranches in the portfolio was 54c and 45c respectively. All of the investments are in full compliance with their overcollateralisation tests.

Both managers expect to see a rise in loan downgrades to CCC, followed by an increase in loan defaults. Volta expects to see partial diversion of CLO equity cash flows from July due to an increase in CCC-rated loans in CLO portfolios. Over the longer term, the manager expects a downgrade in underlying loans to the point where CCC-rated loans reach c.15% on average of CLO portfolios. This could trigger a diversion of payments away from CLO equity tranches.

Market expectations are for an increase in loan defaults to c.10%, in line with the global financial crisis. The spike in defaults in 2009 was relatively short-lived, with a significant reduction in 2010. Due to the increased prevalence of covenant-lite loans, Volta believes default rates may be above average for a number of years, but there is unlikely to be an increase as sharp as occurred in 2009. This would be beneficial for CLO equity positions as it would allow more time for reinvestment of capital into loans at a discount.


Volta has sought to maximise balance sheet liquidity. Four positions have been sold for a total of €9.7m to fund margin calls on FX hedges and drawdowns. These disposals resulted in a loss of €0.13 per share in the month. The amount of currency hedging has been reduced to minimise margin calls and Volta previously announced the cancellation of the April dividend. Cash on the balance sheet at the month-end was almost enough to close the repurchase agreement. April is typically a month of relatively high cash flows due to quarterly payments from the CLOs.

Liberum view

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. The typical limit on CCC-rated loans within portfolios is 7.5%. A breach of this limit could leads to payments being diverted to repay the senior debt tranches of the CLO. The repayment of the senior debt would increase the average cost of financing within the structure and reduce the excess spread for CLO equity tranches.

S&P Global estimated that 19% of US broadly syndicated CLO loan pools comprised B- loans at the end of 2019. 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. These weaker credits lack flexibility to withstand the impact on revenues during a global recession

Both managers have outlined that the depressed valuations offer potential for high returns, as in 2009. Based on the current valuations, Fair Oaks models a 21.2% gross IRR for the portfolio after stressing the loan-level assumptions (9% default rate in year 1, 3.5% thereafter with 60% recovery rate). The principals of the manager intend to personally invest $0.65m in Master Fund II alongside a new commitment in the fund. We also note the c.4% increase in US and European loan indices to date in April, offering the potential for a partial NAV recovery this month

[yieldsearch] 09/4/2020 15:37

Jay Powell said the Federal Reserve would use its powers “forcefully, proactively and aggressively” until the economy recovers from the coronavirus shock, as the US central bank moved to offer an extra $2.3tn in credit and support the market for high-yield corporate debt.

High yield corporate market supported by the Fed. i guess explain the rally today..

[yieldsearch] 02/4/2020 14:01

the mtm on the clo will destroy Nav in the next few months. the asset manager is the most experience in the market, but there is not much they can do, aide from holding cash. price went down to 0.3 in 2008

Any ideas on how to short this? now that the dvd is not paid, could be a good candidate?