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13/7/2021
20:47 | skyship: Hardly likely surely - At 610c the discount is 16.21% and the yield on a 56c dividend = 9.18%. But that dividend is based upon the NAV - so will be rising further.
Unknown and unloved; but heck, I'm being paid a good whack whilst waiting for new investors to discover VTA!
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16/6/2021
09:53 | davebowler: Liberum on FAIR-
Event
Fair Oaks Income Fund's NAV per share at 31 May 2021 was $0.678, representing a 5.7% NAV total return in the month (+15.3% YTD). In addition to positive loan markets, NAV performance was boosted by upside from recent reset activity across the CLO equity tranches:
FOLF II - the reset of FOLF II priced in May. The previous structure had relatively low leverage and a weighted average coupon of Euribor +2.41%. The coupon has reduced to Euribor +1.68% and the reinvestment period has been extended by 4.5 years. The addition of BB and B rated tranches to the structure will enable the return of €19.5m of Master Fund II's initial €47m equity investment. The overall value of the position has risen by 36% in the month.
AIMCO 2017-A - the pricing of the AIMCO 2017 reset completed in March. The reset resulted in a reduction in the cost of funding of 24 bps and a five year extension to the investment period. The price of the CLO equity tranche has risen from 48 at the end of February to 81 currently. The valuation is backed up by transactional evidence. A $5.5m position in AIMCO 2017-1 traded in May, with a cover (or second highest bid) of 81.
The manager has crystallised gains on a significant portion of CLO mezzanine tranches, reducing the total allocation to mezzanine tranches to 18% of the portfolio (28% in the prior month). Part of the proceeds have been reinvested in the equity tranche of Allegro XIII, a primary US CLO (target return of 15-17%). Master Fund II has committed to two other US CLO control equity investments.
Liberum view
We have published a note on FAIR, outlining our expectation of strong returns across the portfolio. Two factors are the key drivers of CLO equity returns – loan default rates and the arbitrage spread of the loan pool over the cost of financing. In both instances, the outlook appears very favourable. Loan default rates continue to trend downwards and compressing AAA spreads present opportunities to significantly reduce the cost of funding. FAIR is well-placed to capitalise on these conditions as a control CLO equity investor. We see this as a compelling entry point for a fund offering a 13% dividend yield and strong prospective NAV returns.
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11/3/2021
10:18 | davebowler: Liberum on FAIR OAK INCOME-
Equity returns to benefit from favourable CLO financing environment
Mkt Cap £210m | Prem/(disc) -4.6% | Div yield 14.1%
Event
Fair Oaks Income Fund's NAV per share at 28 February 2021 was $0.655, representing a 2.4% NAV total return in the month. NAV performance continues to benefit from the supportive credit environment.
Loan markets maintained their positive streak, with returns of 0.6% in the US and 0.9% in Europe. 12-month trailing default rates have continued to decline and are now 3.2% in the US (December 2020: 3.8%) and 2.1% in Europe (December 2020: 2.6%).
Floating rate assets are experiencing significant demand, resulting in spread compression for AAA CLO debt tranches. AAA US and EU new issue spreads fell to 1.02% and 0.82% at the end of February compared to 1.53% and 1.05% at the end of 2020. The positive environment should create opportunities for CLO equity holders to refinance or reset the CLO liabilities at more attractive levels, enabling higher distributions over a longer time period for equity holders.
Liberum view
The demand for CLOs is demonstrated by the high level of new issue volume in 2021. According to S&P Global, $33.4bn of new deals have completed to date in 2021, 48% higher than the same period in 2020. AAA CLO liability spreads have compressed due to strong demand from investors for investment grade floating rate assets. In combination with improving fundamentals (lower default rates, rising OC test cushions), the environment for CLO equity and mezzanine returns remains very favourable. Equity tranches should benefit from a lower cost of capital, resulting in higher expected IRRs. We note that one of FAIR's CLO control equity investments reset its CLO liabilities in early-March. The portfolio cash distributions have been resilient throughout 2020 and should increase as a result of refi/reset activity.
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18/2/2021
10:24 | davebowler: Liberum on FAIR;
Event
Fair Oaks Income Fund's NAV per share at 31 January 2021 was $0.664, representing a 5.3% NAV total return in the month. January's NAV performance benefited from upward revaluations in certain investments with short reinvestment periods. Rising loan prices have increased the liquidation NAV for the equity tranche holders. There is further potential upside for these positions from refi/reset activity.
Loan markets were broadly positive in January, with returns of 1.2% in the US and 1.0% in Europe. Loan prices have benefited from rising demand from retail inflows into US loans funds as investors seek floating rate exposure due to a steepening yield curve. 12-month trailing default rates have continued to decline and are now 3.4% in the US (previously 3.8%) and 2.1% in Europe (previously 2.6%).
CLO spreads on new issues have compressed further in January. AAA US and EU new issue spreads fell to 1.15% and 0.87% at the end of January compared to 1.32% and 1.06% in the prior month. The positive environment should create opportunities for CLO equity holders to refinance or reset the CLO liabilities at more attractive levels.
Master Fund II is nearing the end of its investment period. As previously indicated, FAIR will offer shareholders the opportunity to participate in a new share class that will invest in a new Master Fund, similar to the approach taken by the fund in 2017. The new Master Fund will reinvest principal receipts received from the current Master Fund in a new pool of assets, with a fixed investment period and maturity.
Liberum view
The tightening of CLO liability spreads is set to continue as investment demand strengthens. In combination with improving fundamentals (lower default rates, rising OC test cushions), the environment for CLO equity and mezzanine returns remains very favourable. Significant refinancing activity is expected in 2021. Equity tranches should benefit from a lower cost of capital, resulting in higher expected IRRs. Debt tranches also offer upside through repayment at par and we note several of FAIR's CLO debt tranches experienced large price increases during January. FAIR's flexible mandate leaves it well-placed to capitalise on relative value opportunities across CLO structures.
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10/2/2021
11:15 | davebowler: Liberum;
Improving CLO outlook driving returns
Mkt Cap £190m | Prem/(disc) -14.6% | Div yield 9.4%
Event
Volta Finance's NAV total return in January was 3.9%. Mark-to-market performance across the company's asset classes was +5.9% for CLO equity, +4.1% for CLO debt, +0.7% for cash corporate credit (one-month lag in valuations) and +0.8% for ABS.
Trailing 12-month default rates declined for the third consecutive month in the US. Healthier fundamentals have also led to upgrades for CLO debt tranches. In December, Moody’s upgraded 38 US CLO debt tranches and put on watch for potential upgrade 188 more.
The manager had previously outlined the potential for opportunities to call CLO equity investments this year and to refinance or reset some of the more recent CLO equity investments. This has begun as refi/reset activity was high in January in the US and Europe and this is likely to continue for some time. The arbitrage spread for CLO equity positions is benefiting from an increasing spread on the loan pools and tightening spreads on CLO debt liabilities.
The manager has again reiterated its expectation that the NAV will reach €7.00 per share in 2021 (€6.93 at 31 January 2021) and €7.50 over the medium term.
Liberum view
Volta's manager, AXA IM, remains notably bullish on the prospects for cash flow generation and CLO equity returns in 2021. The manager has typically been cautious on guidance over the life of the vehicle. A NAV of €7.00 per share would imply a NAV total return of 13% in 2021 based on the current distribution of 8% of NAV. The projections reflect confidence in mark-to-market gains for both CLO equity and debt positions as CLO fundamentals improve. Investor demand for CLOs has led to considerable spread tightening. AAA CLO tranches now trade close to pre-Covid levels, providing opportunities for CLO managers to lock in cheaper financing.
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05/1/2021
22:35 | hpcg: Not at all. NAV is well north E6 so still at a discount. Not only that but the underlying is also at a discount. Sure there'll be a lot of resistance at E6 or E6.50 but the dividend will still be attractive then. I was buying below 4 and at various prices to 5.15. Investors go way overboard on what they think impairments will be compared with what actually happens.
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13/11/2020
13:14 | skyship: After reading that I certainly look forward to Liberum's next update on VTA!
"We believe the current market offers compelling long-term value for CLO investors with the expertise and flexibility to invest across credit opportunities. We also note the recent strength of the loan market which bodes well for near term NAV growth. The price reaction of CLO tranches is closely correlated with the movement in loan market prices with typical betas of between 2 and 3."
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13/11/2020
13:11 | davebowler: Liberum on FAIR_
Fair Oaks Income Fund
Strong cash receipts from October quarterly payments
Mkt Cap £188m | Prem/(disc) -7.7% | Div yield 16.6%
Event
Fair Oaks Income Fund's NAV per share at 31 October 2020 was $0.572, representing a 4.7% uplift in the month. The company's NAV total return since 31 March is now +61.6%. NAV performance in October was driven by strong cash distributions and revaluation uplifts on three positions (supported by BWIC auction prices).
Loan markets were broadly positive in October, with returns of +0.2% +0.3% for the US and European loan indices. Pfizer's vaccine announcement earlier this week has resulted in further gains for loan markets in November, particularly for Covid-affected sectors. 12-month trailing loan market default rates have fallen marginally in the US to 4.1% (September: 4.2%). Distressed ratios (loans trading below 80% of par) have also shown incremental improvement in Europe and the US.
All of Master Fund II's CLO equity investments made their scheduled distributions in October. On a like-for-like basis, CLO equity distributions were 9.1% ahead of the prior year ($12.9m vs $11.8m). The improvement in cash flows over the year is a result of an increase in the average spread on the underlying loan portfolio and the benefit of Libor floors (35-45% of US loan portfolios in Master Fund II have Libor floors of 0.25% or higher). The distributions were significantly higher than July 2020 (+83%). Distributions in July were reduced by the timing of the 3-month Libor resetting of CLO liabilities in April just prior to the significant drop in Libor, as well as a flattening in the Libor curve (many issuers had switched to 1m Libor to take advantage of the steep curve).
Liberum view
Cash flow receipts for the October quarterly payments should provide reassurance on the sustainability of the quarterly dividend (recently increased to 2.2 cents). We also note the improvement in the overcollateralisation test cushion across the US CLO equity investments from 2.8% to 3.0% in the month. Overcollateralisation tests compare the par value of the CLO portfolio (adjusted for defaults and imminent defaults) with the par value of the CLO liabilities. A breach of the test results in diversion of payments away from the CLO equity holders. The Master Funds have received distributions on all of the CLO equity and debt positions on the quarterly payment dates in 2020. The portfolio also has a meaningful level of exposure to CLO debt tranches (31% of portfolio), increasing the predictability of cash flows.
The shares trade on a 7.7% discount to the October NAV. We believe the current market offers compelling long-term value for CLO investors with the expertise and flexibility to invest across credit opportunities. We also note the recent strength of the loan market which bodes well for near term NAV growth. The price reaction of CLO tranches is closely correlated with the movement in loan market prices with typical betas of between 2 and 3.
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10/11/2020
09:49 | skyship: Well worth ploughing through the VTA annual Report.
I love this avowedly positive opening piece by the Investment Manager:
KEY MESSAGES FROM THE INVESTMENT MANAGER:
The NAV performance of Volta over the last financial year as a result has been far weaker than the current and expected performance of the underlying investments would justify. There is now a significant gap between the level of defaults being priced into the structured debt market and those being experienced and projected to occur. That suggests a structural inefficiency that can be exploited by experienced investors who are able to keep their heads when those less familiar with the asset class are acting irrationally. In our report we seek to explain why we believe the medium to long term outlook for Volta is positive and to identify where we believe those opportunities lie.
At the time of writing, the COVID-19 crisis continues to have an impact on Volta’s current and projected cash flows. However we believe that the current NAV and the wide discount at which Volta shares are trading are both underestimating the long-term value of Volta’s positions as well as the attractive reinvestment opportunities.
Given that the current very low, even negative yield environment may prevail for some years to come, our view is that the type of assets held by Volta might see increased demand, potentially leading to stronger prices in the medium term.
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23/10/2020
07:32 | skyship: See below the Hardman report posted by RAM on 15th September. Seems to me that the best DCM is just to keep raising the dividend. The Market won't ignore the yield forever!
Dividend:
In early April, Volta cancelled the dividend payment due on 28 April until there was more visibility on likely cash receipts. On 11 May, a reduced dividend was declared (€0.1 vs. €0.155), to be paid in June. On 30 June, a dividend of €0.11, to be paid at end-July, was also declared. Looking forward, the intention is to pay a dividend equivalent to 8% of NAV, which, with the group at a 25% discount, implies a 2021E dividend yield to shareholders of 12.1%.
If sentiment does improve, investors will benefit not only from the capital
appreciation in the NAV, but also from a reduced discount to NAV, and also a higher
dividend.
The value investors will give to the dividend will also reflect its cover. In the six months to July, Volta received €17.7m of coupons/interest from its investments.
The annualised equivalent is a 17% annualised yield on the end-July NAV. This cash
receipt is after €1m of technical effects, which are known to reverse in October, and €1m of effects, which will reverse at some stage, when interest rates normalise.
Adjusting just for the former implies €37.4m of annualised cash receipts, which takes the yield up to 18%. While we cannot be certain of future cashflows (see Risks section below), it does suggest 2x or more coverage of the currently planned
dividend level of 8% NAV.
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