Volta Finance Share Discussion Threads

[hpcg] 11/5/2020 09:06

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 08:31

Something is better than nothing I suppose

[davebowler] 17/4/2020 08:10

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 16:02

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 08:38

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

[davebowler] 15/4/2020 08:13

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 14:37

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 13:01

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?

[davebowler] 02/4/2020 09:53

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 06:32

Another dividend bites the dust. I guess not unexpected

[hpcg] 01/4/2020 16:17

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] 31/3/2020 23:05

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 13:26

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.