Volta Finance Share Discussion Threads

[rambutan2] 15/11/2022 20:50

Yes, always an upbeat message as the share price and nav say otherwise. Although the same goes right across the sector.

[cerrito] 14/11/2022 18:22

I see that the October NAV is out and it is back down to levels last seen in the Covid times of May 2020. Not surprising given a 3.9% decline in CLO equity tranches.
I saw the October cash flow of E9.1m which seemed low and so compared it with October 2021 and saw in fact it had gone up from E8.5m last year. I do note that 6 month interest to October 22 is at E23.4m down from the same figure of E26.4m last year. Despite this I see that the annualized cash flow yield this year at 22.1% is higher than last year's 19.7% and need to work that out.
I see in the statement today they talk about 2023 US default rates in the 2% region and Euro ones 3% broadly in lime with comments over the last 4 months.

[rambutan2] 21/10/2022 15:33

Cerrito, I was listening to the Blackstone quarterly yesterday and in reply to a question they said that their credit division had picked up some CLO paper dumped during the LDI melt down. So, surprising but true!

[wolstencroft] 21/10/2022 11:06

He says
"AAA CLOs are backed by loans that have a default expectation around 30%"

Pimco say
"The eight-year average default rate for loan issuers rated single-B is 2.33%, compared with just 0.77% for BB rated loans"

He says

"It takes pretty heroic assumptions to transform 30% defaulting collateral to zero risk bonds"

But the AAA tranch of a CLO is protected by the equity position, buffer and all the tranches below it

He says
"DS score greatly oversimplifies real-world correlation"
Well, I think we would probably agree there

Reading later in the artcile he mentions that single-B has a 10 year default rate of around 30%. This implies a single year default rate of around 3 percent so perhaps when he says the AAA are backed by bonds with a default rate of 30% OVER 10 YEARS.

I think CLOs have help up well in recent years but right now the market is frozen, and if we get a systemic crash will no doubt crash further.

This is meaningful but unfair I think. Volta is getting underlying cash flows yielding 22% plus and so even with a disasterous default rate of say 10% you'll still get a decent 10% underlying return.

Of course sentiment is poor at the moment hence the low SP

[cerrito] 20/10/2022 15:18

some of you may find this article interesting.
I have yet to get to grips with it
hxxps://www.linkedin.com/pulse/clo-alchemy-endangers-broader-economy-rod-dubitsky/

[cerrito] 16/10/2022 21:58

I was interested to read their explanationfor NAV decreasing in september was forced selling either because of margin calls for FX hedging or LDI margin calls.
Would have thought you would have had to be desperate to sell something as illiquid as CLO's but I guess that the spike in BWIC's with a swift response required suggests that something odd was afoot.
I see almost no trades in CLO equity.

[hpcg] 12/10/2022 11:07

trailing 12-month basis - will not be representative of a forward 12-24 month basis. Europe needs a new level on energy prices and US interest rates need to have topped out. Not only that but we don't know the forward course on inflation. If it is high and ongoing then the interest rates on CLOs are no compensation. 8% doesn't seem that generous; I'd rather see the portfolio considerably rotated first. I note also that the dividend is decreasing which I presume is a function of the prior moves down in rates.

[davebowler] 12/10/2022 10:39

Liberum on FAIR-
Fair Oaks Income

UK mini-budget hits September NAV

Mkt Cap £181m | Share price $0.49 | Prem/(disc) -13.9% | Div yield 16.3%

Event

Fair Oaks Income reported NAV for 30 September 2022 for the 2021 shares (FAIR LN) of $0.5693, down 4.74% for the month and for the realisation shares (FA17 LN) of $0.5684, down 4.79% for the month. Share price performance for the 2021 shares in September was +5.05% as the discount to NAV narrowed from 17.1% at the end of August to 8.7% on 30 September.

Liberum view

Overall, the NAV performance was severely impacted by the stress in the UK LDI market that forced pension funds to sell safe assets in order to raise cash for margin calls. This impacted not only the Gilt market but also the CLO market and led to dislocations in CLOs that originated in Europe and now spreads to the US as the Wall Street Journal reports. This means that both the USD and the EUR CLOs in the portfolio suffered. The US and European leveraged loan indices declined 2.3% and 3.6% in September, respectively. The JP Morgan High Yield Indices declined 3.9% and 4.1%, respectively.


As long as the Gilt market is in its current precarious condition, we and the investment manager of FAIR expect current high yields on CLOs to persist. Given these market turbulences, we think the performance of FAIR, which has been pretty much in line with the B/BB-rated CLO index globally, is solid and speaks for the quality of the manager.


The upside of the September turbulences is of course that going forward, capital can be invested at significantly higher yields, surpassing 8% for B/BB-rated CLOs or more than double the yield that was available at the beginning of the year. The investment manager of FAIR reports that even though markets are under technical pressure, the underlying fundamentals remain solid with the default rate in the European CLO space dropping from 0.72% to 0.43% in September on a trailing 12-month basis. In the US, the trailing 12-month default rate increased slightly from 0.70% to 0.85% but remains low overall. And while technical selling pressure increased the share of CLOs trading below 80c on the dollar to 6.4% in the dollar space and 6.2% in Europe, the share of loans rated CCC+ or below remains low at 4.6% in the US and 3.5% in Europe.

[skyship] 12/10/2022 08:54

Given market conditions, esp. in the debt markets, truly amazing that these have held up so well. No longer hold here; but had assumed they would be down nearer 400c by now.

[cwa1] 20/9/2022 11:31

Volta Finance Limited ("the Company") hereby announces a third interim dividend for the financial year commencing 1 August 2021.

The Company announces that it has declared a quarterly interim dividend of EUR0.13 per share payable on 20 October 2022 amounting to approximately EUR4.75 million, equating approximately to an annualised 8% of net asset value. The ex-dividend date is 29 September 2022 with a record date of 30 September 2022.

[cerrito] 13/9/2022 17:53

Encouraging August report and useful increase in NAV.
Interesting comment that even with default rates on US$ loans going from 0.6% at end August to 2% in 2023 that the projected CLO yield based on the current share price is 30%+.
Good to read that they continue not to expect cash diversions for the rest of this year and next year.
Based on today's midprice of the share at E5.07 this is a discount to end of month NAV high by VTA standards. I have no desire to sell but do not see myself buying even at this current price and discount.

[davebowler] 25/8/2022 10:26

Liberum on FAIR-note the last sentence.

Fair Oaks Income Realisation Shares

First capital distribution for realisation share class

Mkt Cap £30m | Share price | Prem/(disc) -1.3% | Div yield 17.7%

Event

Fair Oaks Income will return $4m to shareholders in its realisation share class. The distribution will represent 6.4 cents per share and will be effected by way of a compulsory redemption (11.2% of the shares will be redeemed).

Liberum view

This is the first capital distribution for the realisation share class. Dividends will continue to be paid alongside regular capital distributions. The full redemption of the previous realisation share class (2014 shares) took approximately two years. The 2014 shares fully redeemed in March 2019, resulting in a 9.8% IRR from inception. Alongside strong credit performance, we believe the option of a realisation share class is one of the reasons why Fair Oaks has commanded a much stronger share rating than peers in the CLO sector.

[davebowler] 18/8/2022 08:48

Liberum on FAIR-
FAIR’s CLO portfolios have demonstrated considerably stronger credit performance since inception than loan markets. Q2’s loan market sell-off prices in a high default rate scenario. FAIR’s NAV has predictably weakened in this environment but offers near-term upside from recent loan price strength. Despite market volatility, we expect strong cash generation to drive an 8% NAV TR in 2022. We estimate a pro-forma discount of c.20% (vs a long-term average of 0.7%).

Download Fair Oaks Income* (BUY, TP $0.60 from $0.73) – Downside risk priced in (9 pgs)

[yieldsearch] 17/8/2022 09:10

Cerrito your 603 (Help please as they say that $ interest/coupon payments hit by loss of Libor floor:)

In low interest environment, the asset side of the clo (ie the corporate loans) are benefiting from a libor floor (ie if libor is say at 0.10%, the corporate loans are paying a predefined floor, ex 0.5%).
The liabity side of the clo typically would not have a floor, and therefore income is stable in reduced rate environment (the floor above) and the interest the clos are paying are reducing. so net yield/net interest margin is actually improving

when interest rate are reaching or going above the floor, that benefit is disappearing. as floor are set at different level for each corporate loans, you need a number of interest rate increase from a low level to fully remove that benefit of libor floor



hxxps://www.pennmutualam.com/market-insights-news/blogs/chart-of-the-week/2021-03-11-importance-of-libor-floors-in-the-short-term

[cerrito] 12/8/2022 18:02

My heart rather sunk when I saw they had put out the July NAV after hours on a Friday afternoon which is normal harbinger of bad news but all good as they followed FAIR in having a better July.
Help please as they say that $ interest/coupon payments hit by loss of Libor floor. This rings a very vague bell but if anyone can enlighten much appreciated.
I see that interest coupon payments this July equal to those of April but down on the E10.6m of July 21.
Also note that the end of July 22 NAV of E6.22 way down from the E7.32 of July 21.

[davebowler] 21/7/2022 09:08

Liberum on FAIR-
Fair Oaks Income

Resilient credit performance despite wider volatility

Mkt Cap £167m | Share price $0.495 | Prem/(disc) -15.8% | Div yield 20.2%

Event

Fair Oaks Income's NAV total return in June 2022 was -4.8%, largely due mark-to-market movements as a result of volatile credit markets. US and European loan markets delivered returns of -2.2% and -4.5% respectively in June.

The manager reports that the performance of the Master Fund remains robust with an annualised default rate of 0.34% since its first investment in 2017, compared to 1.63% for the loan market over the same period. The underlying loan portfolios also have low exposure to CCC assets at 2.6% (vs a 4.1% average for US CLOs and 3.2% for European CLOs).

All of the positions in the portfolio are in compliance with their overcollateralisation tests (the average test value is 4.5% above the threshold). The test compares the par value of the CLO portfolio (adjusted for defaults) with the par value of the CLO notes. This ratio must be above a predetermined threshold for the CLO to pass. The company expects the next dividend to be unchanged at 2.5c per share and it is expected to be well covered. Assuming 70% loan recovery rate, the loan portfolios would require 15% cumulative defaults in order to generate the loss required to breach the limit.


Liberum view

FAIR's CLO portfolios continue to perform resiliently, maintaining the track record since IPO. Annualised default rates and the proportion of CCC-rated assets is considerably lower than market averages. The headroom on the overcollateralisation test provides comfort on the ability to maintain high cash distributions. The reduction in loan prices will also provide opportunities for the underlying CLO managers to build par by acquiring strong credits at discounts. Stress testing scenarios are useful in assessing downside risks for CLO portfolios. The manager has stressed return expectation for a significant increase in default rates. Under stress scenarios based on 2000 and 2008, the estimated gross returns would still be positive at 4.4% and 9.3%. The shares currently trade on a 15.8% discount to NAV (20.2% prospective dividend yield), compared to a long-run average discount of 0.5%.



Specialist Finan

[ga_dti] 15/7/2022 12:36

Hardman & Co analyst interview discussing their report 'Hardman presentation: carpe diem'

[yieldsearch] 15/7/2022 11:04

re 597: yes agree it seems that the asset manager is confident that cash collection will be maintained. given the structure of the CLOs, you need first a number of default or number of rating downgrade, then a test, then this will trigger bifurcation of cash away from volta. there is always a lag hence why the asset manager can have some confidence that the cash collection is maintained in near term. noone (myself first) can forecast cash amount in medium term, way too many optionalities in the product and macro volality.

the asset manager cannot control market prices: if clo bonds prices and in general high yield market are weakening further, it should have an impact on NAV and volta price, so probably too early to get back in, i dont think the quarterly dvd is covering the potential further decline in share price.


Some links to monitor markets:

US CCC high yield
hxxps://fred.stlouisfed.org/series/BAMLH0A3HYC


Euro high yield
hxxps://fred.stlouisfed.org/series/BAMLHE00EHYIOAS

[cwa1] 14/7/2022 08:29

XD this morning FWIW

[bluemango] 14/7/2022 00:44

It reads like this could turn out to be an opportunistic moment. Particularly reassuring also, is this section:

'Looking ahead to the next few quarters, we do not believe that there are any signs that Volta is likely to suffer from a diversion of cash flows from its CLO Equity positions. Indeed, Volta's cashflows have been increasing every month for the last 4 months (measured as the rolling 6-month cashflows to avoid seasonality). Receiving a continuing high level of cash flows should allow us to take advantage of opportunities arising from the current market environment while maintaining the payment of a steady quarterly dividend'

[yieldsearch] 13/7/2022 22:59

Nav posted, down 4.6%. Asset manager still bullish on the market, seems ready to open new clo warehouse when others may have liquidateNo cash diversion anticipated so, according to them, dividend is secured...

[hpcg] 08/7/2022 07:57

Defaults in Europe are going to go crazy this winter with high energy prices and gas rationing. In addition I think, and of course just my opinion, that Sterling will be a lot stronger than the Euro this time next year, so that is a double whammy.

[bluemango] 07/7/2022 22:00

Even if next three quarters stayed at this level that still equates to around 7.8% at current share price Not too much of an issue. And yes the market was aware of that drop in NAV.

[cerrito] 07/7/2022 21:35

Rather taken aback when I saw the dividend will be 13c having got used to the 15c of the last 2 dividend payments. This is especially given their bullish comments on the strength of their cash flows.
Then reminded myself that their dividend policy is 8% of NAV and further reminded myself of the big drop of NAV during May from e7.22 to e6.37. Let us hope that their comments in the May report that pricing in June had picked up turn out to be true.
Somewhat counter intuitive to cut dividends with strengthening cash flow but we had been warned.