Volta Finance Limited (VTA / VTAS) – October 2022 monthly report
NOT FOR RELEASE, DISTRIBUTION, OR PUBLICATION, IN WHOLE OR PART, IN OR INTO THE UNITED STATES
Guernsey, 14 November 2022
AXA IM has published the Volta Finance Limited (the “Company” or “Volta Finance” or “Volta”) monthly report for October. The full report is attached to this release and will be available on Volta’s website shortly (www.voltafinance.com).
PERFORMANCE and PORTFOLIO ACTIVITY
October was a mixed month for Structured Debt Markets as European CLO debt tranches experienced a price rebound - especially the ones that were significantly hit in September - while US CLO performances were slightly negative. As a result Volta’s net asset value (“NAV”) declined by -2.6% in October.
Diving into Volta’s underlying sub asset classes, monthly performances** were as follow: +0.7% for Bank Balance Sheet transactions, -3.9% for CLO Equity tranches; +1.7% for CLO Debt tranches (driven by +6.2% on European CLO debt); and -0.4% for Cash Corporate Credit and ABS (which represent circa 2.3% of the fund’s NAV).
As for every quarter, October was an heavy month in terms of CLO Equity distributions. We were expecting relatively healthy ones across the board and our positions did deliver on that front. Volta received in October the equivalent of €9.1m in terms of interest and coupons. Over the usual 6-month-basis time frame Volta received €23.4m interest and coupons. A 22.3% annualized cash flow to NAV.
Looking at fundamentals, we continued to see slightly more downgrades than upgrades in both the US and the European loan markets, although at a very moderate pace. We have been highlighting for months through this channel of communication the fact that inflation per se can positively impact companies’ balance sheets. The release of Q3 earnings demonstrated once more that when revenues increase (in nominal amount) at a high pace, earnings can be maintained or even increased despite companies suffering from margin pressure. At the time of writing this publication, 90% of the S&P companies have reported their Q3 earnings; revenues are up 12.2% (from the previous quarter) allowing earnings to grow by “only” 3.9%.
In the meantime, this increase in revenues is eroding the real value of debt. We believe that the real value of debt for the average US company was basically eroded by 20% in the last two years when considering that from Q3 2020 to Q4 2022 the US GDP grew by 20% in nominal terms. This relationship between nominal growth and debt and the maitainance of healthy earnings can explain why rating agencies have so far been relatively slow (and they may be correct in doing so) in downgrading debt even though many companies do suffer or will suffer from higher interest rates.
Our view remains that the overall dynamics are still more favorable for the US relative to Europe. At the end of October, 12 months running default rates in Loans were still low at 0.4% in Europe and 0.8% in the US. We expect to see more deterioration in Europe than in the US in the coming quarters and consider it reasonable to see default rates move in the 2% area in the US and in the 3% area in Europe for 2023.
This kind of default pattern will not materially impact the distribution of interests by Volta’s assets in the near term. We believe that we can maintain a high level of coupons in the coming quarters and are actively looking to seize investment opportunities with the extra cash that is being generated.
We recently opened a European CLO Warehouse as part of this strategy. No loans have yet been purchased but we expect to start ramping assets in the near term to take advantage of significant price discounts and patiently build a very profitable CLO Equity position.
As at the end of October 2022, Volta’s NAV was €206.8m or €5.65 per share.
*It should be noted that approximately 1.5% of Volta’s GAV comprises investments for which the relevant NAVs as at the month-end date are normally available only after Volta’s NAV has already been published. Volta’s policy is to publish its NAV on as timely a basis as possible to provide shareholders with Volta’s appropriately up-to-date NAV information. Consequently, such investments are valued using the most recently available NAV for each fund or quoted price for such subordinated notes. The most recently available fund NAV or quoted price was 1.1% as at 30 September 2022, 0.4% was at 31 July 2022 and 0.4% as at 30 June 2022..
** “performances” of asset classes are calculated as the Dietz-performance of the assets in each bucket, taking into account the Mark-to-Market of the assets at period ends, payments received from the assets over the period, and ignoring changes in cross-currency rates. Nevertheless, some residual currency effects could impact the aggregate value of the portfolio when aggregating each bucket.
For the Investment Manager
AXA Investment Managers Paris
+33 (0) 1 44 45 84 47
Company Secretary and Administrator
BNP Paribas S.A, Guernsey Branch
+44 (0) 1481 750 853
Cenkos Securities plc
+44 (0) 20 7397 8900
ABOUT VOLTA FINANCE LIMITED
Volta Finance Limited is incorporated in Guernsey under The Companies (Guernsey) Law, 2008 (as amended) and listed on Euronext Amsterdam and the London Stock Exchange's Main Market for listed securities. Volta’s home member state for the purposes of the EU Transparency Directive is the Netherlands. As such, Volta is subject to regulation and supervision by the AFM, being the regulator for financial markets in the Netherlands.
Volta’s investment objectives are to preserve capital across the credit cycle and to provide a stable stream of income to its shareholders through dividends. Volta seeks to attain its investment objectives predominantly through diversified investments in structured finance assets. The assets that the Company may invest in either directly or indirectly include, but are not limited to: corporate credits; sovereign and quasi-sovereign debt; residential mortgage loans; and, automobile loans. The Company’s approach to investment is through vehicles and arrangements that essentially provide leveraged exposure to portfolios of such underlying assets. The Company has appointed AXA Investment Managers Paris an investment management company with a division specialised in structured credit, for the investment management of all its assets.
ABOUT AXA INVESTMENT MANAGERS
AXA Investment Managers (AXA IM) is a multi-expert asset management company within the AXA Group, a global leader in financial protection and wealth management. AXA IM is one of the largest European-based asset managers with 2,460 professionals and €887 billion in assets under management as of the end of December 2021.
This press release is published by AXA Investment Managers Paris (“AXA IM”), in its capacity as alternative investment fund manager (within the meaning of Directive 2011/61/EU, the “AIFM Directive”) of Volta Finance Limited (the "Volta Finance") whose portfolio is managed by AXA IM.
This press release is for information only and does not constitute an invitation or inducement to acquire shares in Volta Finance. Its circulation may be prohibited in certain jurisdictions and no recipient may circulate copies of this document in breach of such limitations or restrictions. This document is not an offer for sale of the securities referred to herein in the United States or to persons who are “U.S. persons” for purposes of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”), or otherwise in circumstances where such offer would be restricted by applicable law. Such securities may not be sold in the United States absent registration or an exemption from registration from the Securities Act. Volta Finance does not intend to register any portion of the offer of such securities in the United States or to conduct a public offering of such securities in the United States.
This communication is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net worth companies, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). The securities referred to herein are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents. Past performance cannot be relied on as a guide to future performance.
This press release contains statements that are, or may deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "anticipated", "expects", "intends", "is/are expected", "may", "will" or "should". They include the statements regarding the level of the dividend, the current market context and its impact on the long-term return of Volta Finance's investments. By their nature, forward-looking statements involve risks and uncertainties and readers are cautioned that any such forward-looking statements are not guarantees of future performance. Volta Finance's actual results, portfolio composition and performance may differ materially from the impression created by the forward-looking statements. AXA IM does not undertake any obligation to publicly update or revise forward-looking statements.
Any target information is based on certain assumptions as to future events which may not prove to be realised. Due to the uncertainty surrounding these future events, the targets are not intended to be and should not be regarded as profits or earnings or any other type of forecasts. There can be no assurance that any of these targets will be achieved. In addition, no assurance can be given that the investment objective will be achieved.
The figures provided that relate to past months or years and past performance cannot be relied on as a guide to future performance or construed as a reliable indicator as to future performance. Throughout this review, the citation of specific trades or strategies is intended to illustrate some of the investment methodologies and philosophies of Volta Finance, as implemented by AXA IM. The historical success or AXA IM’s belief in the future success, of any of these trades or strategies is not indicative of, and has no bearing on, future results.
The valuation of financial assets can vary significantly from the prices that the AXA IM could obtain if it sought to liquidate the positions on behalf of the Volta Finance due to market conditions and general economic environment. Such valuations do not constitute a fairness or similar opinion and should not be regarded as such.
Editor: AXA INVESTMENT MANAGERS PARIS, a company incorporated under the laws of France, having its registered office located at Tour Majunga, 6, Place de la Pyramide - 92800 Puteaux. AXA IMP is authorized by the Autorité des Marchés Financiers under registration number GP92008 as an alternative investment fund manager within the meaning of the AIFM Directive.