Volta Finance Limited (VTA / VTAS) – December 2022 monthly report
NOT FOR RELEASE, DISTRIBUTION, OR PUBLICATION, IN WHOLE OR PART, IN OR INTO THE UNITED STATES
Guernsey, 12 January 2023
AXA IM has published the Volta Finance Limited (the “Company” or “Volta Finance” or “Volta”) monthly report for December 2022. The full report is attached to this release and will be available on Volta’s website shortly (www.voltafinance.com).
PERFORMANCE and PORTFOLIO ACTIVITY
After a very strong performance in November (+6.3%), December was slightly down with -1%, including the January dividend payment for which the record date was set in December.
Although CLO debt performed relatively well, Volta suffered from the underperformance of the USD against the Euro as well as slightly negative performances in December on Volta non-CLO exposures.
Volta’s underlying sub asset classes monthly performances** were as follow: -0.3% for Bank Balance Sheet transactions, +0.5% for CLO Equity tranches, +1.3% for CLO Debt tranches; and -3.6% for Cash Corporate Credit and ABS (which represent circa 2.3% of the fund’s NAV).
December usually is a relatively quiet month in terms of CLO Equity distributions. Over the month, Volta received the equivalent of €0.3m of interests and coupons. Over the usual 6-month-basis time frame Volta received €22.5m of interests and coupons, ie. a 21.1% annualized cash flow to NAV.
We purchased two European CLO Equity positions from the secondary market in December for a total nominal amount of €2.5m, at an average purchase price of 59.75%. The projected yield of said purchases is – under reasonable assumptions regarding future underlying losses – in the 22% context.
Fundamentals-wise, December saw significantly more downgrades than upgrades especially in the US Loan market. Even though we are still waiting for December trustee reports, expectations are that CCC/Caa1 loan buckets increased on average by 1.5 to 2% in the US through the course of the month.
In terms of default rates, we now have the full list of defaults for 2022. Default rates were still very low, at 0.4% for European Loans and 0.7% for US loans. After the invasion of Ukraine, rating agencies were forecasting 2022 default rates to reach between 2% and 2.5% for the US and European loan markets… We closed the year far from those levels.
As we regularly highlight in this report, the main reason for such low default rates is the benefit of inflation, despite the economic slowdown. When companies’ revenues are growing fast, even if said companies suffer from margins pressure, profits and EBITDA still manage to grow (at a lower pace than revenues but they still do grow on average).
When considering rating agencies and most banks’ research, default rates are expected to reach 3.5% to 5.5% for 2023. Our default rates view for 2023 still lands in the 3% area for both US and European Loans as we still believe that debt erosion (thanks to inflation) and significant increase in revenues will help avoiding some defaults ; despite the fact that margins are already under pressure and that they should remain under pressure for a few more quarters. Since the vast majority of loans are covenant lite, the deterioration of interest coverage ratios – while being a source of stress – do not mechanically lead to a default. It is the level of EBITDA and where rates will be when companies need to refinance their debt that will really matter. We do not see many companies that have to refinance in 2023.
Such kind of default pattern should not materially impact the distribution of interests of 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.
As at the end of December 2022, Volta’s NAV was €213.5m or €5.84 per share.
*It should be noted that approximately 6.6% 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 1.3% as at 30 November 2022, 4.7% was at 30 October 2022, 0.6% was at 30 September 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.