# Volta Finance Performance and Portfolio activity

- Link: https://www.directorstalkinterviews.com/volta-finance-performance-and-portfolio-activity/412851344
- Published: 2020-08-12T17:00:00+01:00
- Author: Amilia Stone

AXA IM has published the** [Volta Finance](https://www.directorstalkinterviews.com/company/volta-finance/vta.as)
Ltd** ([LON:VTA](https://www.directorstalkinterviews.com/company/volta-finance/vta.as))
monthly report for July. The full report is attached to this release and will be
available on Volta’s website shortly (www.voltafinance.com).

**PERFORMANCE and PORTFOLIO ACTIVITY**

In July the monthly performance, after considering the 11 cents per share dividend
paid 29^(th) of July, is negative at -1.2%. Despite a flat performance at the asset
class level, USD weakness had a negative impact as USD depreciated against EUR by
4.6% during the month while, after adjusting for hedging, Volta has a USD exposure
close to 45%.

The monthly asset class performances** were, in local currency: -0.3% for Bank Balance
Sheet transactions, +1.1% for CLO Equity tranches; -0.5% for CLO Debt; +5.9% for
Cash Corporate Credit deals (this bucket comprises funds that have a one-month delay
in publishing their NAV); and +1.7% for ABS.

In July, like the first month of every quarter, most of the CLO positions received
their coupon payments. However, according to WellsFargo research, 24% of USD CLOs
were suffering a breach of the Interest Diversion test as at the end of the month.
Only one USD CLO position in Volta did not receive any cash flows (due to an IC 
test (Interest Coverage) breach). This position is a 2013 vintage position, the 
full AAA tranche has been amortized and the AA tranche will finish being amortized
in October so that it is almost normal that cash flows from this position are close
to zero. In normal market conditions, this position would have been called. We are
working with the CLO manager to find a way/the timing for a partial call.

Except for this position, all CLO Equity and CLO debt held by Volta paid their coupons.
However, it should be noted that CLO Equity payments were on average 30% lower than
in April due to two technical effects:  firstly, lower short-term rates in the US,
an impact that was beginning to be seen in January and April.  If and when rates
go up, we will benefit from the opposite technical effect.  Secondly, since April,
roughly 40% of the European loans elected to pay their coupon on a 6-month basis
instead of the classic 3-month basis.  This effect will unwind with higher cash 
flows in October.

As a result, in July, Volta received “only” the equivalent of €3.9m from its CLO
Equity positions, relative to €5.7m in April. The decline is almost evenly split
between the two technical effects so that October cash flows are expected to be 
roughly €1m higher. On a 6-month basis, Volta received the equivalent of €17.7m 
as at the end of July. Nonetheless, this represents a solid 17% annualised yield
based on the end of July NAV, despite the previously mentioned technical impacts.

On a longer-term basis, CLO managers are, on average, improving CLO portfolios to
limit the impact of the COVID-19 pandemic. According to Nomura research, in April,
19% of USD CLOs were breaching their BB OC test (the Overcollateralization test 
that protects the BB tranche), in July this figure was down to 11% although USD 
loans continued to be downgraded and some defaults started to materialize. None 
of the USD CLO positions in Volta suffered a diversion of cash flow due to a BB 
OC test breach in April nor in July.

We reiterate our view that going forward, as long as there is no second wave requiring
significant lockdowns of the economy, full cash flow payments should be the norm
for Volta’s portfolio as CLO managers are regaining some cushion on the OC tests.

On the most senior CLO debt tranches, spreads continued to tighten so that we can
envisage transforming the CLO warehouse presently held by Volta into an actual CLO.
Probably in September or October.

In July Volta invested €2.2m through one newly issued EUR BB CLO tranche and additional
capital was called by the existing CMV and the Warehouse.

As at the end of July 2020, after the 11 cents per share dividend payment, Volta’s
NAV was €208.2m or €5.69 per share.

The month-end available cash position was €8.7m leaving some room for investments.

_*It should be noted that approximately 10.6% 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 Finance’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 
note. The most recently available fund NAV or quoted price was for 9.0% as at 30
June 2020 and 1.6% as at 31 March 2020._

_** “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._

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