Volta Finance Limited - Intra-month Trading Update
Volta Finance Limited (VTA / VTAS) – Intra-month Trading
Update
NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, IN WHOLE
OR IN PART, IN OR INTO THE UNITED STATES
***** Guernsey, 24 March 2020
Intra-month Update on the impact of COVID-19 and
market movements on Volta Finance.
Effective risk management
For many years, we have followed restrictions
and guidelines to avoid adding further correlated risk to those
inherent in the assets held by Volta. As a result, the use of
leverage has always been limited.
Volta had in place a repurchase agreement that
permitted leveraging our CLO BB debt bucket. This repo was $50m one
year ago, reduced to $40m in March 2019, reduced again to $35m in
December 2019. It was further reduced to $30m early in March
and then to $20m, ahead of the greatest falls in asset prices.
Based on the current levels of uncertainty, we
sold last week two positions (2 CLO BB tranches for $8m principal
have been sold) to increase our cash position so that we can
terminate the repurchase agreement whenever we wish.
Thanks to sales in January and February, Volta
held a cash position of close to €29m by the ed of February, while
the repurchase agreement represented a liability of €32m. We
subsequently had to face few margin calls in relation with our
currency hedging so that it was necessary to sell some positions to
restore our cash level.
Since the 2008 Great Financial Crisis we have
limited the exposure to margin calls that might come from hedging
non-Euro currency risk. Structurally, we have been selling forward
USD against Euro to limit Volta’s USD exposure despite having circa
60% of Volta assets in USD. We took the opportunity early in March,
given the USD weakness, to purchase forward $30m. Last week with
the strong appreciation of the USD against Euro we decided to
purchase forward $52m more so that Volta now has only very limited
exposure from margin calls in relation with its currency
hedging.
As a result, Volta’s USD assets are largely
unhedged and USD exposure is close to 50%.
Very limited liquidity risk
Having put aside the cash needed to close the
repurchase agreement and having a very limited amounts of currency
hedging in place, Volta has taken actions to minimize liquidity
risk to almost zero.
Volta has only 2 assets with commitments, a CMV
and a CLO warehouse. The remaining commitment on the CMV is very
limited and can only be called to purchase a newly priced CLO
Equity position, which is highly unlikely in the current
environment. In relation to the warehouse, we instructed the CLO
manager to stop any purchases of loans which will eliminate further
short-term funding requirements.
At the time of writing Volta’s cash is close to
€3m in excess of the amount ($20m) needed to close the repo.
Mark-to-market Impact
The mark-to-market impact of the COVID-19 crisis
is large. Prices, as usual in such circumstances, are mixing 3
forces: fundamentals, technical effects and sentiment. At this
point it is too early to estimate the fundamental impacts and
markets are driven by technicals and sentiment in a phase in which
indiscriminate selling is at the forefront.
At the time of writing, we estimate that Volta’s
NAV is near €4.60 per share, a likely drop in NAV in the region of
35%. This performance is highly volatile and may change
materially (upwards or downwards) by the end of March.
Mid to long term
performance
As outlined in the latest monthly report,
because the underlying loans in CLOs are representative of the
overall economy, when there is a risk we might suffer some losses
(due to loan defaults or to a very large number of downgrades),
governments and central banks intend to mitigate this risk because
of the macro impact associated with that risk. It is clearly not an
insurance that losses will always be avoided but it is a mitigant
regarding the risk associated with Volta investments.
Most governments in the countries to which Volta
is exposed are, almost every day, taking steps to support the
general economy and corporates to avoid massive default and losses.
Due to that and due to the very uncertainty around the length and
the consequences of the COVID-19 crisis it is very hard to make any
predictions regarding likely aggregate default rates.
Prices at which CLO BB debt tranches and CLO
Equity tranches are trading at this point in time are roughly in
line with a scenario that incorporates additional defaults in the
area of 10%, in relation with the COVID-19, in excess of the
standard steady-state default assumption of 2% defaults.
At this point, considering this scenario as
plausible is really a question of belief. Governments, almost in
all developed countries claim that they will do almost whatever it
takes to limit the impact of such crisis to the overall economy.
Historically speaking a 10% default uplift (like in 2009) is in
line with an increase of 4 to 6% in unemployment rate.
On a short-term basis, we expect all Volta
assets to pay their cashflows in April, allowing us to pay the end
of April dividend and seize opportunities created by the current
dislocations.
Impact on AXA IM and actions taken by
the manager
The first thing to say is that, we have
activated our BCP plan and all AXA IM people involved in the
management of Volta’s assets are working effectively from home. We
had no disruption in our ability to manage our assets, all
tools/systems are available and working well. None of the
designated portfolio management team has contracted the virus.
Our first action was to take care of the
liquidity risk by closing the repo and reducing FX hedging.
We are also having regular calls with the
underlying CLO managers. The main conclusion is that US CLO
managers are basically able to rotate/reposition portfolios
although it is more difficult for European managers due to lower
liquidity of the European loan market (one of the reasons Volta has
no exposure to EUR CLO debt).
For the CLO market, trading of the most senior
portion (CLO tranches rated AAA/AA/A) is very active, sometimes
with even higher volumes than in normal market conditions (for
AAA). For CLO BB/BB/Equity tranches there are some trades but with
very wide bid/ask margin.
As always in such type of crisis, when the
market is driven by liquidity needs, there are plenty of
opportunities. Our first action was to secure the situation of
Volta by avoiding liquidity issues, we can now concentrate on
reshaping the portfolio for the future to capitalize on those
opportunities as they arise.
CONTACTS
For the Investment ManagerAXA
Investment Managers ParisSerge Demayserge.demay@axa-im.com+33 (0) 1
44 45 84 47
Company Secretary and
AdministratorBNP Paribas Securities Services S.C.A,
Guernsey Branch guernsey.bp2s.volta.cosec@bnpparibas.com +44
(0) 1481 750 853
Corporate Broker Cenkos Securities plc Andrew
WorneDaniel BalabanoffRob Naylor+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
MANAGERSAXA 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 739 investment
professionals and €750 billion in assets under management as of the
end of March 2019.
*****
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.
*****
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