Volta Finance Limited - Net Asset Value as at 30 April 2020 - Seite 2

As mentioned in our interim communication of 24^th March, our first priority was to secure Volta’s liquidity and solvency. Whilst, as at the end of April the repurchase agreement was still in place for $10m, this has now been repaid. Given the modest level of commitments to existing positions and the very low level of currency hedging still in place, the liquidity demands on the Company can now be met comfortably from expected cash flows.  Overall in April, Volta received €7.9m from coupons and interest, with the decline accounted for solely by falling short term interest rates.

Therefore, the Company has been able to declare a dividend.  At the end of March, ratings agencies were downgrading loans at an unprecedented pace and considerable uncertainty existed for the Company regarding cash flows and the economic outlook. Now that the full April cash flows have been received and the acute liquidity and volatility conditions seen in late March have eased, the Company has declared a dividend of €0.10 per share, payable 16^th of June, which corresponds to roughly 8% of the latest NAV. The balance of net cash flows received, other than a modest working capital balance, will be re-invested.

As at the end of April 2020, Volta’s NAV was €195,7m or €5,35 per share (including €20,4m in cash). The GAV stood at €207,1m with nearly €11,4m liabilities.

Regarding the medium to long term performance outlook, our view is that rating agencies, will continue to downgrade loans through to the end of 2020, even if the pace of downgrades reduces somewhat.  Therefore, the CCC bucket will continue to increase. In April defaults began to pick up in both the US and European credit markets. Including loans and bonds, Moody’s recorded 35 defaults in the US YTD of which 15 were in April; in Europe there have been 7 YTD of which 5 were in April.  We expect this trend to continue. Rating agencies are forecasting default rates to reach between 5 and 10% for the US loan market in 2020 but recognize, as we have noted previously, that defaults might be spread through time.

This scenario means that we might find in the USD CLO market (situation is expected to be better in Europe), that many CLOs are near breaching either the Reinvestment test (when breached, 50% of the amount that should have been paid to the Equity is diverted to be reinvested) or the most Junior OC test (when breached, 100% of the amount that should have been paid to the Equity is diverted to reimburse the most senior debt tranche) while strongly benefiting from loan reinvestment at discount (before the OC test is breached or once it is cured).