Volta Finance Limited - Net Asset Value as at 31 March 2021

Volta Finance Limited (VTA / VTAS) – March 2021 monthly report

NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, IN WHOLE OR PART, IN OR INTO THE UNITED STATES

*****
Guernsey, 14 April 2021

AXA IM has published the Volta Finance Limited (the “Company” or “Volta Finance” or “Volta”) monthly report for March. The full report is attached to this release and will be available on Volta’s website shortly (www.voltafinance.com).

PERFORMANCE and PORTFOLIO ACTIVITY

Volta has continued to perform well with +1.1% in March, reaching 6.1% in Q1 2021. This time around, the performance was driven almost evenly by the solid performance from CLO equity tranches against a backdrop of uneven performance across broad credit markets, and by the US dollar appreciation. Even if it was less prevalent this month there remains uncertainty regarding the appropriate level for mid to long-term sovereign yields and it is weighing on most asset class performances. As Volta is predominantly invested in floating rate instruments, the negative impact of rising long-term rates was largely avoided.

The monthly asset class performances** were: +0.6% for Bank Balance Sheet transactions, +1.6% for CLO equity tranches; -0.9% for CLO debt; +3.2% for Cash Corporate Credit deals (this bucket comprises funds that have a one-month delay in publishing their NAV); and -1.3% for ABS.

In terms of fundamentals, in March, trailing-12-month default rates declined again in loan markets (for the 5^th consecutive month). As at the end of March, default rates were 3.2% and 2.0% respectively for US and European loans. We continue to expect defaults to continue materializing in loan markets through 2021 and 2022 but at a pace (probably between 2 and 4%) that is manageable for CLOs and should not trigger any cash flow diversions from the CLO equity positions held by the company.

In terms of cash flows, March is structurally a weak month for Volta. Interest and coupons received totaled the equivalent of €0.8m. On a 6-month rolling basis, Volta received the equivalent of €21.1m at the end of March (an increase of €0.5m since the end of February), representing a 16.3% annualised cash flow yield, based on the end March NAV. We still expect overall cash flows to continue to increase in the coming months/quarters.

In March Volta did not purchase new assets, although the equivalent of €0.3m was called by the US warehouse we invested in recently.

One significant source of out-performance for 2021 should be our ability to refinance (where only the most senior debt tranches are called to be re-issued at lower spread) or reset (where all the debt tranches are called and re-issued and the time-to-maturity of the deal is extended) some of Volta CLO positions. We estimate that these operations may lead to extra capital payments that may represent 1.5 to 2% of Volta’s NAV per annum and the projected return of Volta’s overall portfolio may increase accordingly by 1 to 1.5% per annum. As at the end of March, two positions have already been refinanced and we are working on the Reset of 2 other positions.