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Volta’s March monthly report reported a 32.4% drop in NAV ‒ better than most of its peers. We believe the price falls reflect both economic realities (the likelihood of higher defaults, rating downgrades seeing partial diversion of cashflows from CLO equity positions) and sentiment effects exaggerating these realities. We note that BGLF’s mark-to-model NAV, which looks through sentiment, fell by only 14%. Volta is managing its cashflows (e.g. dividend cut) to ensure liquidity through the crisis, but also to take re-investment opportunities. Returns from investments post the financial crisis were about twice those in the years immediately before.

  • Volta monthly report: In March, Volta’s NAV declined by 32.4%. The bank balance sheet transactions (16% of portfolio) fell 4.5% and ABS positions (7% portfolio) by 11.9%. CLO debt tranches were down 41% (19% of portfolio) while CLO equity tranches (45% portfolio) fell 37%. Cash is now 4.5% of GAV.
  • Peers’ January reports: Blackstone GSO Loan Financing said that its more marked-to-model € NAV fell 14%. Fair Oaks Income’s $ NAV fell 50% while Marble Point fell 45%. TwentyFour Income Fund’s (with a greater proportion of residential mortgages) £ NAV fell 16%. Carador is now in wind-up mode.
  • Valuation: Volta trades at a 17% discount to NAV. Its NAV is subject to significant external input and oversight. The relative discount to FAIR and MPLF appear anomalous as, over the long term, Volta has delivered a better NAV performance. With a different accounting approach, comparisons with BGLF have limited value.
  • Risks: Credit risk is a key sensitivity (Volta has a widely diversified portfolio). We examined the valuation of assets, highlighting the multiple controls to ensure its validity, in our initiation note. NAV is affected by sentiment towards its own and underlying markets. Volta’s long $ position is only partially hedged.
  • Investment summary: Volta is an investment for sophisticated investors, as there is likely to be sentiment-driven, share price volatility. However, long-term returns have been good: pre-COVID-19, ca.11% p.a. (dividend re-invested basis) over five years. Performance relative to peers has been strong and returns for investments made after the financial crisis were double those in prior years. Both the NAV and the discount to NAV reflect sentiment, with the model-based approach of a competitor seeing it report a drop in NAV only half that of Volta.
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