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Only one of Volta’s USD CLO positions in Volta did not receive any cashflows, due to an IC (Interest Coverage) test breach, versus 24% of the markets. July CLO equity payments were lower than in April (€3.9m vs. €5.7m), due to i) ca. €1m less due lower short-term rates in the US, where there is basis risk – this should reverse when rates rise, and ii) since April, roughly 40% of European loans have elected to pay their coupons on a six-month basis, instead of three months. This effect (€1m) will unwind, with higher cashflows in October. Management believes that, further lockdowns aside, full cashflow payments should be the norm for Volta’s portfolio.

  • Volta monthly report: Volta’s July NAV fell 1.2%, after strong performances in June (6.9%), May (4.5%) and April (5.7%). YTD, the fall is 22.5%. CLO debt fell 0.5%, equity tranches rose 1.1%, Bank Balance Sheet transactions fell 0.3%, and ABS positions rose 1.7%. Cash is 4% of GAV, down from 10% at end-April, but up on June’s 2%.
  • July peer reports: Blackstone GSO Loan Financing’s € NAV rose 2% (mark-to-model accounting basis, YTD -5%), Fair Oaks Income’s $ NAV rose 3% (one year down 35%), TwentyFour Income Fund’s £ NAV rose 2% (one year down 1%, but includes significant residential mortgages), and Marblepoint’s £ NAV rose 5% (YTD -29%).
  • Valuation: Volta trades at a 26% discount to NAV (subject to significant external input and oversight). The relative discounts to Fair Oaks and Marblepoint seem anomalous, as, over the long term, Volta has delivered a better NAV performance. Volta declared a €0.1 dividend on 11 May, and aims for 8% NAV distribution.
  • 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 both the NAV and the discount to NAV reflect sentiment. This may be expected to normalise over time, and we note that BGLF’s model-based approach saw its NAV drop by only a third that of Volta in March 2020. Fundamental long-term returns have been good: pre-COVID-19, ca.11% p.a. (dividend re-invested basis) over five years. Volta’s performance relative to its peers has been strong, and returns for investments made after the financial crisis were double those in prior years.
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