Volta Finance Ld Volta Finance Limited - Intra-month Trading Update
March 24 2020 - 5:23AM
UK Regulatory
TIDMVTA
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
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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 EUR29m by the ed of February, while the repurchase agreement
represented a liability of EUR32m. 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 EUR3m 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 EUR4.60 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 Manager
AXA Investment Managers Paris
Serge Demay
https://www.globenewswire.com/Tracker?data=8l4nV4nogSeiDEkXUTekipvSmv7mDgizKsxZ7dSl-B-T7asp5_GgudfwviDMKVBb-Nblv50cYxdHT2TjZQ-kO1y7qMz-79mQINrFg0qr0MQ=
serge.demay@axa-im.com
+33 (0) 1 44 45 84 47
Company Secretary and Administrator
BNP Paribas Securities Services S.C.A, Guernsey Branch
https://www.globenewswire.com/Tracker?data=em8QD0HpbzOPEqMybGigsusOCXNO_rlM9oB3SnMhuXCU0dTjhU1jJEVnLbn8ROqkt3ILq7IuQr6cjfwfylmeizxl7bIKU5nb9Ty2CjOWxdJPD39HVNL_AmRzD6zywZ58kD9cZUUqOufiYnmIyHYxAbwRgLEnt8FEp8UcD3uuPp9kfhtWqUliyfZvRTkI_U68Er1rdSDoT7yCVwNK2fWAZJrWX_nRyQay3LBtDVYmBTlnb_kACcWkkI6YkUyNYetd9RP5t1w1jtCPWNu8-1e9ROdBLqLCX-QNwWxfOdgf-W5zo6q4U0ofXhcbY3xi7oVlKH-OctXj3XoINKozdPpyRQvhmIdPhnqOGybmo4YkZxG7MbITDrJx7q5Oq6s106G9
guernsey.bp2s.volta.cosec@bnpparibas.com
+44 (0) 1481 750 853
Corporate Broker
Cenkos Securities plc
Andrew Worne
Daniel Balabanoff
Rob Naylor
+44 (0) 20 7397 8900
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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.
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ABOUT AXA INVESTMENT MANAGERS
AXA 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 EUR750 billion in assets
under management as of the end of March 2019.
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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.
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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.
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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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March 24, 2020 05:23 ET (09:23 GMT)
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