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In previous notes, we have highlighted why current conditions have a number of favourable aspects (see strong current position below). The June factsheet highlighted a further positive market evolution. After nearly 10% prepayment rate in 2022, Volta is now seeing underlying loan prepayments at a pace closer to 15%, and it may reach 20% in 2024. This reflects normal treasury management by borrowers and refinancing in a rising rate environment. The loans were, typically, bought at discounts to par, but repayments are made at par, so there is a gain on repayment. With repayments accelerating, this NAV uplift could partially offset rising defaults. Management gave the example that the current rate alone would offset a 1.2% rise in defaults.
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