October 2019 Monthly

In our Directors Talk interview, we highlighted why we believe Volta has the right approach to valuation, corporate governance, and how it manages its liquidity to never be a forced seller of assets. The latter is through its permanent capital structure and only having 16% of assets, which, by nature, could not be sold overnight. As can be seen by the August NAV performance, there is sensitivity to rising market-wide risk premiums on CLO equity positions. Management notes the recent weeks’ significant tightening of Euro CLO AAA tranche spreads. This may open the door for refinancing or resetting of existing European CLO liabilities to the benefit of CLO equity positions in due course.

• Volta monthly report: August NAV fell 0.5% (YTD 5.3%) to €7.82 per share. The local currency performances were +0.8% for Bank Balance Sheet transactions, -2.6% for CLO equity tranches (market-wide increase in risk premium), -0.6% for CLO debt, -1.2% for Cash Corporate Credit deals and +0.5% for ABS.
• Peer August reports: Blackstone GSO Loan Financing’s € NAV fell 2.7% (YTD up 3.9%), Fair Oaks Income’s $ NAV fell 3.8% (0.2%), Marble Point’s $ NAV fell 4.0% (5.5%), and TwentyFour Income Fund’s £ NAV fell 0.3% (3.3%). We reviewed Volta and its peers in our report, Diving deep finds you the treasure.
• Valuation: Volta trades at a 14% discount to NAV. Peer-CLO finance funds trade at a ca.6% discount. In recent months and over the medium term, Volta has delivered a better NAV performance than its immediate peers and in-line volatility, making this relative discount anomalous, in our view.
• 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 could be sentiment-driven, share price volatility. However, long-term returns have been good: nearly 10% p.a. (dividend re-invested basis) over five years. The current portfolio-expected NAV return is more than 10%. The historical yield is more than 9.0%, and we believe is covered by predictable income streams in 2019E.