October 2023 Monthly

We have highlighted previously why current conditions are especially favourable. The August factsheet reported a 16.6% YTD NAV return. Performance has been driven by “the generous carry that CLOs offer indeed, but it was ultimately the confirmation that the asset class successfully managed to withstand the volatility induced by rates and the banking sector jitters”. As expected, on 20 September, Volta announced its quarterly dividend, (€0.13 per share payable on 12 October 2023, equating approximately to an annualised 8% of NAV, cost ca.€4.76m). In August, Volta received $8m from a Bank Balance Sheet Transaction (BBST) principal repayment at par. The BBST exposure reduced to 2.4% (July 5.6%, proceeds to be re-invested in CLOs).

• Strong current position: In August, Volta’s six-month cash receipts were a record €25.7m, 21.5% of NAV, reflecting low defaults (strong corporate cashflows and profitability), low locked-in CLO borrowing costs, CLOs being floating-rate investments, and Volta’s portfolio positioning into CLO equity.
• Resilience going forward: In our note, R&A shining light on 20%+ IRR base-case scenarios, we reviewed how Volta generated cashflows, and why defaults would rise – but not to the level built into loan prices. We highlighted Volta’s diversification and geographical exposure. We also noted that the R&A disclosure could help to understand these issues.
• Valuation: Volta trades at a double discount, with its share price at a 21% discount to NAV, and we believe its mark-to-market (MTM) NAV still includes a further sentiment-driven discount to the present value of expected cashflows. Volta targets an 8% of NAV dividend (9.8% 2023E yield on current share price).
• 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 robust: 7.8% p.a. (dividend reinvested basis) since inception. Volta’s performance relative to that of its peers has been strong, and returns for investments made after the financial crisis were double those in prior years.