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Volta Finance (LSE:VTA) delivered a net performance of +0.9% in July, including a dividend payment of 14.5 cents per share. This brought the year-to-date return to +10.8% and the performance for the Financial Year (July 2023 to July 2024) to 19.7%. This compares favorably with broader credit markets, particularly since US and Euro high-yield indices have returned approximately +4.50% since January 1, 2024.
After a challenging June, financial markets showed improvement due to positive results from the French snap elections and various updates regarding the upcoming US presidential race. PMI (Purchasing Managers’ Index) data, especially from Europe, suggested that the European Central Bank might consider lowering interest rates, with a similar potential action in the US anticipated for September. Initial data on company earnings indicated a slowdown in sales and revenues in the US, which might lead to a correction in the equity markets. Interest rates fluctuated, with US 10-year Treasuries settling just below 4.1% by month-end. High Yield indices tightened, with European indices moving from +319bps at the end of June to +294bps, and US indices from +345bps to +331bps. The loan markets also showed strength, with the Morningstar European Leveraged Loan Index rising from 97.60px to 98.95px, while the US index remained stable around 96.60px.
In this environment, the CLO markets remained active, with issuance levels reaching approximately USD 40bn in the US and EUR 10bn in Europe, despite the typical July seasonal slowdown. Spreads across the capital structure were stable, with AAAs around +125bps and BBs about +550bps for top-tier US issuers. This stability provided clarity regarding equity arbitrage and take-outs. Loan collateral portfolios showed no significant deviation from expected trends, with US default rates at 0.79% and European rates at 0.92%. Recovery rates increased to around 61% in July, while the proportion of CCC-rated loans in CLO collateral portfolios remained stable (5.8% in US CLOs and 3.9% in European CLOs).
Volta Finance’s portfolio aligned with expectations, benefiting from steady cash flow from both debt and equity holdings. CLO debt instruments saw performance of +1.4%, while European CLO equity tranches achieved over 3% returns, largely due to strong distributions from a position held since the warehouse phase. In the US, CLO equity performance was mixed, with valuations declining slightly amid a general reduction in market payouts.
Cash flow generation over the past six months was robust, totaling €29.4m in interest and coupons, representing approximately 22.5% of the month’s NAV on an annualized basis.
In terms of activity, Volta Finance acquired a EUR 1.6mm single-B rated tranche from the primary market and EUR 7.6mm of a European CLO equity tranche.
Monthly performance across Volta’s underlying sub-asset classes was as follows: +0.8% for Bank Balance Sheet transactions, +1.2% for CLO Equity tranches, +1.4% for CLO Debt tranches, and -1.3% for Cash Corporate Credit & ABS. Cash holdings represented about 6% of NAV.
PS: AXA IM has published the Volta Finance Ltd (LON:VTA) monthly report for July 2024.
