Results for the First Financial Period Ended 31 July 2007

 

***

 

Guernsey, 18 October 2007 - Volta Finance Limited has published its results for the first financial period ended 31 July 2007. The Annual Report and Accounts 2007 is attached to this release and is available on Volta Finance Limited's financial website (www.voltafinance.com). The presentation that will be used for the investor meetings held from 22 October to 31 October 2007 will be posted on the website on 19 October 2007.

 

A conference call for analysts and investors will be held on 18 October 2007 at 15:00 (CET - France time) / 14:00 (GMT - UK time) to discuss the annual results.

 

• The distribution income of Volta Finance Limited (the "Company" or "Volta Finance"), for the period ended 31 July 2007, on which the recommended dividend is based, is of €14.1 million, or €0.47 per share
• The €0.40 per share recommended dividend for the period ended 31 July 2007 is 14% above the target dividend at IPO of €0.35 per share
• This higher than expected recommended dividend has been made possible by the receipt of more income from the introduction of assets into the portfolio at a quicker pace than originally anticipated coupled with the expected effective yield of those assets being in line with that targeted in the portfolio model.
• Principally due to unrealised losses caused by market turmoil arising on the revaluation on a mark-to-market basis of derivative financial instruments and financial assets, the net loss of the company for the period was €16.94 million, or €0.56 per share
• As of the annual report publication date, the cash flows of all the assets held by the Company remain in line with expectations made at their purchase
• As at 31 July 2007, the Company had a total Net Asset Value of €260 million

 

 

I am pleased to report to shareholders that the Company has made much progress in the first financial period from launch to 31 July 2007. In December 2006, the Company successfully issued 30 million shares at an offer price of €10 per share in connection with its IPO and listing on Euronext Amsterdam. By the closing of accounts on 31 July 2007, the Company was on track to meet its objective of fully ramping up its portfolio within the nine months following the IPO. In fact, 96% of the net proceeds had been deployed and the small remaining balance had been earmarked for investment in two further assets.

 

As at 31 July 2007, the Company had a total Net Asset Value of €260 million with a market capitalisation of €232.6 million. Both were affected significantly and negatively by turbulence in the credit markets during June and July. Nevertheless, the cash flows of the Company's assets remained in line with what was expected, reflecting the economic fundamentals within the portfolio.

 

The Board is pleased to recommend a first dividend of €0.40 per share, for the shortened period to 31 July 2007. This is 4% of the IPO price and 14% above the target dividend of €0.35 set at IPO. This higher than expected recommended dividend has been made possible by the receipt of more income from the introduction of assets into the portfolio at a quicker pace than originally anticipated, coupled with the expected effective yield of those assets being in line with that targeted in the portfolio model. In accordance with the Company's dividend policy, the Board has recommended distributing substantially all the Distribution Income of €14.1million, or €0.47 per share. The €2.1 million balance of the Distribution Income will be set aside to support the Company's Net Asset Value and the ability of the Company to provide a stable income to shareholders. The Board points out that the higher than expected recommended dividend for the first period of operation does not modify the level of the target dividend for the next year, which remains at €0.95.

 

As set out in the Company's Prospectus, independent third parties are involved in the review of the valuation of the assets on a semi-annual basis. They also review the projected cash flow assumptions of the Company used for setting the projected target dividend. In the case of the portfolio valuation, the assumptions used to compute the asset prices included in the NAV at 31 July 2007 have been prepared or reviewed by AXA IM Paris (the "Investment Manager") and, where required by the valuation policy, as set out in the Prospectus, have been confirmed by an independent third party.

 

The assumptions used to determine the expected target dividend of the Company are based on a number of assumed parameters related to the characteristics of each asset class. Sometimes, for example, this would include the default rate linked to rating agencies hypotheses on the credit quality of the assets. For each asset, an independent third party has reviewed these parameters and has confirmed that the projected cash flow assumptions for each asset are fair and reasonable.

 

 

 

Until June 2007, the markets to which Volta Finance has exposure were characterised by tight credit spreads. Thereafter, credit spreads of investment and sub-investment grade securities started to widen, and continued to do so in July 2007, leaving the Company's Net Asset Value at €8.67 per share at 31 July 2007. Towards the end of the first financial period of the Company, mark-to-market valuations of credit assets declined across the board, despite credit fundamentals remaining generally sound. The most notable exception to the sound credit fundamentals was US sub-prime assets, to which the Company has no exposure. This explains why the mark-to-market valuations of Volta's assets, as reflected by its NAV per share, have been adversely affected, while the cash flows from those assets remain in line with what was originally expected.

 

As of 31 July 2007, Volta held 22 settled assets in its portfolio divided amongst four Primary Target Assets Classes (Corporate Credits, CDOs, ABS and Leveraged Loans). Of those 22 settled assets, 13 were part of the Company's Initial Portfolio, which was assembled under the direction of the Investment Manager in anticipation of the IPO. The remaining nine assets were bought over the course of the first financial year. No assets were sold by the Company over this period.

 

In line with the Company's investment guidelines and as a result of the specific market conditions that have developed since the Company's IPO, the decision was made in April 2007 to reallocate some funds, which were earmarked in the initial target portfolio for investments in residual income positions of ABS, to leveraged loans due to the competitive nature of the market in residual income positions of ABS at that time.

 

 

Volta currently gains leverage through internally leveraged investments such as residual income positions in securitisation structures (e.g. residual interests in CDOs and ABS), as well as synthetic leveraged investment exposure (through the Total Return Swap relating to leveraged loans).

 

Approximately three-quarters of the portfolio have imbedded leverage that is not directly sensitive to mark-to-market valuation. Such a financing structure has proved quite resilient under volatile market conditions. Only the investments in leveraged loans use leverage that is directly affected by mark-to-market valuation. Such leverage, gained through the TRS, is based on a five-year financing with a fixed financing level set in December 2006.

 

Volta Finance does not, at present, have any direct borrowings, but retains the flexibility to resort to this form of financing if and when required. The Company is currently negotiating a €30 million liquidity line with the objective of increasing the amount of cash available for working capital, for making temporary investments, or for other purposes.

 

 

Following the closing of Volta's first annual accounts on 31 July 2007, corporate credit markets settled down to a certain extent while continuing to experience bouts of volatility. Structured credit markets and leveraged loans markets have remained unsettled past July 2007, and we expect ongoing volatility on those markets. Overall, primary markets of structured credit and leveraged loans have yet to pick up, and their respective secondary markets are expected to remain volatile.

 

We believe that both Volta's structure and investment strategy may help the Company to sustain such market conditions. The permanence of the Company's capital allows the Company and the Investment Manager to take a longer term view with regard to the Company's investment strategy. As a closed-ended company of indefinite duration, the Company has a permanent equity capital base. As a result, the Company is not required to return capital to shareholders after the expiry of any pre-agreed periods, as it is often the case with privately funded vehicles, and is not forced to liquidate investments on an untimely basis to meet share redemption requests, as would be the case if the Company were open ended.

 

Volta's multi-asset class investment strategy, which allows it to diversify risk across asset classes and widens the investment universe, enhances the Company's ability to sustain difficult market conditions. At the time of writing the annual report, the assumptions made to determine the expected distribution income for the financial year from 1 August 2007 to 31 July 2008 of the Company are in aggregate consistent with the Company's outlook for the credit and structured credit markets. Overall, such an environment may also provide investment opportunities. Thanks to regular cash inflows in the form of the proceeds from the prepayments and amortisation of assets, an investor such as Volta is likely to be in a good position to take advantage of such opportunities.

 

 

 

As published in the September Monthly Report on 17 October 2007, the Gross Asset Value ("GAV") of Volta Finance increased 4.6% from the end of August to the end of September 2007, mainly driven by the good mark-to-market performance of the corporate credit assets.

 

As of the end of September, the expected cash flows of all the assets held by Volta Finance remain in line with what was expected at their purchase.

 

 

20 November 2007 Annual General Meeting

21 November 2007 Ex-dividend date

23 November 2007 Record date

27 November 2007 Dividend payment date

 

 

 

Volta Finance Limited is incorporated in Guernsey under the Companies (Guernsey) Laws, 1994 to 1996 (as amended) and listed on Euronext Amsterdam by NYSE Euronext. Its investment objectives are to preserve capital and to provide a stable stream of income to its shareholders through dividends. For this purpose, it pursues a multi-asset investment strategy targeting various underlying assets. Volta Finance Limited's basic approach to its underlying assets is through vehicles and arrangements that provide leveraged exposure. The exposure to those underlying assets is gained through direct and indirect investment in five principal asset classes: corporate credits, CDOs, ABS, leveraged loans, and infrastructure assets.

 

Volta Finance Limited 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.

 

 

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 €550 billion in assets under management as of the end of March 2007. AXA IM employs approximately 2,800 people around the world and operates out of 19 countries.

 

 

Mourant Guernsey Limited

volta.finance@mourant.com

+44 (0) 1481 715601

 

Deutsche Bank

voltaadmin@list.db.com 

 

AXA Investment Managers Paris

Julien Laplante

julien.laplante@axa-im.com

+33 (0) 1 44 45 94 92

 

 

 

 

***

 

***