September Monthly Report

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Guernsey, 17 October 2007 - Volta Finance Limited has published its September monthly report. The full report is attached to this release and is available on Volta Finance Limited's financial website (www.voltafinance.com). As of 28 September 2007, Volta Finance Limited's Gross Asset Value per share was €8.93, up 4.6% from 31 August 2007.

Volta Finance Limited (the "Company" or "Volta Finance") wishes to take the opportunity of the publication of the September monthly report to comment on the current market conditions and their impact on the Gross Asset Value (the "GAV") of the Company, which is up 4.6% from the end of August to the end of September 2007. This is also an opportunity to emphasise the absence of impairment at the end of September on any of the assets held by Volta Finance on the basis of our current knowledge.

 

The dividend of the Company for the year ended 31 July 2007, whose target at IPO of €0.35 remains unchanged, will be announced along the publication of the annual results of the Company on Thursday, 18 October 2007.

 

Technical and monetary actions taken by central banks since mid-august throughout the world have shown some positive results in September. Relative stability returned to the corporate credit and leveraged loan market following the Federal Reserve's half-point cut and the injection of liquidity in the banking system. Nevertheless, and particularly on the structured credit markets, some elements of the liquidity crisis are still there and the market expects more monetary policy measures to be implemented in order to support the ongoing stabilisation phase.

 

The tone in corporate credit market in September was positive. Both investment and sub-investment grade markets continued to recover in Europe and the US, leaving the wide rift that had opened between risk-free and risky assets partly behind. From the end of August to the end of September, the 5y European iTraxx index (series 7) tightened 7 basis points to 39.7 bps, while its Crossover counterpart (5y iTraxx European Crossover index series 7) tightened 56 bps to 280 bps. In the US, in the midst of negative property market headlines and a bullish equity market, the 5y CDX index (series 8) tightened 10 bps to 61.75 bps and the 5y CDX Crossover index (series 8) tightened 53 bps to 190 bps. This steady reduction in spreads since the peak of the liquidity crisis at the mid of August means that the most volatile Crossover indices have respectively reduced their spread at their peak by 46% for the CDX Crossover (high of 352 bps on 27 July 2007) and by 41% for the iTraxx Crossover (high of 475 bps on 30 July 2007) at the end of September.

 

The leveraged loans European 5y LevX index (senior series 1), gained approximately 2 points from its end of August level and was trading at 97.83 (mid) as at the end of September. This tentative recovery of the secondary markets could make it easier for banks to process the heavy backlog of loans on their balance sheets. Ever since the leveraged loans market began to suffer in June, the primary market has remained depressed. So far, the few primary market deals that have come through show the distinctive features of better transactions, with their leverage down a few notches from the pre-crisis levels, as well as more covenants. Long gone are the days of cov-lite deals, which had become a daily fixture of the trade press a few months ago.

 

While the prospects for leveraged loans have been getting somewhat better, the same still cannot be said for the structured credit primary markets. At the time of writing, the primary markets in CDOs and equities of ABS remain quasi non-existent after a buoyant first half-year with tightly priced assets. The very few ABS residuals that have been negotiated on the market, which features higher returns than previous deals, indicate a new market environment. Overall, the cost of financing for most of the asset classes remains high and hinders a recovery of the market.

 

On the secondary market, senior and junior tranches of CDOs and ABS continue to be heavily discounted, with low volumes and structured credit market investors remaining few and between. Investors that have been active on the market are usually targeting distressed assets from forced selling operations, which have had a limited upward effect on average market prices.

 

The GAV per share of Volta Finance increased 4.6% from the end of August (€8.53 per share) to the end of September 2007 (€8.93 per share), mainly driven by the good mark-to-market performance of the corporate credit assets held by Volta Finance.

 

The GAV of the corporate credit assets held by Volta Finance was up 16.4% in September.

 

As of the end of September, the expected cash flows of those corporate credit assets remain in line with what was expected at their purchase.

 

The GAV of the leveraged loans Total Return Swap (TRS) was roughly stable in September

 

The derivative leveraged loan market, as shown by the performance of the LevX index in September, has outperformed cash leveraged loans, which compose the leveraged loans TRS.

 

As of the end of September, the expected cash flows of the TRS remain in line with what was expected at their purchase.

 

The GAV of Volta Finance's ABS investments was down 5.8% in September.

 

The overall performance of ABS collateralised by UK non-conforming mortgages (which accounts for 6 of the 7 ABS held by Volta Finance) remains so far in line with our initial expectations. The refinancing crisis in the UK banking system is likely further affect the already undermined capacity of UK borrowers to seek refinancing for their property assets. As mentioned in previous reports, the credit performance of UK non-conforming mortgage pools could be negatively affected. However, the Investment Manager believes that the risk of increasing delinquencies and defaults is mitigated by lower expected prepayments.

 

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

 

The GAV of Volta Finance's third-party CDOs was roughly stable in September.

 

With regards to CDOs, their performance is driven mainly by the steady credit quality of their underlying assets, which is supported by a default rate that remains at a historical low. As previously highlighted, all the CLOs acquired by Volta Finance have locked in their liabilities on the primary market prior to the summer 2007 credit squeeze. Given the current leveraged loan market environment, CLOs that will reinvest their prepayment proceeds are likely to benefit from higher returns on newly invested assets.

 

As of the end of September, the expected cash flows of the CDOs held by Volta Finance are line with what was expected at their purchase.

(Full monthly report in attachment or on www.voltafinance.com)

 

Volta Finance Limited is incorporated in Guernsey under the Companies (Guernsey) Laws, 1994 to 1996 (as amended) and listed on Euronext Amsterdam. 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'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 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

 

 

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