NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES
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Guernsey, 16 April 2008 - Volta Finance Limited (the "Company" or "Volta Finance" or "Volta") has published its March monthly report. The full report is attached to this release and is available on Volta Finance Limited's financial website (www.voltafinance.com).
Gross Asset Value
|
|
At 31.03.08 |
At 29.02.08 |
|
Gross Asset Value (GAV / €) |
185,821,390 |
195,224,133 |
|
GAV per share (€) |
6.19 |
6.50 |
As of the end of March 2008, the Gross Asset Value (the "GAV") of Volta Finance Limited was €6.19 per share, a decline of €0.31 from €6.50 per share at the end of February 2008. This further deterioration of the GAV reflects difficult market conditions at the end of March. For five of the UK non-conforming ABS residuals held by Volta and the Leveraged Loan Total Return Swap (the "TRS"), most of the €28.5 million decline in valuation from the end of January to the end of March likely reflects a further decline in expected cash flows.
MARKET ENVIRONMENT
Since the end of February, the financial environment has followed a jerky path. After a significant deterioration in most credit markets in the first half of March, the unprecedented quantitative and qualitative easing from the US Federal Reserve and the confirmation of a $150 billion plan by the US Federal Reserve have brought back some confidence to the markets.
From the end of February to the end of March, the spread of the 5y European iTraxx index (series 8) marginally tightened from 127 bps to 116 bps, peaking close to 160 bps in the meantime. Its Crossover counterpart (5y iTraxx European Crossover index series 8) also tightened from 598 bps to 546 bps, peaking at 636 bps on the 10th of March. The iTraxx LevX Senior Index showed that the average price for European liquid first lien loans increased from 90.64% to 92.06% at the end of March.*
In the same period, new prepayment data on certain UK non-conforming mortgage pools have confirmed very high level of prepayments at reset for 2006 pools, and defaults have continued to rise in the US broadly syndicated loan market, from a very low level at the end of 2007.
VOLTA FINANCE PORTFOLIO
The overall GAV of Volta Finance decreased by €0.31 per share from the end of February 2008 to the end of March 2008, to €6.19 per share. The March mark-to-market variations** of Volta Finance's asset classes have been: -3.1% for the TRS, -10.3% for the ABS investments, -1.3% for CDO investments and -5.7% for Corporate Credit investments.
As of today, part of the Company's portfolio (all CDO assets and Corporate Credit assets, as well as two ABS positions) accounting for 57% of the March GAV have continued to perform, in terms of cash flows, in line with or better than the assumptions employed at the time of their purchase. While the mark-to-market values of these assets have also declined due to market conditions, these assets do not experience any external financing difficulty due to their embedded leverage.
As of the end of March Volta held the equivalent of €30.1 million in cash, representing €1.00 per share.
Leveraged Loan TRS
Part of Volta Finance's economic exposure to the loan market is gained through a non-recourse TRS. As stated in previous monthly reports, Volta addressed the consequences of the current price crisis in the loan markets by restructuring the terms of the TRS at the end of January so as to avoid having to post more collateral, as well as to avoid the disorderly sales of the underlying TRS positions.
Due to ongoing volatility and price decline in the loan market since the last week of January, Volta has been selling most of the underlying positions of the TRS. Therefore, Volta's aggregate exposure in terms of principal amount of underlying loans of the TRS has been reduced progressively from €363 million at the end of 2007 to close to €30 million at the end of March 2008. Since the beginning of the year, the sales of loans held in the reference portfolio of the TRS have generated a total of €50 million in realised losses as of the end of March. Depending on the level of further sales, this amount of realised losses is likely to increase marginally again.
The decision to sell such a proportion of the underlying portfolio was driven by the necessity to respect the terms of the TRS and the willingness of the Investment Manager to try protecting the residual value of the TRS. Indeed, taking into account our view of a continuing loan market price decline as well as a bearish loan market dynamics, the TRS could have been potentially forced to liquidate at lower levels than the one achieved prior to attaining a situation of forced sales. Overall, this operation sought to enhance the capacity of the Company to benefit from various potential investment opportunities that could be seized in structured credit markets.
ABS
As the current unprecedented financial crisis is developing, uncertainty is growing about the future performances of UK mortgages. The non conforming mortgage offer from specialist lenders has almost come to a halt. Refinancing is proving very difficult for some impaired borrowers, while current paying non conforming borrowers seem to be able to refinance. The former situation may imply an increase in long term defaults, while the latter situation has already turned into higher prepayment rates that could continue over the coming months.
In March, the Investment Manager received confirmation that some 2006 mortgages owned by Volta are still experiencing a very high prepayment rate after reset. This confirms that the Libor Crisis (as evidenced by the spread Libor 3 Month-Swap 2Y) creates an incentive for refinancing and that some prime lenders probably aggressively lend to existing non conforming borrowers.
Despite a consensus view, saying that the tightening of lending criteria would push prepayments to lower levels, the latest data confirm our pessimistic view on post reset prepayments. Additional information received in March on some pools tends to show that refinancing could be even higher than what was anticipated in our end of January scenario.
If such information were to be confirmed, the discounted value of the difference between the end of January expected cash flows series and a reviewed series of expected cash flows could increment by a substantial amount the €9 million of recognised losses announced at the end of January for five of Volta's UK non-conforming residuals. Most of the decline in mark-to-market from €35.4 million at the end of January to €21.1 million at the end of March for those five assets could be indicative of such an increase in recognised losses.
CDOs
Twelve of the 14 positions in the CDO portfolio are mainly collateralised by US leveraged loans. In the US, defaults have already started to increase since mid December 2007. Thanks to healthy corporate balance sheets (with the exceptions of the automotive, paper and homebuilding industry), a rise that would significantly impact cash flows due to residual interest holders seems unlikely in the short term, but cannot be ruled out in the mid term.
If the economic situation were to develop into a broad consumer recession caused by declining household wealth and over-leverage, a broader array of companies could likely become stressed. Such an economic contagion would have a material impact on US CLOs, potentially resulting in cash flows being diverted away from the equity-level tranches. However, at this stage, given the strong actions that have been taken by the US Federal Reserve and the US Government, this scenario is neither the consensus nor our main scenario.
At the end of March, Volta bought $2 million in nominal amount of an equity tranche of a CLO and $4 million in nominal amount of the BB tranche of the same CLO.
Conclusion
The Company is fully committed in assessing the situation and taking the appropriate actions in these difficult market conditions. The Company is still contemplating various market opportunities to reinvest cash and to take advantage of stressed market conditions in the best interests of its shareholders. Due to significant increase in discount margin for various credit assets, the Company's scope of potential investments has significantly increased. For instance, mezzanine tranches of CLOs can now be considered. However, as stated previously, we do not believe that there is any reason for precipitate action in investing the cash held by the Company over the upcoming weeks.
*Index data source: Bloomberg
** "Mark-to-market variation" is calculated as the Dietz-performance of the assets in each bucket, taking into account the MtM of the assets at month-end, payments received from the assets over the period, and assuming that changes in cross currency rates have no impact given that Volta Finance implements a currency hedge on non-euro assets. Nevertheless, some residual currency effects could impact the aggregate value of the portfolio when aggregating each bucket.
(Full monthly report in attachment or on www.voltafinance.com)
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ABOUT VOLTA FINANCE LIMITED
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.
ABOUT AXA INVESTMENT MANAGERS
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.
CONTACTS
Company Secretary
Mourant Guernsey Limited
+44 (0) 1481 715601
Portfolio Administrator
Deutsche Bank
For the Investment Manager
AXA Investment Managers Paris
Julien Laplante
+33 (0) 1 44 45 94 92
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This press release is for information only and does not constitute an invitation or inducement to acquire shares in Volta Finance. Its circulation may be prohibited in certain jurisdictions and no recipient may circulate copies of this document in breach of such limitations or restrictions.
This press release is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration with the United States Securities and Exchange Commission or an exemption from registration under the U.S. Securities Act of 1933, as amended (the "Securities Act"). Volta Finance has not registered, and does not intend to register, any portion of any offering of its securities in the United States or to conduct a public offering of any securities in the United States.
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This document is being distributed by Volta Finance Limited in the United Kingdom only to investment professionals falling within article 19(5) of the Financial Services and Market Act 2000 (Financial Promotion) Order 2005 (the "Order") or high net worth companies and other persons to whom it may lawfully be communicated, falling within article 49(2)(A) to (E) of the Order ("Relevant persons"). The shares are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire the shares will be engaged only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents. Past performance cannot be relied on as a guide to future performance.
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This press release contains statements that are, or may deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "anticipated", "expects", "intends", "is/are expected", "may", "will" or "should". They include the statements regarding the level of the dividend, the current market context and its impact on the long-term return of Volta's investments. By their nature, forward-looking statements involve risks and uncertainties and readers are cautioned that any such forward-looking statements are not guarantees of future performance. Volta Finance's actual results, portfolio composition and performance may differ materially from the impression created by the forward-looking statements. Volta Finance does not undertake any obligation to publicly update or revise forward-looking statements.
Any target information is based on certain assumptions as to future events which may not prove to be realised. Due to the uncertainty surrounding these future events, the targets are not intended to be and should not be regarded as profits or earnings or any other type of forecasts. There can be no assurance that any of these targets will be achieved. In addition, no assurance can be given that the investment objective will be achieved.
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