July Monthly Report

 

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Guernsey, 14 August 2007 - Volta Finance Limited has published its July 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 31 July 2007, Volta Finance Limited's Gross Asset Value stood at €8.80, down 9.65% from 29 June 2007.

 

Volta Finance Limited (the "Company") will host a conference call for investors today, Tuesday August 14, 2007 at 16:30 (CEST - France time) / 15:30 (BST - UK time) to discuss the Company's July monthly report and to provide a Company update. Please refer to previous press release for details.

 

 

Volta Finance Limited (the "Company", "Volta Finance") wishes to take the opportunity of the publication of the July monthly report to comment on the current market conditions and their impact on the gross asset value (GAV) and the stock price of the Company. This is also an opportunity to emphasize the absence of impairment on any of the assets held by Volta Finance on the basis of our current knowledge, allowing the Company to maintain its initially anticipated dividend.

 

Given the current market conditions, we also wish to point out that Volta Finance has taken the transparency-enhancing initiative to publish further data on its investments. You can now find in the Company's monthly report, a complete list of the assets held by Volta Finance, as well as a new set of data (ISIN, arranging bank) on those assets, have been published. We hope that this will help you develop your own opinion on the financial health of the Company.

 

 

The subprime mortgage crisis in the US has led some highly levered hedge funds in the US, as well as some traditional investment funds, to experience substantial financing or liquidity problems. This has led to some temporary suspension of redemptions or, in the worst cases, the value of some funds to be severely affected.

 

Deepening further the subprime troubles, a liquidity crisis has been generated, which has driven down the number of transactions. In turn, and in spite of strong credit fundamentals for the corporate sector of the world economy, marked-to-market valuation of structured credit assets has been pulled down across the board, affecting assets beyond those with exposure to the US subprime market.

 

For instance, from July 2 to July 31, the 5y iTraxx European Crossover index (series 7) widened 156 bps to 401 bps. The 5y European iTraxx index (series 7) also widened 25 bps to 51 bps. In the US, the 5y CDX credit index continued to widen 36 bps to 79 bps over July. The leveraged loans European benchmark LevX index (senior series 1 - 5 y) has lost 4 points to 95.3 points.

 

Since then and as of August 10, markets have rested a little, with the iTraxx European Crossover contracting 51 bps, the European Itraxx remaining at the same level and the CDX tightening over 10 bps. The LevX has remained fairly stable to 95.7 points.*

 

 

Due to this situation, the marked-to-market value of Volta Finance assets, which is reflected in its gross asset value (GAV) of €8.80 as at 31 July 2007, is down 9.65% month-to-month (€28.1 million decrease)to 264 million. The assumptions to compute the asset prices included in this GAV have been prepared or reviewed by the Investment Manager, and Volta Finance expects them to be confirmed by external third-parties through a report to the Board of Directors.

 

We believe the diversification of Volta Finance's investments, currently among four different asset classes, has so far mitigated the impact of the general credit spread widening on the value of the Company's portfolio. The whole portfolio also benefits from a term financing and three-quarters of the portfolio has an embedded leverage that is not directly sensitive to marked-to-market valuation.

 

We believe such a marked-to-market change in the gross asset value of the company is not a guide to the expected cash flows from the Company's assets, which determine the Company's target dividends. As of today, Volta Finance expects to maintain its initially anticipated dividend given that all its assets' current expected cash flows are in line or higher than the initial expected cash flows.  

 

 

The principal source of the GAV** decrease is located in the corporate credit investments made by the Company. This investment bucket, which contains investments in residual tranches of the Aria II and Jazz III CDO managed by AXA Investment Managers Paris, has lost 22% month-to-month.

 

It is worth mentioning that there has not been any default in the underlying portfolio of Aria II so far. Hence, the tranche's 1.6% attachment point has not been affected. The observed movement in the value of the tranche is entirely due to the marked-to-market valuation of its underlying assets and not to a variation in the expected cash flows of the investment as at the end of July.

 

 

The GAV** of the leveraged loan investments has decreased by 16% month-to-month. The underlying loans are mostly senior secured.

 

To date, all assets are current paying. We have not witnessed any meaningful credit deterioration and there is no defaulted credit. Nevertheless, we believe that the market will remain volatile and nervous for the several months to come on the back of the lack of liquidity, even though the default rate remains at an historical low level.

 

 

The GAV** of the ABS investments, which is characterized by the absence of any US subprime exposure, posts a 4% decrease month-to-month. The portfolio's expected cash flows have not been modified by the current market events so far. These events involve liquidity on all financial markets but we believe have no immediate effects on the behaviour of small European borrowers, mostly households and SMEs, which are the obligors in Volta Finance's current ABS portfolio. These obligors are driven mainly by general economic conditions such as unemployment and growth and trend in interest rates.

 

 

Finally, the GAV** of the CDO investments is down 6.5% month-to-month. As of today, there is no exposure at all to ABS in any CDOs held by the Company. All CDOs in this bucket are backed by US (predominantly) and European leverage loans. The marked-to-market drop that we have seen on the loan market has not affected the ability of these CDOs to distribute cash flows so far.

 

All the CDOs purchased have been acquired on the primary market. As a consequence, they have cheap liabilities and more importantly, the return modelled at their purchase is not based on a liquidation of the assets in the near future. It is based on five years or more of reinvestment. The Company believes that the current market creates an opportunity to improve the long term return of the Company's investments.

 

We believe that the drop in marked-to-market valuations of Volta Finance's CDO positions does not reflect any credit issue at this stage. On all of those transactions, the key parameters (rating of the underlying obligations, current spread of the portfolio) are unchanged as at the end of July and the amount of realised losses is not significant, i.e. below what was modelled.

 

 

The two investments committed by Volta Finance are expected to allow the Company to end its ramp up period at the end of August, as initially planned.

 

 

Once again, it should be noted that the Company's dividend policy does not depend on the marked-to-market value of its assets as far as they do not reflect expected cash flow variation. Hence the Company maintains its initially anticipated dividend of at least 3.5% of the IPO price for the stub period from December 20, 2006 to July 31, 2007 and its target dividend of 9.5% of the IPO price for the following period from August 1, 2007 to July 31, 2008. The dividend that will be actually paid to investors is based on the Company's distributable income, as defined in the prospectus of the Company and subject to the Company's auditors' validation.

 

The Company wishes to remind that the assumptions used to determine the above-mentioned target dividends are based on a number of assumed parameters related to the characteristics of each asset class within Volta Finance. When available, this includes for example default rates linked to rating agencies' hypotheses on the credit quality of the assets.

 

Those parameters, which are listed on pp. 76-78 of the prospectus (available on the Company website), are widely used in the market, and are currently being reviewed by independent third parties in order to confirm that the projected cash flow assumptions for each asset are fair and reasonable.

 

 

Finally, the financial calendar is now available on the Company's website. The Company will continue to communicate on an ongoing basis on the upcoming event following the closure of the annual account on 31 July. As reported last month, the annual report, along with the announcement of the dividend payment, will be published towards the end of October 2007. The dividend is then expected to be paid towards the end of November.

 

 

(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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