NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES
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Guernsey, 19 May 2008 - Volta Finance Limited (the "Company" or "Volta Finance" or "Volta") has published its April 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 30.04.08 |
At 31.03.08 |
|
Gross Asset Value (GAV / €) |
187,226,347 |
185,821,390 |
|
GAV per share (€) |
6.24 |
6.19 |
As of the end of April 2008, the Gross Asset Value (the "GAV") of Volta Finance Limited (the "Company", "Volta Finance" or "Volta") was €6.24 per share, an increase of €0.05 from €6.19 per share at the end of March 2008. This slight improvement of the GAV reflects the general tightening of corporate credit spreads, as well as the continuing deterioration of the UK non-conforming ABS residuals held by Volta and the effects of the liquidation of the Leveraged Loan Total Return Swap (the "TRS"). The mark-to-market valuation decline of Volta's UK non-conforming ABS from the end of March to the end of April is believed to be pointing at a further decline in expected cash flows, to be confirmed at the end of the current semester.
MARKET ENVIRONMENT
The financial environment has been stabilising since the end of March. The rescue of Bear Stearns by the Federal Reserve and JP Morgan tended to confirm the general belief that US authorities would seek to avoid the failure of any US significant financial institutions. This had a soothing effect on credit markets, which stabilised over April.
From the end of March to the end of April, the spread of the 5y European iTraxx index (series 8) significantly tightened from 116 bps to 95 bps, while its Crossover counterpart (5y iTraxx European Crossover index series 8) shrunk from 546 bps to 412 bps. According to the iTraxx LevX Senior Index, the average price for European liquid first lien loans increased from 92.06% to 97.19%.*
Over the same period, new data on certain UK non-conforming mortgage pools once again confirmed very high level of prepayments at reset for 2006 pools.
As regards leveraged loans, defaults have continued to rise in the US broadly syndicated loan market from their very low level of end 2007. According to Moody's, the US speculative grade default was 2.08% at the end of April, from a November 2007 low of 0.92%.
VOLTA FINANCE PORTFOLIO
The March mark-to-market variations** of Volta Finance's asset classes have been: +0.50% for the TRS, -1.3% for the ABS investments, -0.4% for CDO investments and +3.8% for Corporate Credit investments.
As of today, a part of the Company's portfolio (all CDO assets and Corporate Credit assets, as well as two ABS positions) accounting for 56% of the April GAV has continued to perform, in terms of cash flows, in line with or better than the assumptions employed at the time of their purchase even if the mark-to-market values of these assets have declined due to market conditions.
As of the end of March, Volta held the equivalent of €33m in cash, representing €1.1 per share.
Leveraged Loan TRS
Part of Volta Finance's economic exposure to the loan market was gained through a non-recourse TRS. As stated in previous monthly reports, Volta addressed the consequences of the crisis in the loan markets by restructuring the terms of the TRS and by selling a significant portion of the underlying assets. In April, Volta Finance finalised the liquidation of the reference portfolio. As of the end of April, all assets were sold, with some trades still waiting for settlement. Since the beginning of the year, the sales of the underlying loans portfolio held through the TRS have generated a total of €52.1 million in realised losses.
Volta Finance expects the last trades to be settled in the coming weeks and to receive around €20 million in total proceeds from the liquidation of the TRS. This amount will be available for reinvestment.
ABS
As previously stated, the financial crisis creates growing uncertainties about the future performances of UK mortgages. Most of the non-conforming specialist lenders have exited the field and traditional ones tend to favour refinancing of existing borrowers, including formerly non-conforming ones, instead of financing new homeowners. Such a trend affects negatively Volta since prepayments at reset are detrimental to the Company's ABS residual positions.
At the same time, the inflation dilemma facing the authorities is likely to hold back any monetary easing for the coming quarters. Hence, compounding the prepayment situation, the high cost of debt after reset is likely to lead to an increase in defaults for borrowers unable to refinance in a context of decreasing house prices.
Most of the decline in mark-to-market value since the end of January 2008 for Volta's RMBS UK non-conforming residuals is expected to reflect a further decline in expected cash flows on top of the €9m already announced at the end of January. If the increase in default for borrowers unable to refinance were to be confirmed and/or if the already high prepayments increase further, the value of ABS held by Volta would continue to be negatively affected and further decline in expected cash flows could occur.
CDOs
As of today, our anticipation is that the 2008 and 2009 default rates on the leveraged loan market could remain at a level that would not affect the original rate of return of Volta's CDO portfolio over the entire life of those assets. In the US, the increase in default rates could be moderated by healthy corporate balance sheets (with the exceptions of the automotive, paper and homebuilding industries) and by the strong actions that have been taken by the US Federal Reserve and US Government to counter the economic slowdown.
Volta Finance expects to continue investing in this asset class as long as the discount rate of these assets remains favourable and opportunities remain sizable.
Corporate Credit
As part of the Jazz III and Aria II investment strategy, exposure has been increased to the financial sectors, including subordinated regulated bank debt. At the end of April, and following the rescue of Bear Sterns, this strategy started to add value. At the time of writing this comment, Jazz III and Aria II continue to perform, in terms of cash flows, in line with or better (for Jazz III) than the assumptions employed at the time of their purchase despite some deterioration in a very few number of non-financial names in the Aria II portfolio.
CONCLUSION
The Company is still contemplating market opportunities to reinvest cash and to take advantage of current 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. However, as stated previously, we continue to believe that there is no 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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