April Capital Markets Update

Every month, the capital markets team puts together an update that takes a look back at the previous month’s dealflow, while also highlighting the upcoming deal pipeline.

Below you’ll find the Cadence Short Term Note Program (STNP) monthly market update for April 2020.

Market Commentary

March was a month that presented many unprecedented challenges to global markets and the investor community given the impacts of COVID-19. Despite record levels of volatility, STNP issuance continued, although at reduced volumes compared to our record-setting February metrics. As of April 1st, a total of $33.0mm of notes were outstanding following $6.6mm in March issuance against $7.9mm in note maturities or prepayments.

  • STNP issuance since inception stands at $81.4mm, compared to $74.8mm at the time of last month’s update. Issuance has spanned 74 individual structured note offerings from 11 active originators.
  • STNPs are currently over ~10% APYs (with no fees to investors) and average tenors are still hovering just inside 3 months. The notes issued in the last week of March average a ~13% APY, which is a ~3% increase over our average historical APY.
  • Cadence has officially returned over $1mm in aggregate interest payments since inception to our growing investor base and the market continues to run at 0% historical defaults.

The past few weeks showcased multiple economic developments in response to the rapidly growing COVID-19 pandemic. In the US, the Fed cut rates twice, setting them currently at 0-0.25%, ramped up its QE program, the US approved a historic $2.2tn economic relief package, and jobless claims soared to a record 3.2mm this past week. Across the world, the response both by monetary and fiscal authorities has also been significant.

This has all led to unprecedented levels of volatility in the equity, credit and commodity markets. With investors looking primarily for safe-haven assets, or higher cash positions during the market sell-off, the Cadence platform provided for sustained positive returns, 0% defaults, and ample inherent liquidity. Cadence continues to welcome new investors and originators seeking refuge in a period of market uncertainty.


March Capital Markets Activity

In the month of March, we formally closed on our first institutional securitization, a $40mm offering for FAT Brands (NAS: FAT), upsized from the initial target of $30mm. Cadence acted as the sole structuring consultant and arranger. Our experience with digital assets also proved to be crucial, as FAT’s Series 2020-1, rated by DBRS Morningstar, marked the first time a public rating has been assigned in connection with a digitized asset-backed security. See our press release and Forbes article highlighting the offering and its unique qualities. Additionally, we successfully priced 9 offerings across our STNPs to land at $6.6mm, bringing our YTD 2020 total to $37.8mm.

  • 7 of our origination partners were in the market with us this past month, most of them with roll overs, that continue to enable our investors to easily rebalance and optimize their allocation strategies.
  • Offerings ranged widely in terms of price and size, from a $500k 6-month note with Aspiria pricing at 11.000%, to a $200k subordinated 1-month note with Axle pricing at 19.500%.

Pending market conditions, we are planning to announce partnerships with three new origination partners over the coming month that will lead to three new STNP launches and inaugural offerings slated to close by the end of April. In light of the recent historic volatility, we officially launched our Dutch Auction feature this past month. This auction system, a standard in the institutional credit markets, will greatly enhance Cadence’s ability to discover market-clearing APYs for all of our offerings going forward.

  • Given the results of recent auctions, we have launched and closed roll offerings ~300 bps wide of the prior note’s clearing levels, directionally aligned with broader credit markets.

From day one, we’ve built our platform on transparency. Now, more than ever, we believe it will play a critical role for private credit markets. Please see below our 1-month projected and historical issuance calendars along with a few charts highlighting STNP market activity since inception for further insight.

Please see below our 2-month projected and historical issuance calendars along with a few charts highlighting STNP market activity since inception for further insight.

Projected Issuance

Historical Issuance

STNP Market Activity

Should you have any questions or would like to learn more about Cadence, our issuances or the STNP market, please don’t hesitate to reach out to us.

And of course, nothing in this post should be construed as an offer to sell securities or a solicitation of an offer to buy securities. All investment involves risk and the possibility of loss, including loss of principal, and neither past performance nor forward looking information is a guarantee of future results.

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Author
Prath Reddy, CFA
Head of Capital Markets
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