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.
Please find Cadence’s Short Term Note Program (STNP) monthly market update for August 2020 below.
All major indices posted positive monthly performance, but volatility still reigned as we continued to see a surge in COVID-19 cases across several US states and around the world. In the last week of July, US Q2 GDP data showed the sharpest quarterly downturn on record with Real GDP decreasing at an annual rate of 32.9% but, with better than expected results, major stock indices still finished the week and the month in positive terrain. Notably, the resilience in big tech names sustained the decidedly strong month for US stocks. The major equity averages ended July with solid monthly gains and posted their fourth straight positive month with the S&P 500 gaining 5.5%, while the NASDAQ and the DJIA rose 6.8% and 2.3%, respectively. At the same time, uncertainty on negotiations for the next round of fiscal relief, along with concerns about the sustainability of the economic rebound and speculation on the upcoming jobs report, pushed the five-year treasury yield to a new record low, closing the month at 0.215%.
July was a month of slight contraction for the STNP market. As of August 1st, a total of $31.3mm of notes were outstanding following $7.2mm in issuance against $7.5mm in note amortizations or repayments. Within the total outstanding number, there is also $2.8mm considered in default following missed payments,representing ~2.2% of all notes issued since inception.
- Our STNP issuance since inception stands at $130.2mm, compared to $123.0mm at the time of last month’s update. Issuance has spanned 112 individual structured note offerings from 12 originators.
- STNPs issued in July had a weighted average APY of ~10.6% (with no fees to investors) and average tenors are hovering a little below the 110 days mark. This compares to a new issue weighted average APY for June of ~12.5%.
- Cadence has officially returned over $2.6mm in aggregate interest payments since inception to our growing investor base.
STNP’s continue to provide investors with a compelling multi-faceted platform in the form of sustainable returns and ample inherent liquidity. Cadence welcomes new accredited investors and originators seeking alternative solutions in a period of ongoing economic uncertainty.
July Capital Markets Activity
In the month of July, we continued to focus most of our attention on analyzing and monitoring underlying asset performance for all our originator partners. We are now publishing periodic surveillance reports on eight originators on the Cadence platform and expect to have a few more available by the end of August. You can find more information on how to best navigate these reports in one of our latest insights articles titled Delivering on Transparency with our Latest Surveillance Reports.
On Thursday July 16th, we held our Quarterly Investor Update for Q2 2020, where Nelson Chu and Prath Reddy provided timely updates on our company, as well as our short term note program and the originators on our platform.
During July we also implemented a new theme called Chart of the Week where we will illustrate various information regarding the Cadence platform, the STNP market, or originators that we think are worth highlighting for investors.
In July, we successfully priced 8 offerings across our STNPs to land at $7.2mm, bringing our YTD 2020 total to $86.6mm.
- We were able to meet or increase target transaction sizes in 6 out of the 8 transactions issued this month.
- In the last week of July, we announced a Strategic Partnership with ZayZoon, an HR technology company and pioneer of Earned Wage Access, for whom we later launched an inaugural auction for a 3-month note. The auction was received with great interest and a transaction is expected to close on August 11th.
- Pending market conditions, we are planning to announce a partnership with a new originator partner during the month of August that will lead to a new inaugural offering slated to close by mid-month.
- Offerings ranged widely in terms of price and size, from a $2.4 million senior 3-month note with SALT upsizing from a $1.6 million offering, and pricing at 9.25%, to a $50,000 subordinate 1-month note with Axle pricing at 14.000%, representing a 550 bps tightening since their inaugural transaction in February of this year.
- Following the economic effects of COVID-19 across the United States, Solar4America, the underlying obligor to TradeRiver, was unable to make a timely repayment of its obligations under TradeRiver’s CPOs supporting Short Term Solar Installation Financing, affecting investors in 8-B, 8-C, 8-D, and 8-E. Following first loss provisions of 10%, we have categorized roughly $2.8mm as in default while we continue through the workout with the related counterparties.
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.
STNP Market Activity
Should you have any questions or would like to learn more about Cadence, our issuances or the STNP market, please do not hesitate to reach out to us.
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. Any decision to invest must be based solely upon the information set forth in the offering documents, regardless of any information that may have been otherwise furnished, including in this update.