Capital Markets Update – Week of May 29, 2020 (audio)

In an effort to provide even greater transparency around our offerings and our investment platform, Prath Reddy and the capital markets team provide weekly updates.

Listen below for Prath’s most recent views on our short-term note program and the current private credit landscape from Cadence’s perspective.

Please find the transcript for this video below.

Hey everyone, this is Prath Reddy,  Head of Capital Markets here at Cadence.

Thank you for tuning in to this week’s STNP market update for the week ending May 29th, 2020, where we provide news and insights that are relevant to our Short Term Note Program market.

Quick snapshot on the broader public markets this past week –  U.S. equities extended their rally following the Memorial Day weekend with both the Dow and the S&P 500 gaining around two to three percent week-over-week, the former of which pushed through the 25,000 level which hasn’t been tested since right before COVID-19 concerns took effect in early March. Optimism around states reopening, ongoing Fed support, better than expected economic data, and the progress of a handful of large drug makers are making on a COVID-19 vaccine all contributed to the overall positive sentiment this week.

Switching gears to the fixed income markets, benchmark treasuries remained roughly flat over the week with the 10-year still hovering right around 0.65%. And taking a look at the major credit markets, spreads continue to grind tighter across the board with the IG index now hovering around 190 bps, about ten better over the week, and high yield firmed up roughly 40 bps over the week, for the index to stand around 670.

The primary markets on both sides of the credit spectrum continue to see a record pace of issuance across a variety of sectors and ratings. Notably, the IG corporate market has already hit one trillion in issuance for 2020, which is remarkable just given that this level isn’t normally achieved until well into Q4 of any year prior and has largely been driven by the unprecedented Fed support for highly-rated corporate bonds in the wake of COVID. 

And lastly, on the ABS side of the market, it was a generally quieter week on the issuance side, but we are beginning to see some smaller esoteric deals making their way through the market now too, which is a great sign for overall risk appetite for structured credit.

Now diving into our corner of the universe in the STNP market this week, it was a pretty busy one with just under $5 million pricing from three separate offerings. This brings our May total to $11.4 million and total issuance since inception last year to just over $106 million. In terms of flows into and out of this market, we’re ending the week roughly flat to where we started, as we saw a few days of strong inflows and one day with a heavy outflow, but all in all, we’re still holding pretty steady from where we started this year.

Now diving into the deals that priced this week. Early in the week, we closed 3-Q, which was a $1.4 million, three-month offering with Pollen VC, which does continue to remain one of the most in-demand programs at the moment. This was slightly downsized from the prior $1.6 million, but given the excess demand seen during the Dutch auction, we ultimately launched the deal 150 basis points inside of the prior note at 10.5%, and it was fully subscribed in a day to all existing note holders, so healthy negative new issue concession here. Following this, we priced 5-I, which is a $3.25 million, one-month offering with Northwest Capital this past week, which was a $350,000 upsize from the prior 5-H offering. Pricing remained at the prior 13%, which helped drive considerable demand from the original $2.9 million offering we launched with, and the oversubscription allowed us to move forward with the modest upsize here.  

And finally, to round out the week, we are closing 9-G, a $350,000, two-month offering with Zinobe today. Zinobe had opted to downsize this note given other capital sources coming online for them, but the net effect was a strong showing of demand during the Dutch auction, which allowed us to launch the note 100 basis points than the prior at 15%, and it was subsequently fully subscribed by all existing investors as well. 

So, in summary, we are seeing significant interest in all of our current offerings, and the level of over-subscriptions has been welcoming. It’s certainly a stark reversal from where we were back in March and even in April. That being said, we do understand that there hasn’t been much supply for new investors to the market to be able to participate in, and so we are working to launch a number of new offerings from both existing originators and brand new ones in June.

We’ll be publishing our monthly Capital Markets update on Monday, where we outline our forward pipeline and projected offerings in June. So, I do recommend all current and prospective investors take a read through and in contact us directly should you have any questions at all.

And last, but certainly not least, we have begun publishing one more surveillance report this past week for Axle that will be produced daily and accessible via our originator profile page under “Our Originators” tab from our homepage at withcadence.io.  We have a few more in the works and well on our way to providing as much transparency as we can into every one of our STNPs.

That’s all from us this week, but thanks for tuning in and look forward to catching up with you again next week.


Nothing in this video 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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