Capital Markets Update – Week of May 8, 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 8th, 2020, where we provide news and insights that are relevant to our short-term note program market. Taking a quick look at the public markets this week sitting here Friday morning, it looks like the all-time record high headline unemployment number for April coming in at 14.7% wasn’t a big surprise and is not reversing the decent rally we saw all week in equities.

The NASDAQ closed at levels yesterday to, amazingly enough, actually creep into positive territory year to date as large tech companies are being seen as a sort of safe haven and a post COVID-19 bet that we’ll be living in a technology-dominated world for the foreseeable future, which is certainly something we don’t mind here at Cadence.

And then just taking a look at fixed income markets, treasuries are holding steady with the 10-year hovering on either side of 0.65% all week. IG spreads are flat over the week while high-yield continue to rally, with spreads generally grinding tighter, as we’ve seen over the last several weeks. And given the stability here, issuance activity across IG high yield and ABS markets all witnessed a notable uptick as well.

Now zooming into the STNP Market specifically, we kicked the first full week of May off with two deals pricing for a total of just over $3.6 million for the week, which brings our year-to-date total to roughly $55 million. In terms of flows, we’ve finally broke our net outflow streak and so modestly healthy week of net inflows to the tune of about $150k, which is small, but great to see and expect this continuing to trend upward in the coming weeks in conjunction with increased accredited investor signups and steady growth in the number of active investors that we have.

And on the deal demand side, we did see healthy over subscriptions for both offerings, which ultimately allowed us to upsize them and, while one launched and priced on the wide end of last week’s auctions, the other printed closer to the midpoint, indicating that demand appears to be slowly swinging back towards levels that we saw pre-COVID, which is very encouraging. Looking at each deal specifically, the first to close this week was an inaugural offering with our newest originator partner Cherry Technologies. Cherry is a California-based originator of point-of-sale financing and installment loans using a whole host of proprietary tech. We had originally launched a $250k note at 14% and given a very healthy order book that steadily grew over the course of the week, we ultimately upsized the transaction to $325k. The structure here consisted of a six-month note, the three month interest only period, followed by a three month amortization tail with monthly call options. The market will see a lot more of these quote-unquote “hybrid structures and months to come” given the inherent protection it affords investors and the flexibility it offers our originators. 

The other deal to close this week was a roughly $3.3 million dollar note with Wall Street Funding. This was a called / refinancing trade as Wall Street Funding looks to extend another month to enter into a two-month amortization period. This, too, is a hybrid structure with a one-month interest-only period in the two-month amort. tail that has been received very well by investors emitted COVID-19 related uncertainties. The deal priced at 14.75% flat to the prior note’s rate and garnered the modest upsize of a $100k, which we think reflects the relatively stable performance of Wall Street Funding’s portfolio over the last week, as well as a very strong performance of its post COVID-19 vintage that is steadily representing a larger portion of its overall portfolio, as you can see in the daily performance reports that we make available on our website.

So all in all, it appears that we’re seeing healthy demand on our platform for a variety of originators and asset types. Currently, auctioned and indicating deals are seeing similar healthy appetite despite some originators electing to raise less or pay down notes completely, given the higher rate environment. Examples of this include Arctos, which chose to completely pay down their most recent maturity, given reduced need for leverage, and then Axle this week which downsized their offering from $300k to $250k following a recent equity raise that temporarily limited their need to issue relatively expensive subordinated capital. While these adjustments will occur from time to time, it’s always our intent to be as transparent with investors as possible and maintain access for originators to the market so we can continue to maintain a diversified market place.

That’s all we have for this week, but thanks for listening in and hope you tune in again next week. If you have any questions at all, please don’t hesitate to reach out to me or the Cadence team. Take care and be well.


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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