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 July 17th, 2020, where we provide news and insights that are relevant to our short-term note program market.
Taking a quick look at the broader markets this past week, U.S. equities were relatively flat. All major indices looking like they’ll close on either side of where we kicked things off on Monday. Seems like a combination of concerns around COVID-19 spreading and its economic implications were somewhat offset by good progress being seen on the vaccine development front, as well as a variety of business data showing that we’re trending back towards where we were pre-COVID.
Given that we’re now in full Q2 earning swing, the market will be paying close attention to how public companies have navigated their first full quarter in this new normal and whether they have enough insight to begin providing forward guidance again.
On the fixed-income side, the overall macro story is, of course, the same and as such treasuries were relatively range-bound all week hovering between .6 and 0.65% all week on the 10-year treasury.
In Risk markets, both IG and high yield spreads continue to tighten all week, partially thanks to generally lower in new issue volumes. The IG index tightened about five basis points on the back of roughly $11 billion of issuance, which was well under kind of the $20 billion or so that was expected, and high yield tightened a solid 50 basis points for the week given only a only a handful of trades making their way through the market and syndication process.
And finally on the ABS side, there was a flurry of issuance across auto, CMBS and CLOs and we also saw three more esoteric deals price as well including one in the consumer loan space, so definitely encouraging to see the ongoing appetite for structured credit.
Now zooming into the STNP Market this past week: it was a relatively light one in our neck of the woods on the issuance side, as well, with just $400k pricing from two offerings, and we did see one large prepayment take place this week, as well, amounting to just over $1 million.
Looking at the technicals – In terms of flows, despite the lack of supply and the large redemption, we did continue to see modest levels of cash coming into the market on a net basis this week. We do think the ten percent or so of dry powder relative to the amount outstanding in the STNP Market will be quickly absorbed in the coming weeks, as new programs come online and both old and existing ones either come back or we calibrate to a certain extent.
And in terms of overall demand, we’re getting greater participation than ever in our Dutch auctions, which has led to fantastic visibility for originators. This has all led to ongoing over subscriptions, especially at the wide end of the auction ranges and has allowed for really meaningful yield compression for a number of our programs, almost right back to pre-COVID-19 rates.
Quickly walking through the deals that did price this week: We had 11-F with Axle close this past weekend. This was a one-month rollover offering of $50,000 which remain the same amount as the prior $50k note, but with much tighter pricing at 14% versus the prior 16%.
Given the incredible demand we continue to see for this program, coupled with Axle’s relatively small need for subordinated capital at the moment, and their ongoing strong performance, it’s really no surprise we witnessed what was effectively a negative 200 basis point new issue concession on this latest trade. Certainly the most spread tightening on record in this market.
Following this offering, we also closed 7-I with ThunderRoad right after Axle. This was ultimately a $350,000 three-month note that is callable monthly, interest only for the first two months and amortizing on month three.
Following the Dutch auction results, we launched this rollover deal at the same 11.5% percent of the prior offering. ThunderRoad’s underlying powersports loans do continue to perform very well in this post COVID-19 climate, and this is largely thanks to the very loyal and higher credit profile of the bar base, among other factors like geography and demographics overall.
We did also see sellers funding fully prepay their only outstanding Note 1-R on Wednesday this week for a total of just over $1 million. SellersFunding actually launched the very first STNP back in January 2019 and have since done extremely well with respect to both originating high-quality loans and raising substantial debt capital.
We do expect a new SellersFunding STNP to emerge over the coming months in both a subordinated capacity and to fuel the growth of new lending products that they are developing on their end.
In terms of live deals, we do still have 12-D for SALT open for investment, and they’re looking for $2.4 million there. And we also auctioned the latest offering for Zinobe this past week which should be launched and available for investment very soon.
And finally on the new deals front, we’re very excited to release two new originator partnership announcements very soon with auctions taking place as soon as next week. We hope investors find these brand new offerings and originators compelling and, as with everything we do we welcome any and all feedback once they go live very soon.
And lastly, we also just wanted to quickly thank everyone who was able to attend our Q2 investor webinar yesterday. We had a fantastic turnout with a great Q&A session, and we appreciate everyone’s questions and interest in everything that we do. If you missed it, you know, don’t worry. There was a full recording of it, which can be accessed in our Insight section directly off of our homepage.
That will do it for us this week, but thanks for tuning in and we look forward to catching up again next week. Have a good weekend.
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.