Capital Markets Update – Week of November 6, 2020 (audio)

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

Listen below for Paola’s 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.

Hi everyone, this is Paola Rios, Syndication analyst on the Capital Markets team here at Cadence. I would like to thank everyone who’s tuning into this week’s market update for the week ending November 6, 2020. Let us get started!

Looking at the equity market for the week, all U.S. major indexes set their fourth-straight positive session on Thursday and were on track for their best weekly performance since the week of April 9th. As of Thursday’s, market close, and following last week’s slump, the S&P 500 was up 6.5%, the DOW was up about 6.4% and the NASDAQ was up with a 7.9% gain. The rally in stocks came despite uncertainty on the Presidential election outcome, with Democratic nominee Joe Biden holding a lead with votes still pending in key states, and amidst record-setting COVID-19 cases in the U.S and internationally. With over 100,000 daily cases in the U.S alone, the spikes in cases are a result of business reopenings, schools back in session, and employees going back to work. With the Labor Departments release this Friday morning on non-farm payrolls, the labor market is stronger in October than general consensus, having added 638,000 payrolls and leading to a 1% decline in the unemployment rate to sit at 6.9%.

Switching gears to the fixed income markets, benchmark treasuries tightened throughout the week, with the 5-year and 10-year now hovering right around 0.33% and 0.79%, which is roughly 5 and 8 bps lower than Monday open, respectively. For primary markets side, outflows continued this week as investors pulled ~$2.2billion from U.S. Corporate high-yield funds and investment-grade funds reported their first outflows since April with $1.58 billion withdrawn for the week. IG priced $2.5bn and on the HY side we saw a total of $1.25bn priced for the week as of Thursday. In terms of spreads, we saw the IG spread tighten 6bps from 125 to 119 and the HY spread also tighten, in this case from 507 to 436.

Now, diving into our Short-Term Note Program. In terms of flows, we are proud to share every day this week we had net positive flows, attesting to the ongoing demand and growth of our investor base.

This week we also closed three transactions, one of which reintroduced the first originator we onboarded on our platform back in January of 2019, with SellersFunding.

  • 6-I, originated by Arctos Capital closed at $560,000. This 3-month note is a rollover from 6-G and was syndicated with an APY of 9.25%, implying a 25 bps negative new issue premium from the last offering. Given some underlying collateral prepaid, the new issue represented a downsize of $140,000.
  • 1-X with SellersFunding (SF) is a 9-month note offering with a 9.00% APY which closed at $1,700,000. As previously mentioned, this note marks the re-introduction of SellersFunding on our platform. SellersFunding is a data-driven online marketplace lender that offers flexible capital solutions to a variety of e-commerce retailers. Since our inaugural note with SF last year, we have successfully closed 24 notes for them, and issued over $485,000 in interest to our investors related to this Originator.
  • 15-G, originated by Cherry Technologies, a provider of point of sale financing, closed at $185,000 with an APY of 10.25%. This is a 9 month note, rolling from, 15-F. In the last weeks originations for Cherry started picking up again as they continue onboarding new merchants in the med-spa space.

This week we are also live with:

  • 3-AB with Pollen, a $1,250,000 3-month rollover which came with an APY of 9.00%. This offering reflects an upsize of $450K and was fully subscribed within 36 hours of launching by both rollover investors and auction participants.
  • 11-J with Axle, is a $1,000,000, 2-month note offering 12.00% APY, implying a 25bps negative new issue premium from our previous deal, 11-I. This note was also rapidly funded by rollover investors and auction participants. Additionally, the level of participation received for 11-J’s auction last week was exceptional, making it the highest participated auction since we launched our Dutch Auction feature in late March.
  • 18-D with ZayZoon, a 3 month note with an APY of 11.50%, was fully funded at $500,000 within a few hours of launching on Thursday evening. This transaction was subscribed by existing rollover investors, and also represented a negative 25 bps new issue premium.

And finally, this week we also launched auctions for 3-AC, originated by Pollen VC, for $1,400,000, and 20-A, an inaugural note, with The Smarter Merchant (TSM) for $1,000,000. TSM, established in 2013, is a New York-based provider of financing to small and medium-sized businesses across the U.S. Highly data-driven and tech- powered, TSM’s strong underwriting embodies the desired characteristics we look for in all of our originators. To date, TSM has funded over $75MM in SMB financing across the U.S. We are excited to have them onboard as a new Originator. These auctions will remain open over the weekend and the notes are expected to launch early next week.

In other news, as of today we will also be posting on our website for our subscribed investors, new surveillance reports for Thunderroad. With this we are now publishing periodic surveillance reports on twelve of our existing originators on the Cadence platform and continue delivering on our promise of unparalleled transparency on asset performance.

That is all from us for this update. Thank you again for tuning in and we look forward to catching up with you again soon.

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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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