Capital Markets Update – Week of September 11, 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 Charlie’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.

Hi everyone, this is Charlie Lienau, Director for the Capital Markets team here at Cadence. Thank you very much for tuning into this week’s market update for the week ending September 11, 2020 where we provide news and insights that are relevant to our short-term note program market.

Quick snapshot on the broader public markets for this post Labor Day shortened week. As a continuation of last week, the equity markets saw volatility persist, with Tuesday and Thursday seeing selloffs. Yesterday, the DOW closed 1.45% lower, the S&P 500 slid 1.8% and the NASDAQ dropped 2%, marking yesterday’s trading day as the fourth decline in five sessions for the major averages. The strength of prior surges in the stock market seem to have been mostly supported by the tech-sector and aggressive fiscal and monetary stimulus and stronger-than-expected economic indicators of future growth. However, some factors that might have pressured sentiment for this week included news that the Senate failed to pass its $300 billion coronavirus relief bill. Although consensus granted that the bill would likely not get very far, this decision reflected the growing pessimism surrounding another relief bill. Additionally, on the job front, the Labor Department said the number of first-time filers for unemployment benefits came in at 884,000, disappointing results as polls showed expected claims to come in closer to 850,000.

As for future indicators, today the Labor Department is set to release its August consumer price index. The report is expected to show a 0.3% month-on-month increase in prices paid by consumers, as companies continue to regain pricing power following the worst points of the pandemic. Switching gears to the fixed income markets, benchmark treasuries yields decreased slightly across the 5 to 30yr curve, with the 10-year now hovering right around 0.68%, which is about 4 bps lower than last Friday’s close. On the IG primary markets side, at the start of the week dealers were calling for $40 billion to $50 billion+ this week, and upwards to $140 billion to $150 billion for the month, just shy of last September’s record-setting $158 billion. This week proved there is no slowdown, with week to date volumes for more than $65 billion in just three sessions, with more to come during Friday session. For context, this exceeds the $64 billion priced in the entire month of July.

On the HY side, we saw week-to date- issuance of $12.5bn by Friday open, which is about 3x the issuance volume we saw last week. In terms of spreads for both IG index and HY have remained close to last week’s close, but with a slight widening with the IG index at 131 and HY index hovering around at 493, 2 and 5bps wider than last week, respectively.

Now, diving into the STNP Market this week. In terms of flows, we have had slight net outflows for the week, as we had higher than average interest and maturity payments, with no open live deals to allocate into, resulting in slight outflows.

Given the weekend closes, this week we closed five transactions, which had been fully subscribed by last week. These deals are the following:

  • 15-E, with Cherry, an installment financing company, for $225,000. This 9-month note is a rollover from 15-D and came with an APY of 11.00%, implying a 50bps negative new issue premium from the last offering.
  • 4-H with Aspiria, a small-business lender in Mexico, we closed a new 9-month note for $500,000 that had a 12.00% APY, which implied 0bps premium to our last deal with Aspiria on the platform. This transaction had over 170 investors participate in the offering.
  • We also closed a 3-month rollover with 3-X for $800,000 with Pollen, a mobile app financing company. This represented a $400,000 downsize from 3-V. This note has an APY of 9.00% implying no new issue concession versus last note. As in previous offerings in this series, the transaction was fully subscribed within hours of launch of the note to its existing rollover investors.
  • Today we are closing 11-H 1-month offering with Axle, a factoring business focused on the freight transportation sector. This represented a $250,000 upsize from the last transaction. The notes carry an APY of 12.75% and the transaction was sold out within hours and this offering included both existing rollover investors and auction bidders. This offering represented a 25bps negative new issue concession from 11-G.
  • Today we are also closing 18-B, a rollover of 18-A with ZayZoon, an earned wages on demand firm. This transaction was fully subscribed within 1 day to existing investors and has an APY of 12.00%. This offering represented a 25bps negative new issue concession from 18-A.
  • And finally, this week we also launched auctions for 17-B with Pulse Medical Finance, a specialty financing company that buys insurance correlated receivables and cash flow from independent health service providers. For this next offering we are expecting an upsize to over $750,000+. We also launched the auction for 3-Y with Pollen VC, looking to rollover 3-W with $1.4 million outstanding.

As we see many deals on the platform remain subscribed and oversubscribed, we continue to work hard on onboarding new originators to the platform and are expecting new strategic partnerships to be announced in early October. 

That is all from us this week. Thanks again for tuning in and 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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