February Capital Markets Update

Every month, the capital markets team puts together an update that takes a look back at the previous month’s dealflow, while also highlighting the upcoming deal pipeline.

Going forward, we’ll be publishing these here. Below you’ll find the Cadence Short Term Note Program (STNP) monthly market update for February 2020.

Market Commentary

The STNP market has kicked the new year off on firm footing following the slight holiday lull as January set a new all-time record with respect to monthly issuance volume and number of offerings successfully closed.

  • After 2019 full year final issuance came in at $43.5mm, this month’s deals bring our since inception volume to stand at $58.7mm, spanning 53 individual structured note offerings from 9 active originators.
  • STNPs continue to offer ~10% APYs (with no fees to investors), average durations are hovering just inside 3 months and the market is running at 0% historical defaults.

As equity markets come off fresh all-time highs and yield curve inversion invokes renewed worries around economic growth, the search for both yield and uncorrelated returns is once again front and center.

STNP investors seeking diversification and liquidity in the form of short duration private credit have more options than ever as we continue to expand our base of high-quality origination partners. Cadence’s painstaking efforts to standardize this market as well as our prudent approach to risk management will prove to be critical as we navigate a healthy pipeline of supply and continue to deliver attractive risk-adjusted returns to our growing investor base.

January Primary Activity 

In the month of January, we successfully priced 12 offerings to land at just north of $15.1mm, doubling December’s total volume.

  • All but one of our currently active originators were in the market with us, providing a prime opportunity for our investors to diversify their holdings and add to existing positions.
  • Offerings ranged widely in terms of price and size, from a $3.5mm 3-month note with Wall Street Funding pricing at 10.750%, to a 2-week $525k note with Pollen pricing at 8.375% that ultimately rolled into a larger and longer duration offering later in the month.

We announced two new originator partnerships this past month with SALT Lending and Axle Payments, which we expect to launch and price inaugural notes with in the first half of February.

  • We also have two more originator partnership announcements slated this month with more first time entrants on the horizon.
  • Needless to say, we expect a very busy Q1 with monthly issuance in the $15 – 20mm range.

We also saw DBRS Morningstar publish a press release and presale report providing preliminary ratings on FAT Brands’ inaugural whole business securitization.

  • Cadence is acting as Structuring Consultant on this first-of-a-kind rated ABS offering and we plan to market our related STNPs on the Cadence platform in conjunction with the broader $40mm Series 2020-1 Reg D offering over the coming week.

Please see below our 1-month projected and 2-month historical issuance calendars along with a few charts highlighting STNP market activity since inception for further insight.

Projected Issuance

Historical Issuance

STNP Market Activity

Should you have any questions or would like to learn more about Cadence, our issuances or the STNP market, please don’t hesitate to reach out to us.

And of course, nothing in this post 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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Author
Prath Reddy, CFA
Head of Capital Markets
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