June 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.

Please find Cadence’s Short Term Note Program (STNP) monthly market update for June 2020 below.

Market Commentary

Improving data and gradual reopening of economies seem to confirm April as the global activity trough, even if the outlook and path for recovery remains generally uncertain. During the month of May, we have seen all major US and global stock indices trade higher, with the S&P 500 surpassing 3,000 points, and the DJIA crossing over the 25,000 marker for the first time since early March. Furthermore, the VIX volatility index continued its downward trend, and US treasury yields started edging slightly higher as economic data came in less severe than expected. Last week, the US Labor Department reported that 2.1 million applications for state unemployment benefits were received, down from 2.4 million the week prior. The number of people already collecting economic benefits, known as continuing claims, declined 3.9 million, a sign that employees might be returning to work. However, as concerns over the pandemic have started to subside in some regions of the world, the renewed intensifying tensions between the US and China have the markets now weighing in geopolitical risk.

May was a month of further consolidation for the STNP market. As of June 1st, a total of $29.5mm of notes were outstanding following $11.4mm in issuance against $14.0mm in note amortizations or repayments during May.

  • In less than 10 months after we publicly launched our retail investment platform, we have crossed over the $100mm total issuance milestone. Our STNP issuance since inception stands at $106.2mm, compared to $94.7mm at the time of last month’s update. Issuance has spanned 93 individual structured note offerings from 11 currently active originators.
  • STNPs issued in May had a weighted average APY of ~12.8% (with no fees to investors) with average tenors still hovering a little below the 75 days mark. This compares to a new issue weighted average APY for April of ~14.0%. 
  • Cadence has officially returned over $2.0mm in aggregate interest payments since inception to our growing investor base.

STNPs continue to provide investors with a compelling multi-faceted platform in the form of sustainable returns and ample inherent liquidity. Cadence welcomes new accredited investors and originators seeking alternative solutions in a period of ongoing economic uncertainty.

May Capital Markets Activity

In the month of May, we continued to focus most of our attention on analyzing and monitoring underlying asset performance for all our originator partners. We are now publishing periodic surveillance reports on five originators on the Cadence platform and expect to have a few more available by the end of June. You can find more information on how to best navigate these reports in one of our latest insights articles titled Delivering on Transparency with our Latest Surveillance Reports.

We successfully priced 9 offerings across our STNPs to land at $11.4mm, more than double the issuance volumes of March, and slightly below April issuance, bringing our YTD 2020 total to $62.6mm. 

  • We were able to meet or increase target transaction sizes in 8 out of 9 offerings this month. Pending market conditions, we are planning to announce a partnership with two new origination partners during the month of June that will lead to two more inaugurals offering slated to close by the end of the month.
  • Offerings ranged widely in terms of price and size, from a $3.25 million subordinate 1-month note with Northwest Capital pricing at 13.000%, to a $340k senior 2-month note with Zinobe pricing at 15.000%. 
  • We successfully closed an inaugural note program for $325,000 with our newest originator partner, Cherry Technologies, Inc., a California-based provider of installment / point-of-sale financing for small and medium-sized businesses. 

Unfortunately, due to the far reaching economic effects of COVID-19 across the United States, Solar4America, the underlying obligor to TradeRiver, was unable to make a timely repayment of its obligations under TradeRiver’s CPOs supporting Short Term Solar Installation Financing 8-B and 8-C, that were initially due on May 19, 2020. Given these challenges, Cadence, together with the other related parties, have agreed on a restructuring plan to repay the principal due to 8-B and 8-C investors over the course of the next 6 months, while providing investors with an additional return on principal that remains outstanding. Cadence will provide periodic updates to all impacted investors as we seek full recovery.

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

Projected Issuance

Jun Fwd Pipeline

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 do not 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.

Charlie Lienau
Author
Charlie Lienau
Director, Capital Markets
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