May 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 May 2020 below.

Market Commentary

April was the first complete month where Cadence faced the full-on challenges that COVID-19 is presenting to global markets and the investment community. High volatility levels are still predominant in today’s market, however, we are closing April with VIX levels roughly half of where they were at month open. Calmer markets are prevailing despite witnessing an unprecedented decline in oil prices, recent news around expected disruptions to food supply chains, and no clear specific short-term solution to the COVID-19 healthcare crisis. As concerns around what impacts the quickest recession on record will have on various companies, sectors and economies around the globe, we anticipate broader markets to remain volatile and credit standards continue to tighten as we brace for a prolonged reopening and recovery process.

April was a month of further consolidation for the STNP market as redemptions outpaced issuance despite continued strong performance even in light of all the aforementioned challenges. As of May 1st, a total of $31.0mm of notes were outstanding following $13.4mm in issuance against $15.8mm in note maturities or prepayments during April.

  • STNP issuance since inception stands at $94.8mm, compared to $81.4mm at the time of last month’s update. Issuance has spanned 84 individual structured note offerings from 11 active originators.
  • STNPs issued in April had a weighted average APY of ~14% (with no fees to investors) with average tenors still hovering a little over the 2-month mark. This compares to a new issue weighted average APY for March of ~11.5%.
  • Cadence has officially returned over $1.5mm in aggregate interest payments since inception to our growing investor base and our STNP market continues to run at a 0% historical defaults to our investors.

With investors looking primarily for safe-haven assets or higher cash positions during market volatility, STNPs provide a compelling multi-faceted solution in the form of sustainable returns and ample inherent liquidity. Cadence continues to welcome new investors and originators seeking refuge in a period of market uncertainty.


April Capital Markets Activity

In the month of April, we focused most of our attention on analyzing and monitoring underlying asset performance for all of our originator partners. To the extent possible, we continued to provide investors with real-time-data and began implementing periodic surveillance reports that are being made available on our platform. We are working towards providing daily, weekly, and/or monthly surveillance reports for the majority if not all of our originator partners by end of Q2.

We successfully priced 10 offerings across our STNPs to land at $13.3mm, more than double the issuance volumes of March, bringing our YTD 2020 total to $51.1mm.

  • 8 of our origination partners were in the market with us this past month, most of them with roll overs, that continue to enable our investors to easily rebalance and optimize their allocation strategies.
  • Offerings ranged widely in terms of price and size, from a $3.2 million 3-month note with Wall Street Funding pricing at 14.750%, to a $300k subordinated 1-month note with Axle pricing at 19.500%.
  • In the last week of April, we also launched a note program with our newest originator partner, Cherry Technologies, Inc., a California-based provider of installment / point-of-sale financing for small and medium-sized businesses. This inaugural 6-month note with monthly calls is expected to close on May 5th.
  • Pending market conditions, we are planning to announce a partnership with another new origination partner over the coming month that will lead to one more inaugural offering slated to close by the end of May.

The Cadence team continues to be committed to transparency, as exemplified by the introduction of our Dutch Auction feature for all of our transactions.

  • This auction system, a standard in the institutional credit markets, will greatly enhance Cadence’s ability to discover market-clearing APYs for all our offerings going forward.
  • We plan to provide greater visibility into our STNPs, the underlying assets and our originator partners by realizing a number of exciting features in the months ahead.

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

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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