October 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 October 2020 below.


Market Commentary

The health and economic effects of COVID-19 continue to be felt across different areas of the United States and in the world, providing added volatility to the equity markets. In September, following August’s record setting performances by all major indices, the DOW lost 2.3%, the S&P 500 lost 3.9%, while the tech-heavy NASDAQ Composite lost 5.2% for the month. This constitutes the first monthly declines for major averages since March, led by the tech related market correction that took place earlier in September.

As Wall Street continues to keep a close eye on unemployment metrics as lawmakers have yet to move forward on a new coronavirus stimulus package, market sentiment improved towards the end of the month with the release of select economic data, with a report from ADP showing better than expected private-sector jobs growth. This report also comes two days ahead of the Labor Department count of non farm payrolls growth, which is also expected to show an addition of 800,000 positions with the unemployment rate projected to fall to 8.2%. On the fixed income side, variability in treasury yields was relatively muted, with the 5yr and 10yr benchmark Treasuries ending September at 0.28% and 0.69%, respectively, both logging only a 1bp increase since August. Following a first contentious Presidential debate, uncertainty around the election process and outcome is also expected to be a key headwind for the market before year-end, with each outcome bringing its own risks and benefits.

August was a month of further expansion of the STNP market on the Cadence platform. As of October 1st, a total of $31.4mm of notes were outstanding following $8.1mm in issuance against $6.7mm in note amortizations or repayments. With $2.8mm still in workout following missed payments, this represents a 1.74% default rate on issuance since inception.

  • Our STNP issuance since inception stands at $162.8mm, compared to $154.7mm at the time of last month’s update. Issuance has spanned 133 individual structured note offerings from 14 originators.
  • STNPs issued in September had a weighted average APY of ~11.4% (with no fees to investors) with average tenors hovering a little below the 140 days mark. This compares to a new issue weighted average APY for August of ~13.8%. 
  • Cadence has officially returned about $3.2mm in aggregate interest payments since inception to our growing investor base.

September Capital Markets Activity

In the month of September, we formally closed on our second institutional transaction, a $40mm subordinated note offering for FAT Brands (NAS: FAT), which, on the back of the March inaugural issuance, increased the company’s securitization facility to $80 million. The notes were issued through the Company’s whole business securitization affiliate, FAT Brands Royalty I, LLC and Cadence acted as the sole structuring agent for the offering. See the press release highlighting the offering and its unique qualities.

Additionally, we successfully priced 10 offerings across our STNPs to land at $8.1mm, bringing our YTD 2020 total to $119.2mm.

  • We were able to meet or increase target transaction sizes in 10 out of the 10 transactions issued this month. Pending market conditions, we are planning to announce a partnership with two new originator partners during the month of October that will lead to two new inaugural offerings slated to close by the end of the month.
  • Offerings ranged widely in terms of tenor and size, from a $1.3 million senior 9-month note with Arctos Capital pricing at 11.50%, to a $300,000 subordinate 1-month note with Axle pricing at 12.75%. 

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 do not hesitate to reach out to us.


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. Any decision to invest must be based solely upon the information set forth in the offering documents, regardless of any information that may have been otherwise furnished, including in this update.

Charlie Lienau
Author
Charlie Lienau
Director, Capital Markets
Sign up and make your first investment
Our diverse set of investment offerings target annualized returns of 10%+.
ß

The information on this website does not constitute an offer to sell securities or a solicitation of an offer to buy securities. Further, none of the information contained on this website is a recommendation to invest in any securities. By using this website, you accept our Terms of Use and Privacy Policy. Past performance is no guarantee of future results. Any historical returns, expected returns or probability projections may not reflect actual future performance. All investments involve risk and may result in loss, including loss of principal. Cadence does not render investment, financial, legal or accounting advice.