When you invest in a note on Cadence, you’re investing over a set term with a set interest rate, getting your principal investment back at an expected time. If a note is a callable note, however, terms regarding interest and return date can change in some ways.
Simply put, a callable note gives the issuer the right to return an investor’s principal investment and stop paying interest before its maturity date. In the instance of this being exercised, an investor does not lose their principal, nor do they lose any interest their note already accrued.
Why would an originator call a note?
There are several reasons why an originator would call a note before its maturity date:
- To upsize or downsize a note;
- To avoid an amortization period by replacing a note with a new one before it reaches its amortization period;
- To alter the terms of an offering, including increasing or decreasing the duration;
- To impact pricing of a note. As originators build a track record or financial and if/when economic conditions improve, they may be able to secure a lower cost of capital though lower yielding notes.
How do callable notes work on Cadence?
On Cadence, notes that are callable are explicitly stated as such on their deal pages. You’ll know before you invest when a note can be called and how much interest that note will accrue (and over how long) before the first call date.
Originators on Cadance can also withdraw their option to call the note, which will cause a note to continue on without being called. All of this information is included in the term sheet of each deal with a callable note.
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