Understanding the Deal Page
The deal page is one of our most critical resources that is intended to supply investors with a robust toolkit to make their own investment decisions.
The page includes information related to the issuance, including an originator summary, comparables analyses, note structuring, details of the underlying assets, and risks and mitigants.
Where to Begin: The Summary
In order to get a preliminary understanding of the STNP issuance, investors are armed with information around the note’s APY, investment term, the deadline for an investment to be made (“Deal Close” date), and the total fundraising target followed by a description of the offering. Each description sheds light on the underlying assets supporting the offering and details the expected holding period rate of the investment. Furthermore, Cadence outlines the payment structure of the note and defines the frequency in which these payments ought to be distributed.
Evaluating the Market: Comparables Analysis
Understanding the broader STNP market is paramount for investors to make informed decisions about their investments, which is why each page houses a comparables analysis. In this analysis, the offering is shown directly next to similar note offerings on the platform and allows investors to compare key metrics across notes and originators. This analysis highlights comparable data points about the originator, the underlying assets’ default rate and duration, and the details of each offering. By comparing these data points across offerings, investors are equipped with an understanding of how each note is priced in relation to previously priced offerings. For example, investors can compare the risk of each note by determining if there are perhaps less years in operation, a higher historical default rate, or subordination in repayments. Comparing offerings is a common way to gauge the risk premium of each note offering and allows for a proper evaluation of the return, or the APY, being offered.
Unveiling the Underlying Assets
While evaluating the STNP market and creating your own framework for allocating capital across originators, it is paramount to identify the underlying assets involved in each offering. As the success of a note is heavily tied to the repayment ability of the underlying assets, each deal page uncovers the relationship between the originator and the underlying borrower. If for instance investors are looking to learn more about a note that is supported by a portfolio of consumer loans, the deal page will highlight how and where these loans were originated and will provide further detail into how the originator services and monitors their loans. In this instance, additional data points about the underlying assets are also listed, such as the average funded amount, term, interest rate, historical default rate, geographic breakdown, and credit quality indicators. The deal page houses all of this information so that all investors can come to their own conclusion about the health of the underlying assets and their ability to repay.
UNDERLYING ASSET EXPOSURE
Identifying the Risks
During the due diligence stages of evaluating a partnership with an originator, Cadence heavily focuses on all potential risks an originator carries and reveals those findings to all investors directly on the deal page. We believe that identifying the risks is simply not enough and strive to arm investors with the mitigants that are in place currently to offset such risk. Each page will cover a variety of risks such as asset-level risks, security-level risks, and counterparty-risks while highlighting what mitigants are in place. For example, on a note that is supported by a portfolio of consumer loans, there is an inherent risk that consumers may stop paying during times of economic hardship. However, the deal page may shed light on the diversification of the underlying loans and on the originator’s ability to directly debit payments from a consumer’s bank account. The risks and mitigants outlined on each deal page are provided so that all investors can make well-informed investment decisions that reflect their own risk tolerance.
Security Details and the Contract
Each deal page is concluded with information outlining the details of the security and the ethereum contract. With regards to the details of the security, critical information is shared such as the close date, end of the non-call period, maturity date, and payment structure. The end of the non-call period, for example, is critical to be aware of as originators can exercise a call option up until this date that provides them the option to repay the note earlier than the expected maturity date and/or refinance their existing debt into a new note. Furthermore, the payment structure is also vital to understand because it outlines the frequency and timing of all interest and principal disbursements. Upon the closing of each note, each deal page is updated with a section highlighting the Ethereum contract. This continues to provide valuable insights by providing proof of ownership on every note offering with anonymized capitalization tables.
Putting it All Together
Through all channels, Cadence always strives to deliver as much transparency as possible so that investors can be well-informed participants in the private credit market. The deal page is a critical resource to leverage while evaluating an investment offering and should be used to help understand the intricacies any of our STNP offerings carry. In conjunction with our real-time data and surveillance reports, our goal is to provide investors with several resources to not only understand the historically opaque private credit market but rather also become active participants in such a market.