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Capital Markets Update – Week of April 17 2020 (audio)

In an effort to provide even greater transparency around our offerings and our investment platform, Prath Reddy and the capital markets team provide weekly updates.

Listen below for Prath’s most recent views on our short-term note program and the current private credit landscape from Percent’s perspective.

Please find the transcript for this video below.

 

Hey everyone. This is Prath Reddy, head of Capital Markets here at Percent. Thanks for tuning in to this week’s market update for the week ending April 17th, 2020, where we discuss news and insights relevant to participants in our STNP or short-term note program market. Looking at the broader markets this past week, earning season is now in full swing and the market is paying very close attention to any clues Corporate America can provide on which way they think the post COVID-19 economy is headed. A good spot – the blue chips have already pulled guidance for the year, given all the uncertainties. And major banks this week are clearly citing trouble ahead.

I believe that collectively increased credit loss reserves to the tune of $25 billion to cover Q1 alone, which is just a massive initial number, but of course, none of this is surprising in light of latest dismal jobs numbers this week suggesting in a, by our estimate, are roughly 15% unemployment rate at this point, but all that being said and despite this onslaught of negative news, equities are ending the week roughly flat to the upside here. On the back of the government looking to set a plan to reopen the economy and in hopeful news last night from pharmaceutical giant Gilead, that an experimental drug to combat COVID-19 is having some early success.

We’re certainly living in some strange times, to say the least, but on the flip side, switching gears to the credit market, primary here continues to remain pretty active, and thanks to all the recent fed support and spreads have also tightened from their wides hit a few weeks ago.

I’m seeing that even high-yield deals are getting done, however, in first-lien formats with high single-digit type yields for credits that probably could have priced in the mid-single digits on an unsecured basis earlier this year, but nonetheless,  market-clearing levels are being found. So, it’s certainly a step in the right direction. 

Zooming into the STNP Market, we are beginning to see signs of stability across the board, which is very encouraging after a few weeks of volatility. From an influence perspective, we were relatively flat however, a relatively large maturity midweek unlocked a decent amount of liquidity that ultimately remained on the platform and found its way into other offerings that are currently in syndication. In terms of issuance volume it was generally lighter, whereas as last week with only $650,000 pricing versus last week $6.2M. This definitely had more to do with a relatively light calendar than a lack of demand. But in any event, we now stand at just under 90 million in total STNP issuance since inception in January of last year, roughly 85 million of this coming in just the last eight months since we launched our platform publicly in July of last year. Year to date, we’re now shy of just 45 million and month to date, we’re roughly seven million in total volume. Taking a closer look at the $650,000 that printed last week, it came from two separate deals that both saw strong demand and ultimately upsized. The first one was at $300,000 one month subordinated note offering with Axle Payments, which settled on Monday. We did continue to stay healthy over subscription levels on this program as we ultimately upsized the one month note yielding 19.5% from $200K to $300K without having to widen pricing from the prior note as we’ve seen with many other deals over the last few weeks. Some of this, of course, had to do with the relatively small size of the note, but encouraging to see it, nonetheless. and the balance came from an upsized $350,000 note with ThunderRoad, which ultimately got done at 12.5% in a three-month note. This was in a bullet structure with principal and interest coming due on July 12th. We do currently have another three active deals syndicating simultaneously right now. Yielding anywhere between 12 and 17.5% looking to close over the next week or so. 

And lastly on the deal flow side of things – we did launch another Dutch auction this week on Wednesday for at least one offering looking to close the week after next and we plan to launch a few more over the coming days. We also have a new originator set to be included in the auction for next week. So we’re certainly looking forward to providing our investors with more opportunities to diversify. So all in all, activity is certainly picking up on the STNP Market with plenty of flow for investors to put cash to work in high-yielding short-duration structured credit. 

And from a risk management perspective, we made fantastic headway over last week by continuing to build out several more dashboards for ourselves and we’re preparing to launch another daily report beginning next week for Sellers Funding. And our goal here is to produce similar reports for every originator, both existing and new, so that investors have full visibility into underlying collateral. The cornerstone of our platform is transparency and price discovery to break through the information asymmetry that plagues this market and we’re making tremendous progress on this front, all in the spirit of protecting our investors and providing our high-quality originators consistent access to capital.

That’s it for this week. But thanks very much for listening in and we look forward to checking in with you again next week.


Nothing in this video 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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