Capital Markets Update – Week of December 4, 2020 (audio)

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

Listen below for Daniel’s 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.

 

 

Hi everyone, this is Daniel DeMatos, a Securitization Analyst on the Capital Markets team at Percent. I want to welcome everyone who is listening to this market update for the week ending December 4, 2020. Let’s walk through news and insights that are relevant to credit markets and Percent’s investment platform.

Getting started, recent U.S. economic news was mixed to weak. Employment reports from ADP and the Bureau of Labor Statistics both came in below consensus though hourly earnings data and a report released Thursday on new unemployment claims produced better results. This week’s Institute for Supply Management purchasing manager’s index was in line with expectations.

Shifting to the public equity and debt markets. The outlook for fiscal stimulus drove the S&P 500 higher on Tuesday, producing most of the week’s gains. As of early Friday afternoon, the index is up 1.40% for the week.

In the fixed income markets, the prospects for fiscal stimulus drove a marked steeping of the treasury yield curve as long term rates moved higher.  The 5-year and 10-year bonds now stand around 0.42% and 0.97%, respectively. The latter number on the 10-year is at its highest levels since March. In line with the anticipation for further stimulus, the yield differential between the 10-year and 2-year Treasury bonds are at their widest since early 2018 and a measure of inflation expectations lies at its highest levels since May 2019.

In corporate credit, the average yield on the Bloomberg Barclays high yield index hit a new record low at 4.45%. Per Bloomberg, investment grade spreads saw a 7bp tightening from 106 to 99, and the HY index saw a larger 25bp tightening from 410 to 385.

Moving to volumes, over $18 billion in high yield corporate bonds and $6 billion in leveraged loans priced this week; this despite investors pulling out almost $1.4 billion from high yield funds. It was a relatively quiet week in esoteric ABS markets as far as new deals pricing.

Transitioning into Percent’s Short-Term Note Program and Percent Prime market for the week. In terms of flows, we saw large net inflows especially as an inaugural $16 million Percent Prime deal closed on Thursday. The Monday through Thursday net inflows summed to almost $4.9mm.

This week we closed three transactions for a total of almost $19mm in issuance.

  • An offering collateralized by a longer-term Secured Term Loan to originator partner Wall Street Funding closed at $16 million. This 26-month note will help the originator of merchant cash advances grow its business. This was a refinancing of the existing Percent notes on the platform and was our first offering under our Percent Prime product, offering bespoke deal flow to investors.

Two other notes included:

  • 9-K, with originator partner Zinobe for $1,240,000. This 2-month note was a refinancing of 9-J and priced with an annual percentage yield of 13.00%, down 50 bps from the last offering.
  • 6-J, with Arctos, which closed on Monday at $1,700,000. This 9-month note carried a 11.25% annual percentage yield, which was down 25bps from the last Arctos equipment finance deal syndicated on the platform which closed in September.

We are also live in syndication with:

  • 15-H, with Cherry, a consumer point-of-sale installment lender, raising $200,000 through a 9-month note carrying an APY of 9.75%. As of Friday afternoon, this transaction is fully subscribed. This was a 50bp tightening from the last offering with Cherry.

Other already fully subscribed offerings include:

  • 18-E with ZayZoon, an earned wage access solution, live with a $750,000 3-month note offering 11.25% APY. This represents a 25bp tightening from a previous deal with the same originator closed just last month.
  • 11-K with Axle, an invoice factoring firm specializing in the logistics and transport industry. It was live with a $1.35mm 2-month note offering 11.75% APY. This also represents a 25bp tightening from the most recent deal with the same originator.
  • 7-L, a $1.95mm note with powersports vehicle lender ThunderRoad, in syndication with a 11.75% APY, unchanged from the past offering in October.

Finally, this week we also launched a Dutch auction for 20-B with The Smarter Merchant for $1,500,000. That note is a refinancing of their inaugural note. We will be launching it initially to rollover investors early next week.

It was another active week for Percent, with issuance since inception reaching $200 million on our public retail and Prime platforms and with principal returned and interest paid to investors reaching $175 million and $4 million respectively.

That is all from us for this update. Thanks again for tuning in and we hope to connect with you again next week.

 

 

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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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