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Cadence
Bringing Transparency to Opaque Asset Classes in Private Markets
September 17, 2020
Cadence Bringing Transparency to Opaque Asset Classes in Private - - PowerPoint PPT Presentation
Cadence Bringing Transparency to Opaque Asset Classes in Private - - PowerPoint PPT Presentation
Cadence Bringing Transparency to Opaque Asset Classes in Private Markets September 17, 2020 Who we are Cadence is organizing and structuring the worlds private financial data to become the leading tech-enabled arranger for private credit
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About Me Origination Metrics
$199.7M
Total amount issued to date1
FEATURED IN:
Cadence is organizing and structuring the world’s private financial data to become the leading tech-enabled arranger for private credit
1 Data as of 9/8/20126
Structured notes issued to date1
Nelson Chu
Founder & CEO
- Investor and advisor to companies
that have created over $1B in equity value
- Fmr. Merrill Lynch, Bank of America,
BlackRock
Equity Investors
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Why private credit?
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2007 2010 2013 2016 2019 $1,022B $606B $476B $334B $207B
20% CAGR
Private credit is the fastest growing asset class across all
- f private capital markets
AIMA, Financing the Economy 2017
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Thousands of VC-backed companies large and small are addressing access to private credit for millions of underserved borrowers
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7 AIMA, Financing the Economy 2018
8% 8% 17% 67% <$50M $100M+ $75-100M $50-$75M
Over 67% of the market is made up of <$50M EBITDA companies
AVERAGE EBITDA OF PRIVATE CREDIT BORROWERS
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ALLOCATION OF TIME FOR PORTFOLIO MANAGERS
3.7% 7.4% 37% 48.2% Conducting Credit Analysis Sourcing Viable Credit Opportunities Borrower Negotiation Legal Advice on Structuring
SOURCING CHANNELS FOR CREDIT OPPORTUNITIES
AIMA, Financing the Economy 2018 AIMA, Financing the Economy 2017
- f PMs consider
sourcing and diligencing their most resource intensive activities today
85%
- f private credit
deals are still coming from direct relationships
40%
11% 18% 31% 40% Direct Relationship Private Equity Other Banks/Credit Institutions
Assessing this smaller fragmented market poses challenges for portfolio managers
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The trillion dollar private credit problem
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Non-bank originators are serving a massive need for the unbanked / underbanked. They have
- riginated an extremely high quality pool of
credit assets thanks to their industry expertise and data-driven underwriting approach Despite performing well (through low portfolio defaults, diversification, sound risk mitigation, conservative underwriting), the pain points persist when it comes to debt capital: Limited access to investors Limited options to reduce cost of capital Inability to efficiently monetize assets
Originator
Business and Consumers Private Lenders $$$$
On the other end, there is an entire universe
- f fixed income investors that are:
- Increasing private credit exposure
- Reaching for yield
- Need diversification
- Seeking uncorrelated alpha
Originators Investors
Insurance Co HNW Person Family Office Asset Manager
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Access to private debt capital is opaque and unreliable, especially for fast growing specialty finance companies
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For originators looking to scale, traditional private term loans offer limited efficiencies and flexibility while warehouse lines and securitization markets are still out of reach
- Costs of financing are often off-market and uneconomical
- Structures are punitive and put equity at risk
- Quantums of capital are static and may not align with needs
- Duration mismatches are commonplace
Given these difficulties, many originators may resort to funding working capital needs with equity or other inefficient funding sources
Venture Capital Private Equity BDCs Bank Lending Public Debt Markets Middle Market Lending Public Equity Markets
EQUITY DEBT MICRO MIDDLE LARGE
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The current private credit markets offer limited funding options for originators
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… leading to limited options for debt at the behest of available term sheets
Originator
Hedge Fund 2 Private Investor 1 Family Office 1 Hedge Fund 1
Capital is raised privately today and executed
- ffline with limited parties…
Originator
?
Hedge Fund 2 Private Investor 1
Term Loan Warehouse Facility
?
Hedge Fund 1 Private Investor 2
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$1,022B $606B $476B $334B $207B
12 AIMA, Financing the Economy 2017
2007 2010 2013 2016 2019
$655B $388B $281B $217B $107B $367B $218B $195B $117B $100B Dry Powder Committed Capital
Opportunities are difficult to source and diligence for traditional capital markets, leading to over 30% in dry powder
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PRIVATE CREDIT LENDERS
- Difficult to secure financing and access
traditional securitization market
- Beholden to high costs of capital if they cannot
support more data-driven underwriting
SELLSIDE BANKS
- Structured products teams are struggling to
source assets that diversify their product offering
- No visibility into the data around <$25M
companies to do proper due diligence
BUYSIDE FUNDS
- Constantly searching for deal flow and being
forced to go downmarket (<$25M)
- Effort required to diligence these opportunities is
high because of a lack of data
THIRD PARTY CREDIT ENHANCERS
- No visibility into actual verified data across
private companies to properly evaluate an asset at inception and throughout the maturity
- f the product
Dry powder at that size can only be deployed through traditional capital markets but significant challenges remain
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Aggregate hundreds of data points around private credit assets Standardize and normalize the dataset to make relative comparisons possible Make it easy to search, filter, select, and structure a product for investment Enable credit enhancements and simplify servicing to drive adoption Integrate into existing retail and institutional workflows to drive investment
Source Standardize Securitize Supplement Syndicate
An end to end solution for private credit can streamline everything from discovery to diligence to investment
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Source Standardize Securitize Supplement Syndicate
An end to end solution for private credit can streamline everything from discovery to diligence to investment
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LEDGER DATABASE
TOTAL HELD TOTAL FOR SALE TOTAL SOLD $7,540.00 $2,400.00 $4,500.00 TOTAL PORTFOLIO SIZE $14,440.00 AVERAGE DURATION DAYS 90 AVERAGE LGD 2.50% AVERAGE %S 35% AVERAGE APY 43% SELLERS FUNDING Auto-Sell Criteria Financials Operations Operations C R E AT E N E W A S S E T 27448 FoodWhole Inc Food Wholesalers $25,000.00 4/18/2019 6/17/2019 37% 33 8.5 For Sale 755305 MedCo LLC Medical Supplies $70,000.00 3/22/2019 6/20/2019 42% 36 8.0 75% 99329 WeProtect Inc Security Services $40,000.00 3/29/2019 6/27/2019 41% 43 8.1 75% 55321 Concrete Supply Co Building Materials $23,000.00 4/10/2019 7/9/2019 44% 55 7.8 For Sale 20470 Wayco & Sons Co. Construction Management $12,000.00 4/12/2019 7/11/2019 41% 57 8.1 50% 27448 EZ Electric LLC Eletrical Services $250,000.00 4/18/2019 7/17/2019 44% 63 7.8 Sell 27448 E-Measure Technologies LLC Software Consulting $150,000.00 3/28/2019 7/26/2019 25% 72 9.7 Sell 27448 SunRepair LLC Solar Panel Sales & Repair $55,000.00 3/29/2019 7/27/2019 40% 73 8.2 75% 27448 128 Automobile LLC Automobile Dealers $25,000.00 4/9/2019 8/7/2019 48% 84 7.4 Sell 27448 Pashmina Jewelry Inc Jewelry Wholsaler $9,000.00 4/11/2019 8/9/2019 38% 86 8.4 50% 27448- Dr. Katz Wilder
PRIVATE CREDIT LENDERS ASSET SYNCHRONIZATION PORTAL REAL-TIME DATA BUYSIDE FUNDS BLOOMBERG AND OTHER AGGREGATION PLATFORMS
INVESTMENT OFFERINGS MY PORTFOLIO STATEMENTS MY RESOURCES NELSON $5,000.00 Investable Balance Recommended by Colony Insurance, the licensed producer and administrator of this plan. Terms, conditions and exclusions apply, learn more. Plan underwritten by Argo Limited. Investors protected their investment in the last 7 days 20,465 Yes, I want to protect my investment in exchange for 0.25% of the total projected returns. Full principal protection for a fraction of projected investment returns:- In the event of a default, your principal amount invested will be repaid in full
- If no default, your principal will be repaid in full and your interest earned will
- AVAIL. AMOUNT
SELLSIDE BANKS STRUCTURED PRODUCT PORTAL THIRD PARTIES RATINGS PORTAL
A standardized single source of truth of asset performance data opens up traditional capital markets to private credit lenders
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API INTEGRATION WITH ORIGINATOR CALCULATION API INTEGRATION WITH ORIGINATOR CALCULATION PLAID INTEGRATION API INTEGRATION CALCULATION DWOLLA INTEGRATION CALCULATION
Any low-tech lender can become a tech-enabled one
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Surveillance reporting gives investors the analytics and transparency they need to commit to an investment
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The data aggregation and standardization process starts at the very beginning and is ongoing through maturity
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Program Monitoring
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Credit Analysis Originator Due Diligence
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- Review of salient financial,
- perational and legal documents
- Public records checks
- Due diligence questionnaires
- On-site review of origination
procedures and strategy
- Proprietary risk assessments factor in
counterparty, asset-level, security- level, relationship, external factors, and originator’s financial health
- Full review of asset portfolio
including historical performance, loss recovery and structural considerations
- Real time asset level performance
monitoring
- Bring-down due diligence prior to
every offering
- Share quarterly financial and
- perational updates
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Source Standardize Securitize Supplement Syndicate
An end to end solution for private credit can streamline everything from discovery to diligence to investment
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Securitization takes a pool of assets and turns it into an investable, tradable product
STRUCTURED PRODUCT SECURITIZATION LOW MEDIUM HIGH
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HOME MORTGAGES AUTO LOANS STUDENT LOANS ROYALTIES SOLAR CONSTRUCTION EQUIPMENT LEASES
Assets that can be securitized
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23 SIFMA, Moody's Investors Service
32% 68% Other Fixed Income Securitization
Securitization finances
- ver 30% of annual US
debt capital markets funding needs
US BOND MARKET ANNUAL ISSUANCE IN 2018 $2.4T $5.0T
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24 Federal Reserve, Securities Industry and Financial Markets Association
47% 46% 7% Private Label RMBS and ABS Agency RMBS Other Funding Sources
ANNUAL AGGREGATE OUTSTANDING CONSUMER DEBT IN THE US BY FUNDING SOURCE
Securitization funds more than 50% of US household debt
$1.0T $6.8T $7.1T
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The phases of securitization
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The phases of securitization
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The new paradigm for private credit is centered upon data transparency and efficiency
Standardize Source Structure Supplement Syndicate
TOTAL HELD TOTAL FOR SALE TOTAL SOLD $7,540.00 $2,400.00 $4,500.00 TOTAL PORTFOLIO SIZE $14,440.00 AVERAGE DURATION DAYS90
AVERAGE APY43%
Auto-Sell Criteria T E N E W A S S E T 27448 FoodWhole Inc Food Wholesalers $25,000.00 4/18/2019 6/17/2019 755305 MedCo LLC Medical Supplies $70,000.00 3/22/2019 6/20/2019 99329 WeProtect Inc Security Services $40,000.00 3/29/2019 55321 Concrete Supply Co Building Materials $23,000.00 4/10/2019 20470 Wayco & Sons Co. Construction Management $12,000.00 4/12/2019 27448 EZ Electric LLC Eletrical Services $250,000.00 E-Measure Technologies LLC Software Consulting ASSET ID OBLIGATOR NAME INDUSTRY TYPE FUNDED AMOUNT MATURITY DA FUNDED DATE My Structure Products PRODUCT NAME STATUS TOTAL SIZE APY TENOR PAYM STRUCTURE Fully Diversfied Factored Recievables 2019-01 Issued $78,000,000 12% 3 months U.S. Pacific Northwest Merchant Cash Advances 2019-02 Structured $116,000,000 15% 6 months Amortized High Quality Counterparty Diversified Assets 2019-01 Structured $55,000,000 8% 18 months Inter Indications of Interest FILTER BY: Triple-B Factored Receivables YIELD DURATION 0% 5% 10% 15% 20% 200 400 600 Here is a review of your account Ratings Agency Agency Rating Ratings Agency Ratings Agency SLIDE 28
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PRIVATE CREDIT LENDERS
- Access efficient non-dilutive funding by
integrating with Cadence and providing real time data
- Intuitively manage structured note programs
by easily maintaining documentation, collateral data and compliance
SELLSIDE BANKS
- Easily due diligence any asset that can be
turned into a structured product and
- ptimize based on historical buyside interest
- Successfully tap into a new market of
<$100M securitizations
BUYSIDE FUNDS
- View full details around underlying assets
through their existing workflow on Bloomberg
- Indicate interest into specific asset types,
- riginators and asset attributes
THIRD PARTY CREDIT ENHANCERS
- Full due diligence on the asset, the
borrower, and the originator
- Accurately evaluate and monitor the
performance of a product at inception and over its lifecycle
TOTAL HELD TOTAL FOR SALE TOTAL SOLD $7,540.00 $2,400.00 $4,500.00 TOTAL PORTFOLIO SIZE $14,440.00 AVERAGE DURATION DAYS 90 AVERAGE LGD 2.50% AVERAGE %S 35% AVERAGE APY 43% SELLERS FUNDING Auto-Sell Criteria Financials Operations Operations C R E AT E N E W A S S E T 27448 FoodWhole Inc Food Wholesalers $25,000.00 4/18/2019 6/17/2019 37% 33 8.5 For Sale 755305 MedCo LLC Medical Supplies $70,000.00 3/22/2019 6/20/2019 42% 36 8.0 75% 99329 WeProtect Inc Security Services $40,000.00 3/29/2019 6/27/2019 41% 43 8.1 75% 55321 Concrete Supply Co Building Materials $23,000.00 4/10/2019 7/9/2019 44% 55 7.8 For Sale 20470 Wayco & Sons Co. Construction Management $12,000.00 4/12/2019 7/11/2019 41% 57 8.1 50% 27448 EZ Electric LLC Eletrical Services $250,000.00 4/18/2019 7/17/2019 44% 63 7.8 Sell 27448 E-Measure Technologies LLC Software Consulting $150,000.00 3/28/2019 7/26/2019 25% 72 9.7 Sell 27448 SunRepair LLC Solar Panel Sales & Repair $55,000.00 3/29/2019 7/27/2019 40% 73 8.2 75% 27448 128 Automobile LLC Automobile Dealers $25,000.00 4/9/2019 8/7/2019 48% 84 7.4 Sell 27448 Pashmina Jewelry Inc Jewelry Wholsaler $9,000.00 4/11/2019 8/9/2019 38% 86 8.4 50% 27448- Dr. Katz Wilder
- In the event of a default, your principal amount invested will be repaid in full
- If no default, your principal will be repaid in full and your interest earned will
- AVAIL. AMOUNT
The new paradigm for private credit is centered upon data transparency and efficiency
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PRIVATE CREDIT LENDERS
Expose assets for securitization and provide full historical data
SELLSIDE BANKS/CADENCE
Structure products based on buyside interest
THIRD PARTY CREDIT ENHANCERS
Provide credit enhancements to structured products with full transparency into underlying asset performance
BUYSIDE FUNDS
Syndicate complete structured products onto Bloomberg
TOTAL HELD TOTAL FOR SALE TOTAL SOLD $7,540.00 $2,400.00 $4,500.00 TOTAL PORTFOLIO SIZE $14,440.00 AVERAGE DURATION DAYS 90 AVERAGE LGD 2.50% AVERAGE %S 35% AVERAGE APY 43% SELLERS FUNDING Auto-Sell Criteria Financials Operations Operations C R E AT E N E W A S S E T 27448 FoodWhole Inc Food Wholesalers $25,000.00 4/18/2019 6/17/2019 37% 33 8.5 For Sale 755305 MedCo LLC Medical Supplies $70,000.00 3/22/2019 6/20/2019 42% 36 8.0 75% 99329 WeProtect Inc Security Services $40,000.00 3/29/2019 6/27/2019 41% 43 8.1 75% 55321 Concrete Supply Co Building Materials $23,000.00 4/10/2019 7/9/2019 44% 55 7.8 For Sale 20470 Wayco & Sons Co. Construction Management $12,000.00 4/12/2019 7/11/2019 41% 57 8.1 50% 27448 EZ Electric LLC Eletrical Services $250,000.00 4/18/2019 7/17/2019 44% 63 7.8 Sell 27448 E-Measure Technologies LLC Software Consulting $150,000.00 3/28/2019 7/26/2019 25% 72 9.7 Sell 27448 SunRepair LLC Solar Panel Sales & Repair $55,000.00 3/29/2019 7/27/2019 40% 73 8.2 75% 27448 128 Automobile LLC Automobile Dealers $25,000.00 4/9/2019 8/7/2019 48% 84 7.4 Sell 27448 Pashmina Jewelry Inc Jewelry Wholsaler $9,000.00 4/11/2019 8/9/2019 38% 86 8.4 50% 27448- Dr. Katz Wilder
- In the event of a default, your principal amount invested will be repaid in full
- If no default, your principal will be repaid in full and your interest earned will
- AVAIL. AMOUNT
Buyside funds indicate interest in loan level assets on Bloomberg
The new paradigm for private credit is centered upon data transparency and efficiency
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Thank you
Nelson Chu
Founder and CEO of Cadence nelson@withcadence.io