SBA Prepay Commentary
June 2020 SBA Prepayment Speeds
Back in the March SBA Prepayment Commentary, we wrote, “While prepayments have historically begun to pick up in the spring and summer, that may not be the case this year … In the short-term, it seems reasonable that prepayment speeds will likely decline as many businesses will prefer to stockpile liquidity than pay down debt.” That turned out to be an understatement, as this month’s prepayments saw the largest month-over-month drop in years. While the PPP Flexibility Act signed by President Trump last week may give business owners a bit more flexibility in their decision whether or not to prepay on their loans, it also extends the protection against defaults. Keep in mind, from an investor’s perspective, defaults are counted the same way as prepayments, so this extra cushion from PPP should keep speeds lower. Combining this with the continued widespread effects of COVID-19 worldwide and uncertainty about its projections, it is likely that this summer season will be a historically low prepayment period.
Equipment loan pools dropped from 12.4 to 5.4 CPR, with every vintage experiencing declines. Real-Estate loan pools decreased for the fifth straight month, going from 12.5 to 5.6, though a couple vintages did experience small increases.
Equipment Loan Pool CPRs
- Excluding the slight increase last month, Equipment loan pool speeds have continued to decline since January.
- Results were consistent when looking on a vintage-by-vintage basis, as every individual one experienced slower prepayments.
- The largest decrease was seen by the 2011 vintage, which dropped from 24.1 to 6.1 CPR.
- As expected, every vintage is below its 6- and 12-month averages.
|1Equipment loan pools have original WAMs between 8 and 13 years|
Real-Estate Loan Pool CPRs
- Real-Estate prepayments continued their decline since January.
- The largest decrease was seen by the 2015 vintage, which dropped from 23.6 to 1.7 CPR.
- 2011 and 2012 vintages are the only outliers, as they increased from 11.1 to 12.4 CPR and 4.9 to 7.2 CPR, respectively.
- Like Equipment pools, every Real-Estate vintage’s speed is well-below both its 6- and 12-month averages.
|2Real-Estate loan pools have original WAMs greater than 18 years|
SBA Prepayment Tables (PDF)
Prepared according to methodologies described by SIFMA.
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Dan Stimpson, CPA
Senior Vice President, Investment Strategies
Analyst, Investment Product Strategies