January 25, 2021
Fixed-Rate SBA DCPCs
- The January fixed-rate SBA DCPC auction saw strong investor interest as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives. Pricing in the January auction resulted in historically tight spreads.
- The current yield spread of 30 bps in new issue SBA DCPCs to Treasurys widened 2 bps last week. Spreads have widened 1 bp month over month but spreads have tightened 31 bps year over year.
- Spreads in seasoned DCPCs and SBICs are wider than new issues, but premium risk is higher in seasoned products driven by higher debenture rates on older loans.
January Fixed-Rate SBA DCPC Auction (SBAP 2021-20A 1 and SBAP 2021-25A 1)
- The January fixed-rate SBA DCPC auction included 10-year, 20-year, and 25-year maturities.
- Spreads tightened 7 bps month over month for 25-year and 20-year terms, respectively (20 bps yield spread for the 25-year term and 10 bps for the 20-year term).
- Spreads are currently significantly tighter than the twelve-month average and are trading at the tightest spreads historically for both maturity terms.
- Total issuance in the January auction of $293.6M decreased $60.5M (-17.1%) from the prior month.
- The 25-year term represented 81.5% of total issuance in the January auction, the 20-year term was 17.1% and the 10-year term was only 1.4% of total issuance.
Floating-Rate 7(a) Pools
- SBA 7(a) prepay commentary: Prepayment speeds in January ticked higher for both equipment and real estate pools. Equipment loan pools’ prepayments increased from 11.9 to 13.8 CPR, which includes pickups among every vintage. Real-estate loan pools also saw an increase, up from 11.0 to 12.3 CPR, though results were mixed on a vintage-by-vintage basis.
- It is critically important to evaluate pools at a wide variety of speeds and using a prepayment vector. Our Performance Profile includes an analysis of your 7(a) pools layered against a historical prepayment vector. Please let your representative know if you would like to run a Performance Profile.
Dan Stimpson, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP