April 10, 2017
Last week was a good one for the SBA sector, with a combination of product availability and strong demand. The recently issued floating-rate pools met strong demand, much as they have ever since the Fed Funds and Prime rate increases. Meanwhile, fixed-rate investors exhibited very strong demand at the April 20-year DCPC auction on Thursday.
Floating-Rate 7(a) Pools
- While shorter WAM equipment-backed floating-rate pools continued to provide the primary focus of activity with portfolio managers last week, there was also significant inquiry and trading in the longer real-estate pools, as a few decent sized positions became available in the secondary market.
- At recent price levels and the current level of Prime, real estate pools yield above 1.80% at a 10 CPR. Recent production equipment-backed pools would yield above 1.75% at a 10 CPR.
- Floating-rate pool coupons reflect the increase in Prime as of April 1st.
Fixed-Rate (DCPC and SBIC) Pools
- The DCPC auction last week produced a 2.84% coupon, 51bp over swaps. Strong demand resulted in a 1.7 times oversubscribed aution.
- The amount of DCPC paper put out for bid immediately prior and subsequent to the auction is also suggestive of strong product demand.
Government Guaranteed Loan Trading
- Loan activity still seems to fall short of the amount needed based on demand for new issue pools. With the high demand for 10-year WAM pools, the shortage of equipment-backed loans is especially pronounced.
The DCPC auction of April 6th met strong demand last week. Strong activity also occurred in floating-rate pools and the SBA sector enjoyed an overall strong week based on volume. Supply seems to be the limiting factor to greater success.
Director of Investment Product Strategies