April 11, 2022
Fixed-Rate SBA DCPCs (SBAP)
- Investor interest in the fixed-rate SBA DCPC auction last week remained strong as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives.
- The DCPC auction priced at historically tight spreads for much of 2021; however, spreads have widened approximately 90 bps since June 2021. Debenture rates increased and yield spreads widened month over month to their highest levels in over a year in the April SBA DCPC auction.
- The current yield spread of 58 bps in new issue SBA DCPCs to Treasurys widened 4 bps last week. Spreads are 3 bps wider month over month and 31 bps wider year to date. Spreads are 34 bps wider than the 1-year average of 24 bps.
April Fixed-Rate SBA DCPC Auction (SBAP 2022-20D and SBAP 2022-25D)
- The April fixed-rate SBA DCPC auction included 20-year and 25-year maturities.
- Debenture rates increased 75 bps to 3.50% (25yr) and 85 bps to 3.38% (20yr) in the auction. Debenture rates are 157 bps (25yr) and 163 bps (20yr) above their respective twelve-month average.
- Total issuance of $624.9M increased $13.7M (2.2%) from the prior month. The 25-year represented 84.9% of total issuance in the auction.
- Debenture rates to Treasury spreads widened 10 bps month over month for the 25-year term and 20 bps for the 20-year term (85 bps spread for the 25-year and 73 bps for the 20-year).
- Spreads have widened approximately 90 bps from the historically tight levels in the June 2021 auction.
- Spreads are wider than their respective twelve-month average (57 bps wider for the 25-year and 63 bps wider for the 20-year).
Floating-Rate SBA 7(a) Pools
- Prepayment speeds on both equipment and real-estate loan pools decreased in February. Equipment loan pools’ prepayments slowed from 21.5 to 18.3 CPR, with most individual vintages experiencing decreases. Speeds on real-estate loan pools declined from 18.4 to 14.7 CPR, which was also the case for most pools when viewed 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