April 17, 2017
SBA Market Update
The SBA sector continued to benefit from strong demand for floating-rate securities in the holiday shortened week. Activity centered on the shorter equipment-backed SBA pools. In addition, fixed-rate SBA securities continued to see interest as investors picked up pieces of the April 20-year DCPC. Loan trading activity increased after the typical quarter-end lull, with equipment loans continuing to be the most highly sought after.
Floating-Rate 7(a) Pools
- Demand for SBA floating-rate pools was squarely focused on equipment-backed pools. The shorter WAM pools were priced around 112 and yielded 1.75% at a 10 CPR. The shorter cash flow profile seems to be driving the demand for the equipment-backed pools. The longer real-estate-backed pools were priced from 110 – 117, yielding between 1.80% – 2.30% at a 10 CPR.
- Floating-rate pool coupons reflect the increase in Prime as of April 1st.
Fixed-Rate (DCPC and SBIC) Pools
- Portfolio managers continue to add pieces of the April DCPC which came to auction with a 2.84% coupon, 51bp over swaps. The April DCPC continues to see strong demand in the secondary market.
Government Guaranteed Loan Trading
- Loan trading activity picked up last week, as 1st quarter administrative activities are mostly done. Demand for 10-year WAM loans is very high, as equipment-backed pools continue to be favored by portfolio managers. Overall loan activity is outpacing last year with the volume of 7(a) and DCPC loans ahead of last year. The number of 7(a) loans trails last year’s levels by -4.6%, after growing 7.5% in the prior year. The number of DCPC loans is currently 12.4% higher than last year, as borrowers are wanting to lock in fixed-rates as the Fed continues to tighten.
Loan trading activity continues to increase, as loan originations outpace last year. Floating-rate SBAs experienced heightened activity last week, with most of the focus on 10-year WAM pools. In addition, the April 20-year DCPC continues to trade well in the secondary.
Greg Roll, CFA
Senior Vice President