August 13, 2018
SBA activity last week was focused on the DCPC auction Thursday, which included 20yr and 25yr terms. Investors have also remained active in floating rate equipment pools offered at par and premium pricing as yields on SBA floating rate pools moved higher over the last several weeks.
Fixed-Rate (DCPC and SBIC) Pools
- The DCPC auction last Thursday included 20yr and 25yr terms.
- The 64bp spread for the twenty-year DCPC auction in August tightened 7bps compared to July, but yield spreads versus Treasuries remain at the wide end of their ranges for the last several months.
- Similar to the spread tightening in the 20yr auction, the 25yr auction resulted in yields spreads tightening 8bps to 77bps versus Treasuries.
- Pool issuance in the August auction for the 20yr and 25yr terms increased over the July auction.
Floating-Rate 7(a) Pools
- Pricing levels on SBA floating pools with uncapped quarterly resets indexed to Prime offer attractive yield opportunities versus interest bearing cash and fed funds returns. Yields ranging from approximately 2.30% on par pools and 2.50% or higher on premium pools are currently available.
- Ten-year WAM equipment-loan pools should attract investor interest due to the cash flows from shorter-amortization schedules. Many equipment-loan pools offer favorable yields and margins using recent market prices and realistically vectored prepayment speeds.
Government Guaranteed Loan Trading
- Government-guaranteed USDA agricultural loans and SBA loans traded to financial institutions. As has been the case for some time, supply and not demand limits loan trading volumes.
SBA Prepayment Speeds
Tomorrow the monthly prepayment speeds for August will be available. The below information is based on July reports.
Mixed prepayment results left overall CPRs for SBA pools above their year-to-date average and also above the average since the October procedural changes. Real-estate pools slowed by a greater amount than equipment loans sped up, and for the first time in several months overall speeds for real-estate pools trailed equipment-loan pools. For additional charts and SBA prepayment commentary, click on the link.
Dan Stimpson, CPA
Senior Vice President