August 24, 2020
Fixed-Rate SBA DCPCs
- Investor demand in SBA DCPCs and SBICs remains high as these products offer superior convexity profiles to most residential MBS alternatives, while offering comparable yields and spreads.
- Current yield spreads in new-issue SBA DCPCs to Treasurys tightened 2 bps last week to 40 bps. Spreads have tightened 18 bps over the last month and have tightened 22 bps YTD.
- 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.
August Fixed-Rate SBA DCPC Auction (SBAP 2020-20H 1 and SBAP 2020-25H 1)
- The August fixed-rate SBA DCPC auction, which included 20-year and 25-year maturities.
- Total issuance in the monthly auction of $374.8M declined $22.5M (-5.7%) from the prior month. The 25-year term represented 72.8% of total issuance and the 20-year term represented 27.2% of total issuance.
- Spreads were 1 bp tighter to unchanged month over month for 25-year and 20-year terms, respectively (50 bps yield spread for the 25-year term and 39 bps for the 20-year term).
Floating-Rate 7(a) Pools
- SBA 7(a) prepayment speeds for the month of August on both equipment and real-estate loan pools were fairly in-line with last month and continue to be at a fraction of their prior levels. Equipment loan pools increased from 6.2 to 6.8 CPR, with mixed results among vintages. Real-estate loan pools, on the other hand, dropped slightly from 6.3 to 6.2 CPR, their sixth decrease in the last seven months.
- 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.
PPP Loan Program Ends; Additional Small Business Aid Likely in the Next Round of Stimulus
- Paycheck Protection Program (PPP) loan applications ended on August 8th.
- While further stimulus for small business is under consideration in Congress, additional PPP programs are expected to be smaller and more restrictive than the first two rounds of PPP.
PPP Loan Forgiveness Begins
The SBA rolled out a PPP forgiveness platform to process PPP loan forgiveness applications.
- Borrowers can begin submitting the Loan Forgiveness Application to their lender.
- The lender has 60 days to submit a decision to the SBA, using the SBA’s Payroll Protection Forgiveness Platform.
- The SBA has 90 days to review the forgiveness application and remit the forgiveness funds to the lender.
Dan Stimpson, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP