February 7, 2022
Fixed-Rate SBA DCPCs (SBAP)
- Investor interest in the fixed-rate SBA DCPC auction this week is expected to remain strong as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives. The DCPC auction has priced at historically tight spreads for much of 2021; however, spreads have widened approximately 20 bps since June 2021.
- Issuance has trended higher from the lows in October 2020; however, auction issuance declined 10.5% month over month in the January auction.
- The current yield spread of 18 bps in new issue SBA DCPCs to Treasurys tightened 6 bps last week. Spreads are 10 bps tighter month over month and 9 bps tighter year to date.
- 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.
January Fixed-Rate SBA DCPC Auction (SBAP 2022-20A and SBAP 2022-25A)
- The January fixed-rate SBA DCPC auction included 10-year, 20-year, and 25-year maturities.
- Debenture rates rose 19 bps to 2.04% (25yr) and 1.84% (20yr) in the auction. Debenture rates are 45 bps (25yr) and 41 bps (20yr) above their respective twelve-month average.
- Total issuance of $451.01M declined $53.1M (10.5%) from the prior month.
- The 25-year represented 83.5% of total issuance in the auction.
- Debenture rates to Treasury spreads tightened 6 bps month over month for the 25-year and 20-year terms (31 bps spread for the 25-year and 11 bps for the 20-year). Spreads have widened over 30 bps from the historically tight levels in the June 2021 auction.
- Spreads are wider than their respective twelve-month average (15 bps wider for the 25-year and 11 bps wider for the 20-year).
Floating-Rate SBA 7(a) Pools
- Prepayment speeds on SBA 7(a) floating rate on equipment loan pools increased for the ninth time in ten months while those for real-estate loan pools slowed.
- Equipment loan pools’ prepayments increased from 15.6 to 17.2 CPR, which was reflected among all individual vintages. Prepayments on real-estate loan pools slightly slowed from 15.4 to 15.3 CPR, though results were more mixed 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