January 3, 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 40 bps since June.
- Issuance has trended higher from the lows in October 2020; however, auction issuance declined 20% month over month in the December auction.
- The current yield spread of 27 bps in new issue SBA DCPCs to Treasurys was unchanged last week. Spreads are 6 bps wider month over month and have tightened 2 bps year over year
- 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.
December Fixed-Rate SBA DCPC Auction (SBAP 2021-20L and SBAP 2021-25L)
- The December fixed-rate SBA DCPC auction included 20-year and 25-year maturities.
- Debenture rates rose 10 bps to 1.85% (25yr) and 1.65% (20yr) in the auction. Debenture rates are 32 bps (25yr) and 28 bps (20yr) above their twelve-month average.
- Total issuance of $504.1M declined $127.0M (20.1%) from the prior month.
- The 25-year represented 86.4% of total issuance in the auction.
- Debenture rates to Treasury spreads widened 12 bps month over month for the 25-year and 20-year terms (37 bps spread for the 25-year and 17 bps for the 20-year). Spreads have widened approximately 40 bps from the historically tight levels in the June auction.
- Spreads are wider than their respective twelve-month average (21 bps wider for the 25-year and 16 bps wider for the 20-year).
Floating-Rate SBA 7(a) Pools
- SBA 7(a) prepay commentary: Prepayment speeds on equipment loan pools increased for the eighth time in nine months while those for real-estate loan pools slowed.
- Equipment loan pools’ prepayments increased from 15.4 to 15.6 CPR, though results were more mixed when viewed on a vintage-by-vintage basis. Prepayments on real-estate loan pools slowed from 17.1 to 15.4 CPR, which was also reflected in most individual vintages.
- 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