July 13, 2020
Fixed-Rate DCPC Pools
- Supply in the secondary market for DCPC product has been light; new issuance in the market from the monthly auction last week benefited SBAP liquidity.
- Current yield spreads in SBA DCPCs to Treasurys were unchanged last week. Spreads have tightened 20 bps over the last month and are within 1 to 2 bps of year-end and prior year spreads.
July Fixed-Rate SBA DCPC Auction (SBAP 2020-20G 1 and SBAP 2020-25G 1)
- The July fixed-rate SBA DCPC auction last week, which included 10-year, 20-year, and 25-year maturities, drew strong investor interest as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives, while offering comparable yields and spreads.
- Total issuance in the monthly auction of $397.3M declined $96.4M (-19.5%) from the prior month, which was the highest level of issuance since March 2013.
- The 25-year term represented 65.0% of total issuance, the 20-year term was 30.5%, and the 10-year term was 4.5%.
- Issuance is expected to remain high driven by historically low borrowing rates and the 6-months of loan payments provided by SBA on existing loans and new loans fully disbursed between March 27 and September 27.
- Borrowers are benefiting from low rates, locking in the lowest debenture rates in the 504 program’s history.
- Yield spreads continued the tightening trend in this month’s auction, tightening considerably over the last 3 months from the wide spreads in April. Spreads are now tighter than the twelve-month average for 20-year and 25-year maturities.
- Spreads tightened 16 bps and 15 bps month over month for 25-year and 20-year terms, respectively (51 bps yield spread for the 25-year term and 39 bps for the 20-year term).
Floating-Rate 7(a) Pools
- 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.
Paycheck Protection Program (PPP) Extended to August 8th
- President Trump signed into law an extension of the PPP. The legislation extends the June 30 deadline for applying for the program. The new deadline to apply for a PPP loan is August 8, 2020.
- Through July 10th, $517.42 billion in PPP loans have been approved by the SBA totaling 4.91 million small business loans through 5,454 participating lenders. The average size of PPP loans is $105K and the amount of PPP funding remaining is approximately $132.19 billion.
Dan Stimpson, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP