July 17, 2017
Last week activity in floating-rate SBAs was elevated, as investors added par handle pools and seasoned equipment backed pools to their portfolios. Fixed-rate SBA investment was light last week as supply of DCPC paper was limited and the next auction isn’t until August 10th. Origination of government guaranteed loans continues to be healthy, driving loan activity and the formation of new pools.
Floating-Rate 7(a) Pools
- Recent activity has been focused on par handle real-estate-backed SBA pools and the shorter WAM equipment-backed floating-rate pools. Investor bias continues to be in equipment-backed pools offering shorter cash flow structures than the longer real-estate-backed pools. Seasoned equipment-backed pools traded at prices below 110, with yields north of 1.80% at a 10 CPR.
- Investors have been looking to par handle SBA pools to avoid premium risk, yet capture highly sought-after variable rate investments. Par handle pools trade slightly above par, offering yields just shy of 1.60% at a 10 CPR.
- Floating-rate pool coupons reflect the increase in Prime as of July 1st.
Fixed-Rate (DCPC and SBIC) Pools
- Demand for fixed-rate SBA securities was limited last week although portfolio managers continue to look for DCPC paper trading in the secondary. Seasoned DCPC trading in the secondary market can offer yields just above 2.00%, at prices below 110. The next DCPC auction is set for August 10th.
Government Guaranteed Loan Trading
- Loan trading activity picked up last week as YTD government guaranteed loan origination volumes continue to outpace last year’s totals. Trading activity should continue to increase throughout the quarter, as the recent issuance of new floating-rate pools creates heightened demand for new loans.
Trading was elevated in par handle SBA floating-rate pools and limited fixed-rate investments as supply of DCPC may be a challenge until the next auction. Floating-rate pool coupons reflect the increase in Prime as of July 1st.
Greg Roll, CFA
Senior Vice President