July 19, 2021
Fixed-Rate SBA DCPCs (SBAP)
- The July fixed-rate SBA DCPC auction saw strong investor interest as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives. The DCPC auction has priced at historically tight spreads this year; however, spreads widened 13 bps month over month.
- Supply in the secondary market for SBA fixed rate product has not kept up with demand; new issuance in the market from the auction has improved liquidity in the SBA market. Issuance has trended higher over the past nine months from the lows in October 2020.
- The current yield spread of 14 bps in new issue SBA DCPCs to Treasurys widened 2 bps last week. Spreads are 4 bps wider month over month and have tightened 15 bps 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.
July Fixed-Rate SBA DCPC Auction (SBAP 2021-20G and SBAP 2021-25G)
- The July fixed-rate SBA DCPC auction included 10-year, 20-year, and 25-year maturities.
- Debenture rates fell for the third consecutive month in the July auction from the highs in April 2021; however, debenture rates are 8 bps (25yr) and 2 bps (20yr) above their twelve-month average.
- Total issuance in the July auction of $491.9M declined $73.6M (13.0%) from the prior month.
- The 25-year term represented 79.8% of total issuance in the July auction.
- Debenture rates to Treasury spreads widened 13 bps month over month for the 25-year and 20-year terms (11 bps spread for the 25-year term and -7 bps for the 20-year term).
- Spreads are currently tighter than their twelve-month average for both maturity terms, but spreads widened from the historically tight levels in the May and June auctions.
Floating-Rate SBA 7(a) Pools
- SBA 7(a) prepay commentary was released last week. Prepayment speeds on both equipment and real-estate loan pools increased for the fourth straight month.
- Equipment loan pool prepayments increased from 12.1 to 14.0 CPR. Most individual vintages followed the overall trend of increasing in speeds for the month. Prepayments on real-estate loan pools also picked up slightly, going from 11.8 to 12.2 CPR, though most individual vintages actually experienced a decrease.
- 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
Vining Sparks IBG, LP