July 20, 2020
Floating-Rate 7(a) Pools
- SBA 7(a) prepayment speeds for the month of July were released last week. As expected, prepayments were low, but increased slightly from last month’s historic lows. Equipment loan pools increased from 5.4 to 6.2 CPR and after five months of declines, Real-Estate loan pools experienced their first increase, rising from 5.6 to 6.3 CPR.
- 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.
Fixed-Rate SBA DCPC SBAP Pools
- Investor demand in SBA DCPCs and SBICs remains high as these products offer superior convexity profiles to most residential MBS alternatives, while offering comparable yields and spreads.
- Current yield spreads in new issue SBA DCPCs to Treasurys tightened 1 bps last week to 59 bps. Spreads have tightened 11 bps over the last month and are 2 to 3 bps tighter than year-end and prior year spreads.
- Spreads in seasoned DCPCs 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 2020-20G 1 and SBAP 2020-25G 1)
- The July fixed-rate SBA DCPC auction included 10-year, 20-year, and 25-year maturities.
- Borrowers are benefiting from low rates, locking in the lowest debenture rates in the 504 program’s history.
- 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.
- 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 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). Spreads are now tighter than the twelve-month average for 20-year and 25-year maturities.
Mnuchin Suggests Forgiveness for Small Paycheck Protection Program (PPP) Loans
- Treasury Secretary Steven Mnuchin during a congressional hearing Friday suggested that a case-by-case approval process should be waived entirely for PPP loans below a certain threshold as Treasury and SBA begin to process millions of applications for loan forgiveness.
- The Paycheck Protection Program Small Business Forgiveness Act (S. 4117) was introduced in the Senate in early July. If passed, the legislation provides automatic forgiveness for PPP loans under $150,000 (roughly 85% of all PPP loans) and contains hold harmless language that the banking industry has sought since the inception of the PPP.
Dan Stimpson, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP