July 27, 2020
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 58 bps. Spreads have tightened 12 bps over the last month and are 3 to 4 bps tighter than year-end and prior year spreads.
- 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 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.
Floating-Rate 7(a) Pools
- SBA 7(a) prepayment speeds for the month of July were low, as expected, 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.
Additional Small Business Aid Likely in the Next Round of Stimulus
- Senate Republican leadership is expected to release the details of its coronavirus stimulus plan sometime today. The plan is expected to be in the ballpark of $1 trillion, significantly smaller than the $3.5 trillion plan passed by House Democrats. GOP lawmakers have indicated that additional aid to small businesses is likely to be part of any package.
- A secure SaaS platform (the PPP Forgiveness Platform) is being developed by the SBA to accept loan forgiveness requests for forgiveness payments for PPP lenders. The Platform makes available a user interface for PPP lenders to upload required data and documentation, monitor the status of the forgiveness request, and respond to SBA in case of an inquiry or if SBA selects the loan for review. SBA will post a link to the Platform on its website. The Platform is tentatively scheduled to go live and begin accepting lender submissions on August 10, 2020.
- A free online tool can simplify the PPP forgiveness process for small businesses and PPP borrowers. The PPP forgiveness tool provided by the AICPA, CPA.com, and biz2credit will incorporate the latest guidelines surrounding forgiveness as they are released by SBA and Treasury
Dan Stimpson, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP