June 1, 2020
Paycheck Protection Program – House Passes Bill To Change PPP
The House passed a bill last week that would allow businesses more leeway in using the funds obtained through the Treasury and SBA’s Paycheck Protection Program (PPP) created by the CARES Act to protect workers and support small businesses. Businesses could spend more on non-payroll costs, up to 40% instead of the previous 25% limit, and over a longer timeframe, with the initially required eight-week period for spending the loaned funds extended to 24 weeks. Additionally, the covered period for rehiring workers to keep payroll levels consistent with pre-virus levels would be pushed to the end of the year.
Summary of Paycheck Protection Program (data as of May 29, 2020)
Through May 29th, $510.24 billion in PPP loans have been approved by the SBA totaling 4.47 million small business loans through 5,513 participating lenders. The average size of PPP loans is $114,144.
Fixed-Rate DCPC Pools
- Supply in the secondary market for DCPC product has been light, while investor demand for the product remains high.
- Current yield spreads in SBA DCPCs were unchanged compared to last week at 95 bps. Spreads have tightened 26 bps over the last month, but spreads remain wide compared to historical levels.
- The May fixed-rate SBA DCPC auction drew strong investor interest as they offer superior convexity profiles to most residential MBS alternatives, while offering comparable yields and spreads.
- The May fixed-rate SBA DCPC auction included 10-year, 20-year, and 25-year maturities.
- Total issuance in the May auction of $409.9M declined $11.3M (-2.7%) from the prior month, which was the highest level of issuance since July 2013.
- Yield spreads tightened in the May auction but remain wider than the twelve-month average for all maturity terms.
- Spreads tightened 21 bps month over month for the longer maturity terms (81 bps yield spread for the 25-year term and 68 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.
Dan Stimpson, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP