June 22, 2020
Fixed-Rate DCPC Pools
- Supply in the secondary market for DCPC product has been light and investor interest remains high as DCPCs offer superior convexity profiles to most residential MBS alternatives, while offering comparable yields and spreads.
- Current yield spreads in SBA DCPCs tightened 10 bps last week to 70 bps over Treasurys. Spreads have tightened 25 bps over the last month, but spreads remain wide compared to historical levels.
June Fixed-Rate DCPC Auction
- The June auction included 20-year and 25-year maturities.
- Total issuance in the monthly auction of $493.7M increased $83.7M (+20.4%) from the prior month, which was the highest level of issuance since March 2013. The 25-year term represented 67% of total issuance.
- Issuance is expected to remain high driven by historically low borrowing rates and the 6-months of loan payments provided by SBA on existing loans and new loans fully disbursed between March 27 and September 27.
- Borrowers are benefiting from low rates, locking in the lowest debenture rates in the 504 program’s history.
- Yield spreads tightened but remain a couple of basis points wider than the twelve-month average.
- Spreads tightened 14 bps month over month for both maturity terms (67 bps yield spread for the 25-year term and 54 bps for the 20-year term).
Floating-Rate 7(a) Pools
- SBA 7(a) prepayment speeds for the month of June experienced the largest month-over-month drop in years and it is likely that this summer season will be a historically low prepayment period. Equipment loan pools dropped from 12.4 to 5.4 CPR, with every vintage experiencing declines. Real-Estate loan pools decreased for the fifth straight month, going from 12.5 to 5.6.
- 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.
Paycheck Protection Program (PPP) – Disclosures Announced
- Last Friday June 19th, the U.S. Treasury and SBA announced they would disclose names and other details about businesses that take PPP loans of $150,000 or more, which account for approximately 75% of PPP loan dollars approved.
- “SBA will disclose the business names, addresses, NAICS codes, zip codes, business type, demographic data, non-profit information, jobs supported, and loan amount ranges” in five different brackets, the Treasury said.
- “For loans below $150,000, totals will be released, aggregated by zip code, by industry, by business type, and by various demographic categories,” the Treasury said. Names of recipients will not be disclosed for PPP loans below $150,000.
PPP Forgiveness – EZ Application Form Available
- The SBA released a revised loan forgiveness application and also unveiled a new EZ application for forgiveness of PPP loans on June 16th.
- The applications and instructions are available in the links below:
Summary of Paycheck Protection Program (data as of June 20, 2020)
Through June 20th, $514.94 billion in PPP loans have been approved by the SBA totaling 4.67 million small business loans through 5,456 participating lenders. The average size of PPP loans is $110,347 and the amount of PPP funding remaining is $128.36 billion. The last day to apply for PPP loans is June 30, 2020.
Dan Stimpson, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP