June 8, 2020
The Paycheck Protection Program (PPP) Flexibility Act
President Trump signed the PPP Flexibility Act into law June 5th allowing businesses more leeway in using the funds obtained through the SBA’s PPP. The legislation allows businesses to spend more on non-payroll costs, up to 40% instead of the previous 25% limit, and over a longer repayment term (extended from two years to five years) and the required eight-week period for spending the funds extended to 24 weeks. The covered period for rehiring workers to keep payroll levels consistent with pre-virus levels was extended from June 30 to December 31, 2020. The Act allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.
Fixed-Rate DCPC Pools
- Supply in the secondary market for DCPC product has been light, while investor demand for the product remains high.
- New issuance in the market from the monthly auction this week should benefit SBAP liquidity.
- The June fixed-rate SBA DCPC auction this week, which includes 20-year and 25-year maturities, is expected to draw strong investor interest as SBA DCPCs and SBICs 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 85 bps over Treasuries. Spreads have tightened 25 bps over the last month, but spreads remain wide compared to historical levels.
Floating-Rate 7(a) Pools
- SBA 7(a) prepayment speeds will be released this Friday.
- 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