March 27, 2017
SBA Market Update
The combination of recent Fed actions and a host of new issuance yielded high levels of activity in floating-rate SBA pools last week. In addition, fixed-rate SBA investments also saw renewed interest, as the semi-annual SBIC auction was well received by investors last week. Loan trading activity was steady last week, as depositories focused on closing out the quarter strong.
Floating-Rate 7(a) Pools
- Activity was strong in both shorter WAM equipment-backed floating-rate pools and the longer real-estate-backed offerings. Recently issued equipment-backed pools traded at prices north of 113, yielding above 1.75% at a 10 CPR.
- The new issue real-estate-backed pools traded at prices between 110-113, yielding just north of 1.80% at a 10 CPR. Portfolio managers have also been adding par price real-estate-backed pools. These pools are priced just above par and can yield above 1.35% at a 10 CPR.
- Floating-rate pool coupons will reflect the increase in Prime on April 1st.
Fixed-Rate (DCPC and SBIC) Pools
- Fixed-rate SBA investment activity was very high with investors picking up pieces of the SBIC auction and of the March DCPC still trading in the secondary. The semi-annual SBIC auction was met with strong demand last week, with the trust certificate rate of 2.85%, 80 bps above the last auction. In addition the $1 billion plus debenture came at a spread to Treasuries of 42 bps, 8 bps wider than prior.
- March prepay speeds for floating-rate pools were recently released with March 2017 YTD averaging 7.5 CPR, slightly lower than last month, and below that of the 8.1 CPR recorded for 2016. Equipment-backed pools trended down slightly to 6.9 CPR, as real-estate-backed pools continued the slowing trend to 7.6 CPR. Origination years 2012-2015 posted the highest speeds, although speeds for the 2013 vintage are 2.3 CPR lower than the peak speed of 14.3 CPR posted last year.
Government Guaranteed Loan Trading
- Loan trading activity was steady last week as the quarter comes to a close. With the recent issuance of new floating-rate pools, demand for new loans will begin to mount. Heightened activity in 10-year pools over the past couple of months has led to a shortage of available 10-year loans for purchase in the market.
Fed actions, coupled with new issuance seemed to spur activity in floating-rate SBA pools. Floating-rate pool coupons will reflect the increase in Prime on April 1st. In addition, fixed-rate SBA investment activity was very high with investors picking up pieces of the SBIC auctions and of the March DCPC still trading in the secondary.
Greg Roll, CFA
Senior Vice President