March 7, 2022
Fixed-Rate SBA DCPCs (SBAP)
- Investor interest in the fixed-rate SBA DCPC auction this week is expected to remain strong as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives. The DCPC auction priced at historically tight spreads for much of 2021; however, spreads have widened over 40 bps since June 2021.
- The current yield spread of 40 bps in new issue SBA DCPCs to Treasurys widened 6 bps last week. Spreads are 22 bps wider month over month and 13 bps wider year to date. Spreads are 19bps wider than the 1-year average of 21bps.
- 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.
February Fixed-Rate SBA DCPC Auction (SBAP 2022-20B and SBAP 2022-25B)
- The February fixed-rate SBA DCPC auction included 20-year and 25-year maturities.
- Debenture rates rose 38 bps to 2.42% (25yr) and 2.22% (20yr) in the auction. Debenture rates are 74 bps (25yr) and 71 bps (20yr) above their respective twelve-month average.
- Total issuance of $523.3M increased $72.3M (16.0%) from the prior month.
- The 25-year represented 86.7% of total issuance in the auction.
- Debenture rates to Treasury spreads widened 12 bps month over month for the 25-year and 20-year terms (43 bps spread for the 25-year and 23 bps for the 20-year).
- Spreads have widened over 40 bps from the historically tight levels in the June 2021 auction.
- Spreads are wider than their respective twelve-month average (25 bps wider for the 25-year and 22 bps wider for the 20-year).
Floating-Rate SBA 7(a) Pools
- Both equipment and real-estate loan pools saw an increase in prepayments over the last month. Equipment loan pools’ prepayments rose from 17.2 to 21.5 CPR. Speeds on real-estate loan pools also picked up, increasing from 15.3 to 18.4 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.
Dan Stimpson, CPA
Senior Vice President, Investment Strategies