May 4, 2020
$484 Billion Stimulus Package includes $310 Billion for Paycheck Protection Program (PPP) Loans
President Trump signed another relief bill into law on April 24th. The $484 billion relief package replenishes funds for small business PPP loans ($310B), includes SBA disaster loans ($60B), provides funding for hospitals ($75B) and COVID-19 testing ($25B).
The SBA resumed accepting PPP applications from participating lenders on Monday, April 27, 2020 at 10:30am EDT. Through May 3rd, $175 billion in PPP loans had been approved in the second round of funding, totaling 2.2 million small business loans. The average loan size of round two of PPP is $79,000. Larry Kudlow, the White House’s top economic adviser, said the administration might consider getting additional money for the program for more loans. “This has been an extremely popular and effective program, no question about it. You know, keeping folks on the payroll is so important. We will be looking at that.”
Fixed-Rate DCPC Pools
- The May fixed-rate SBA DCPC auction this Thursday, which includes 10-year, 20-year, and 25-year maturities, is expected to draw strong investor interest as they offer superior convexity profiles to most residential MBS alternatives, while offering comparable yields and spreads.
- Supply in the secondary market for DCPC product has been light the last several weeks. New issuance in the market from the auction this week should benefit SBAP liquidity.
- Yield spreads on SBA DCPCs remain wide, pricing at approximately 120 bps or wider to Treasurys (I-curve).
- The April fixed-rate SBA DCPC auction held on April 9th included 20-year and 25-year maturities.
- Total issuance in the April auction of $421.2M was the highest level of issuance since July 2013.
- Yield spreads widened in the April auction and are significantly wider than the twelve-month average for all maturity terms. Spreads widened 34 bps month over month for both maturity terms (102 bps yield spread for the 25-year term and 89 bps for the 20-year term).
Fixed-Rate SBIC Debentures
- Yield spreads on newer and seasoned SBICs remain wide and are pricing at approximately 120 bps or wider to Treasurys (I-curve), significantly wider than the average spread of 53 bps from March 2014 to March 2020.
Floating-Rate 7(a) Pools
- SBA 7(a) prepayment speeds for the month of April were released recently and the effects of nationwide social distancing measures were reflected in prepayments, as speeds on both Equipment and Real-Estate loan pools experienced widespread decreases for the month of April. Equipment loan pools dropped from 17.0 to 12.0 CPR, with every vintage experiencing a decrease as well. Real-Estate loan pools went down from 18.4 to 13.4, as all but two individual vintages experienced reductions in speeds.
- 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