October 2, 2017
Portfolio managers continued adding both floating-rate and fixed-rate SBAs to their portfolios last week. Floating-rate additions were mostly new issue equipment-backed pools, although seasoned real-estate pools were also in the mix. Also, the semi-annual SBIC issuance continues to trade well as some investors continue to look for fixed-rate allocations to their portfolios.
Floating-Rate 7(a) Pools
- Equipment-backed pools continue to be the main focus among SBA floating-rate investments. New issue equipment-backed pools recently traded at prices 113-115, yielding north of 1.75% at a 10 CPR. Typically these pools have a lower WAM and offer a shorter cash flow profile than real-estate-backed pools.
- Investors also added seasoned real-estate-backed pools offering more yield that the shorter WAM pools. Recently traded real-estate-backed pools traded at prices 116-118, yielding north of 2.10% at a 10 CPR. Adding seasoned pools to a portfolio can also help to mitigate premium risk, as portfolio managers look to diversify holdings based on origination dates.
- September prepay speeds for floating-rate pools were recently released with September 2017 YTD averaging 8.7 CPR, on par with last month, and ahead of the 8.1 CPR recorded for 2016. Equipment-backed pools ticked up recording a YTD speed of 9.1 CPR, as real-estate-backed pools slowed for the second month in a row to 8.4 CPR. Origination year of 2013 posted slowing speeds after peaking in 2016, as pools originated in 2015 experienced increasing speeds.
Fixed-Rate (DCPC and SBIC) Pools
- The semi-annual SBIC issuance continues to trade well as some investors continue to look for fixed-rate allocations to their portfolios. The SBIC issuance included a 10-year, non-amortizing certificate. The issuance pool size was just under $855 million, with a fixed coupon of 2.518%, 45 bps over Treasuries.
Government Guaranteed Loan Trading
- Loan trading activity slowed as the 3rd quarter came to a close last week. Trading activity should resume to previous levels after depositories finish their quarter-end administrative duties. Demand for new issue floating-rate pools should continue to support an elevated level of loan trading activity.
September prepay speeds were on par with last month as all SBA pools experienced an 8.7 CPR, slightly higher than the full year speeds for 2016. Demand for floating-rate and fixed-rate SBAs continues to be strong with a variety of structures available in the market. New issue equipment-backed pools and seasoned real-estate-backed pools were actively traded last week.
Greg Roll, CFA
Senior Vice President