September 18, 2017
Portfolio managers continued extending duration last week by adding DCPCs from the September auction and certificates from the semi-annual SBIC issuance. In addition, investors continued to add floating-rate SBAs to their portfolios last week with the majority of activity focused on equipment-backed pools.
Floating-Rate 7(a) Pools
- Portfolio managers continue to consider the cash flow profile of SBA investments, recently focusing on equipment-backed pools that offer a shorter cash flow profile than real-estate-backed pools. Equipment-backed pools recently traded at prices 110 – 113, yielding from 1.70% to 1.90% at a 10 CPR. Investors have been actively buying seasoned pools, however portfolio managers are anticipating new issues equipment–backed pools hitting the market later this week.
Fixed-Rate (DCPC and SBIC) Pools
- Demand for fixed-rate SBAs continues to be strong, with the previous week’s September DCPC auction and the semi-annual SBIC issuance being well received. 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
- Demand for new issue floating-rate pools should continue to support an elevated level of loan trading activity. Loan activity supporting DCPC issuance continues to outpace last year, offering ample supply to support the monthly auctions. The last month of the quarter has traditionally elevated the number of loans that are brought to the market and this September is no different.
Demand for fixed-rate SBAs continues to be strong, with the DCPC auction and SBIC issuance offering much needed supply to investors. Investors continue to be active buying seasoned floating-rate pools, however portfolio managers are anticipating new issue equipment–backed pools hitting the market later this week.
Greg Roll, CFA
Senior Vice President