SBA Hot Topic Tuesday — SBA 7(a) Prepays Remain Above 14% for February

April 3, 2018

By Bob Judge
Editor, CPR Report

SBA Hot Topic Tuesday — SBA 7(a) Prepays Remain Above 14% for February

For February, the GLS Value Indices fell in five out of six sub-indices as prepayment speeds and rising Libor rates continue to push SBA-Libor spreads lower. The combined impact of rising Libor and increasing prepayment speeds have pushed the value indices to unprecedented lows.

Small Business Indexes Commentary

Please note: We have added our “Hedge” indexes to the CPR Report, which are IO Strip indexes without sub-indexes for pricing and return of capital.

This month, we witnessed an increase in 7a pools, but decreases in 7a IOs, SBAPs, SBICs and the Composite. SBA 7a pools returned +0.06% for actual and +0.05% for equal weighting this month versus +0.35% / +0.35% last month as the interest earned offset a slight decrease in the pricing element. For IO Strips, we witnessed returns of -3.61% / -2.87%, which were down from returns of +3.11% / +2.91% last month. With only the interest element positive, the overall index suffered from price decreases and faster prepays. Turning to our SBAP and SBIC indexes, we saw the 504 debenture indexes decrease by -0.48% / -0.32% and SBIC debenture indexes fall by -0.61% / -0.57%. Overall, our Composite Index came in at -0.36% / -0.28%.

Actual 7(a) Prepays Remain Above 14%
In February, total prepays, including paid excess principal, came in at 14.18%, a 1% decline from last month’s reading of 14.30%. After correcting for the excess principal being released from the MRF, pool prepays (CCPR) came in at 11.95%, down 2% from January’s reading of 12.28%. Underlying loan level CPRs (LCPR) came in at 13.32% in February, also down 2% from January’s level of 13.66%. As for the largest sector in the market, 20+ years to maturity, the ACPR came in at 14.70%, an increase of 1% over the previous reading of 14.58%. This month provides more evidence that prepayments, by any measure, are running well into the double-digits.

7(a) Pooling League Tables
For the first month of 2018, SunTrust jumped out to the early lead for ALL POOLS, totaling $213 million. They were followed by FTN Financial with $127MM and Signature Bank with $76MM. Totals for all assembled pools in January was $623MM.

504 Debenture Speeds
This month, 20 year debenture prepayment speeds fell by 5% to CPR 8.39%, staying below the psychologically-important 10% level for a fourth month in a row. As for 10-year paper, it also came in below 10% at CPR 8.47% as voluntary prepayments dropped due to rising interest rates.

Master Reserve Fund Watch
As of the February Factor Report, we estimate the principal shortfall in the MRF to be $3.33 billion. This month saw $67 million of excess paid out and since last October, the cumulative total is $340 million.

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