This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

83837 

Vol. 85, No. 247 

Wednesday, December 23, 2020 

SMALL BUSINESS ADMINISTRATION 

13 CFR Part 120 

RIN 3245–AH29 

Secondary Market Program—Proposed 

Regulatory Changes 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Advance notice of proposed 

rulemaking. 

SUMMARY: The U.S. Small Business 

Administration (SBA or Agency) is 

considering a change in the structure of 

its secondary market 7(a) loan pool 

security to better align the collateral and 

cash flows to support the long-term 

viability of the SBA secondary market 

7(a) loan pooling program. Specifically, 

SBA seeks public comment on the 

alignment of cash flows between the 

collateral (the guaranteed portion of 7(a) 

loans) and the pool security (Pool 

Certificate), the timely payment of 

scheduled interest and actual principal, 

and the publication of additional loanlevel disclosure. The Agency is also 

seeking public comment on registering 

such securities in book-entry form. 

DATES: Comments must be received on 

or before February 22, 2021. 

ADDRESSES: You may submit comments, 

identified by RIN 3245–AH29, by any of 

the following methods: 

• Federal eRulemaking Portal: 

https://www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail/Hand Delivery/Courier: Peter 

Meyers, Office of Capital Access, U.S. 

Small Business Administration, 409 

Third Street SW, 8th Floor, Washington, 

DC 20416. 

All comments will be posted on 

https://www.regulations.gov. If you wish 

to submit confidential business 

information (CBI) as defined in the User 

Notice at https://www.regulations.gov, 

you must submit such information 

either by mail to Peter Meyers, Office of 

Capital Access, U.S. Small Business 

Administration, 409 Third Street SW, 

8th Floor, Washington, DC 20416, or by 

email to Peter.Meyers@sba.gov. 

Highlight the information that you 

consider to be CBI and explain why you 

believe SBA should hold this 

information as confidential. SBA will 

review your information and determine 

whether it will make the information 

public. 

FOR FURTHER INFORMATION CONTACT: 

Peter Meyers, Office of Capital Access, 

U.S. Small Business Administration, 

409 Third Street SW, 8th Floor, 

Washington, DC 20416; (202) 527–1253 

or Peter.Meyers@sba.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The Secondary Markets Improvement 

Act of 1984 (Pub. L. 98–352) authorized 

SBA to establish a secondary market to 

facilitate the pooling of the guaranteed 

portion of 7(a) loans (underlying loans) 

into securities (referred to as Pool 

Certificates). The SBA secondary market 

allows SBA Lenders to expand their 

commitment to small businesses by 

establishing a process for the sale and 

pooling of SBA-guaranteed 7(a) loans 

into securities, which enables SBA 

Lenders to leverage their capital and 

make more 7(a) loans. SBA Lenders may 

sell SBA-guaranteed 7(a) loans to SBAapproved Pool Assemblers, who 

aggregate loans into SBA pools (the 

underlying loans represent the collateral 

for the pool). SBA then issues Pool 

Certificates representing ownership of 

all or a fractional undivided interest in 

a part of those pools. SBA’s guarantee 

on Pool Certificates is backed by the full 

faith and credit of the United States. 

Currently, investors receive a timely 

payment guarantee of principal and 

interest on Pool Certificates. However, 

certain structural limitations of the 

current pool security prevent the 

instrument from performing like a pure 

pass-through security. For example, 

mismatches in cashflows between the 

underlying loan collateral and the pool 

security may result in the accumulation 

of amortization excess in SBA’s Master 

Reserve Fund (‘‘MRF’’). Historically, the 

program costs associated with 

amortization excess (and the additional 

coupon interest paid while the 

amortization excess remains in the 

MRF) has been absorbed by SBA. 

Other U.S. government-backed 

securities issued by governmentsponsored enterprises pass through all 

prepayments to the security holder, 

which keeps the cash flow from the 

underlying loan collateral aligned with 

the cash flow paid on the related 

securities. Government-sponsored 

enterprises also disclose a significant 

amount of loan-level information which 

provides investors with a better 

understanding of underlying loan 

collateral performance and may enhance 

more accurate security pricing. 

II. Current SBA Secondary Market 7(a) 

Loan Pool Security 

SBA’s current secondary market 7(a) 

loan pool security provides for the 

timely payment of principal and interest 

each month. Full prepayments from the 

underlying loans are passed through to 

the Pool Certificate holders. Partial 

prepayments greater than 20% of the 

outstanding principal balance of the 

loan at the time of prepayment are also 

passed through to the Pool Certificate 

holders. However, partial prepayments 

that are 20% or less than the 

outstanding principal balance of the 

loan at the time of prepayment are held 

in the MRF for future distribution. 

While this current structure may protect 

the Pool Certificate holder from some 

prepayment risk, it can create 

imbalances between the underlying 

loans in the pool and the balance 

outstanding on the related Pool 

Certificates. SBA is seeking to eliminate 

this imbalance through the creation of a 

new SBA secondary market 7(a) loan 

pool security that better aligns payments 

in with payments out. SBA anticipates 

that the proposed solution will reduce 

the risk assumed by SBA for 

administering the 7(a) loan pooling 

program. 

SBA believes that offering a 7(a) loan 

pool security that is more similar to 

those of other government-backed 

enterprises will provide more consistent 

long-term stability for pool security 

payments, which will attract more 

institutional investors. SBA also 

believes that these changes will promote 

a continued source of liquidity for SBA 

Lenders that make 7(a) loans to small 

businesses. 

III. Proposed New SBA Secondary 

Market 7(a) Loan Pool Security 

A. Alignment of Cash Flows 

SBA is considering the issuance of a 

new modified pass-through pool 

security that would better align the 

actual monthly cash flows of the 


jbell on DSKJLSW7X2PROD with PROPOSALS
83838 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules 

underlying loans with the pool security. 

The underlying loans are structured as 

simple interest term loans that are 

amortized over their respective loan 

maturities. The allocation of principal 

and interest on any given installment 

payment is dependent on when the 

payment is received relative to when it 

is due. Accrued interest is paid up to 

the date of receipt of payment, with all 

remaining amounts applied to principal. 

When the underlying loans are paid as 

agreed according to their loan terms, the 

scheduled principal received from 

borrowers aligns with their respective 

loan amortization schedules. However, 

when borrower payments are late or 

missed, the payment of all accrued 

interest must be satisfied first before any 

remaining amount is applied to the 

principal outstanding. This can result in 

reduced loan principal paid by the 

borrower and, in some instances, no 

payment of principal at all. SBA does 

not require SBA Lenders, as loan 

servicers, to advance principal 

payments to make up for these 

differences. Under this current 

structure, the risk to SBA of supporting 

a scheduled principal payment to Pool 

Certificate holders is not sustainable 

over the long-term. 

The current SBA secondary market 

7(a) loan pool security is further 

complicated by underlying loan 

prepayments. Scheduled pool principal 

is paid to Pool Certificate holders based 

on the outstanding pool principal 

balance and the remaining months to 

maturity of the pool. This can create a 

difference between the remaining pool 

principal balance outstanding and the 

principal balance outstanding on the 

underlying loans. Full prepayments 

(which include voluntary prepayments 

by borrowers and involuntary 

prepayments resulting from SBA’s 

payment on its guarantee on defaulted 

7(a) loans) require a reconciliation of the 

allocated principal paid to the pool 

compared with the actual loan principal 

received from the underlying loans. 

This reconciliation may result in a 

reduced amount of prepayment 

principal paid to Pool Certificate 

holders because portions of prepayment 

principal may be needed to cover a 

shortfall of principal collected on a 

specific loan. Conversely, this 

reconciliation may result in an 

additional amount of prepayment 

principal paid to Pool Certificate 

holders due to actual loan principal 

previously collected on a specific loan 

but not yet distributed. 

B. Timely Payment of Scheduled 

Interest and Actual Principal 

As a solution to the misalignment of 

cash flows noted above, SBA is 

proposing to restructure its 7(a) loan 

pool security to provide for the timely 

payment of scheduled interest and 

actual principal received. SBA believes 

that this form of a modified passthrough security would remove 

differences arising from scheduled 

principal paid and actual principal 

received and eliminate the 

reconciliation and adjustment exercise 

occurring on all principal prepayments. 

Scheduled interest will be calculated 

using a 30/360 accrual method (i.e., 

interest will be calculated on the basis 

of a 360-day year consisting of twelve 

30-day months). It is a much simpler 

form of security and allows investors to 

monitor pool prepayment speeds based 

on the actual prepayment activity of the 

underlying loans. SBA believes that this 

will provide greater transparency to 

market participants. 

This structural change in the pool 

security will bring SBA Pool Certificates 

more in line with other U.S. 

government-backed securities and may 

be more marketable to potential 

investors. SBA believes that passing all 

prepayments through to the Pool 

Certificate holder will promote greater 

predictability of monthly cash flows. 

This will keep the underlying loan 

balances in sync with the related Pool 

Certificate balances and will no longer 

require the MRF to retain amortization 

excess or make advances of pool 

principal. 

Implementing a more standardized set 

of pool characteristics, such as requiring 

the same underlying loan payment due 

date and requiring ACH debits on 

underlying loan payments will also 

simplify the pooling process and create 

a more viable program for the long-term. 

C. Loan-Level Disclosure 

In addition to the new features 

described above, SBA is considering a 

robust set of loan-level disclosures to 

accompany the launch of a new passthrough security. This data will provide 

investors with greater insight on the 

underlying loans and may help inform 

more accurate pricing decisions. A new 

disclosure portal could be launched to 

provide historical and current loan-level 

data as well as customizable reports. 

D. Book Entry Registration 

To further align a new pool security 

with other U.S. government-backed 

securities, SBA is proposing a bookentry form of registration. This 

electronic record of ownership will 

allow the pool security to be traded or 

transferred with greater ease than a 

physical certificate. 

IV. Request for Comment 

SBA requests comments from the 

public on the questions listed below. 

The list of questions is meant to assist 

in the formulation of public comments 

and is not intended to restrict the issues 

that may be addressed. Responders are 

invited to comment on any or all 

portions of this ANPRM. 

A. Questions About the Alignment of 

Cash Flows 

1. What are the advantages or 

disadvantages to SBA revising the 

current method of administering loan 

prepayments and other unscheduled 

principal payments? 

2. Are there benefits of knowing that 

a pool’s underlying loan collateral 

balance will be in sync with that pool’s 

outstanding security balance? 

3. What impact would this proposed 

new security have on the SBA 

secondary market 7(a) loan pooling 

program? 

4. What effect would the alignment of 

cash flows have on the pricing of a 

security? 

B. Questions About the Timely Payment 

of Scheduled Interest and Actual 

Principal 

1. What payment features are most 

important when considering a new pool 

security? Are there certain payment 

features of the current Pool Certificate 

that SBA should consider changing? 

2. What effect would the timely 

payment of scheduled interest and 

actual principal have on the pricing of 

a pool security? 

C. Questions About Loan-Level 

Disclosures 

1. Will providing loan level 

disclosures make the proposed pool 

security more attractive to a larger 

market? 

2. Which loan-level attributes could 

SBA provide that would be the most 

beneficial? 

3. What types of disclosures or reports 

would be preferable with a new pool 

security? 

4. What is the preferred method of 

receiving loan-level data and securitylevel data? Would using a disclosure 

portal to generate reports and download 

data files be a helpful resource? 

5. What features of a customer-facing 

disclosure tool might increase 

participation in the SBA secondary 

market 7(a) loan pooling program? 

6. What effect would the publication 

of robust loan-level disclosures have on 


jbell on DSKJLSW7X2PROD with PROPOSALS
Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules 83839 

the pricing of the proposed pool 

security? 

D. Questions About Book-Entry 

Registration 

1. Currently, Pool Certificates are 

registered in physical certificate form. 

Would there be a benefit to the new 

pool security being registered in bookentry form? If so, what would those 

benefits be? 

2. What additional process or 

technology changes would be needed to 

support a book-entry security? 

3. What effect would book-entry 

registration have on the pricing of the 

proposed pool security? 

E. New SBA Secondary Market 7(a) 

Loan Pool Security General Comments 

SBA is seeking comments and 

recommendations on changes to the 

current pool security for the 7(a) loan 

program to better align underlying loan 

collateral and pool cash flows and to 

sustain the long-term viability of the 

7(a) loan pooling program. SBA also 

requests comments on the proposed 

cash flow alignment, the timely 

payment of scheduled interest and 

actual principal, loan-level disclosures, 

and book-entry registration. 

We value your comments and ask that 

you provide a rationale for any 

suggested changes or recommendations. 

Jovita Carranza, 

Administrator. 

[FR Doc. 2020–28195 Filed 12–22–20; 8:45 am] 

BILLING CODE P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 71 

[Docket No. FAA–2020–1191 Airspace 

Docket No. 20–AGL–41] 

RIN 2120–AA66 

Proposed Revocation of VOR Federal 

Airway V–242 Due to the Planned 

Decommissioning of the Atikokan, 

Ontario, Canada, Nondirectional Radio 

Beacon (NDB) Navigation Aid 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: This action proposes to 

remove VHF Omnidirectional Range 

(VOR) Federal airway V–242 in the 

northcentral United States to reflect 

changes being made by NAV CANADA 

in Canadian airspace. The airway 

removal is necessary due to the planned 

decommissioning of the Atikokan, 

Ontario (ON), Canada, NDB navigation 

aid (NAVAID), which provides 

navigation guidance for V–242. The 

Atikokan NDB is being decommissioned 

as part of NAV CANADA’s NAVAID 

Modernization Program. 

DATES: Comments must be received on 

or before February 8, 2021. 

ADDRESSES: Send comments on this 

proposal to the U.S. Department of 

Transportation, Docket Operations, 1200 

New Jersey Avenue SE, West Building 

Ground Floor, Room W12–140, 

Washington, DC 20590; telephone: (800) 

647–5527, or (202) 366–9826. You must 

identify FAA Docket No. FAA–2020– 

1191 Airspace Docket No. 20–AGL–41 

at the beginning of your comments. You 

may also submit comments through the 

internet at https://www.regulations.gov. 

FAA Order 7400.11E, Airspace 

Designations and Reporting Points, and 

subsequent amendments can be viewed 

online at https://www.faa.gov/air_

traffic/publications/. For further 

information, you can contact the Rules 

and Regulations Group, Federal 

Aviation Administration, 800 

Independence Avenue SW, Washington, 

DC 20591; telephone: (202) 267–8783. 

The Order is also available for 

inspection at the National Archives and 

Records Administration (NARA). For 

information on the availability of FAA 

Order 7400.11E at NARA, email: 

fedreg.legal@nara.gov or go to https://

www.archives.gov/federal-register/cfr/ 

ibr-locations.html. 

FOR FURTHER INFORMATION CONTACT: 

Colby Abbott, Rules and Regulations 

Group, Office of Policy, Federal 

Aviation Administration, 800 

Independence Avenue SW, Washington, 

DC 20591; telephone: (202) 267–8783. 

SUPPLEMENTARY INFORMATION: 

Authority for This Rulemaking 

The FAA’s authority to issue rules 

regarding aviation safety is found in 

Title 49 of the United States Code. 

Subtitle I, Section 106 describes the 

authority of the FAA Administrator. 

Subtitle VII, Aviation Programs, 

describes in more detail the scope of the 

agency’s authority. This rulemaking is 

promulgated under the authority 

described in Subtitle VII, Part A, 

Subpart I, Section 40103. Under that 

section, the FAA is charged with 

prescribing regulations to assign the use 

of the airspace necessary to ensure the 

safety of aircraft and the efficient use of 

airspace. This regulation is within the 

scope of that authority as it would 

modify the route structure as necessary 

to preserve the safe and efficient flow of 

air traffic within the National Airspace 

System (NAS). 

Comments Invited 

Interested parties are invited to 

participate in this proposed rulemaking 

by submitting such written data, views, 

or arguments as they may desire. 

Comments that provide the factual basis 

supporting the views and suggestions 

presented are particularly helpful in 

developing reasoned regulatory 

decisions on the proposal. Comments 

are specifically invited on the overall 

regulatory, aeronautical, economic, 

environmental, and energy-related 

aspects of the proposal. 

Communications should identify both 

docket numbers (FAA Docket No. FAA– 

2020–1191 Airspace Docket No. 20– 

AGL–41) and be submitted in triplicate 

to the Docket Management Facility (see 

ADDRESSES section for address and 

phone number). You may also submit 

comments through the internet at 

https://www.regulations.gov. 

Commenters wishing the FAA to 

acknowledge receipt of their comments 

on this action must submit with those 

comments a self-addressed, stamped 

postcard on which the following 

statement is made: ‘‘Comments to FAA 

Docket No. FAA–2020–1191 Airspace 

Docket No. 20–AGL–41.’’ The postcard 

will be date/time stamped and returned 

to the commenter. 

All communications received on or 

before the specified comment closing 

date will be considered before taking 

action on the proposed rule. The 

proposal contained in this action may 

be changed in light of comments 

received. All comments submitted will 

be available for examination in the 

public docket both before and after the 

comment closing date. A report 

summarizing each substantive public 

contact with FAA personnel concerned 

with this rulemaking will be filed in the 

docket. 

Availability of NPRMs 

An electronic copy of this document 

may be downloaded through the 

internet at https://www.regulations.gov. 

Recently published rulemaking 

documents can also be accessed through 

the FAA’s web page at https://

www.faa.gov/air_traffic/publications/ 

airspace_amendments/. 

You may review the public docket 

containing the proposal, any comments 

received and any final disposition in 

person in the Dockets Office (see 

ADDRESSES section for address and 

phone number) between 9:00 a.m. and 

5:00 p.m., Monday through Friday, 

except federal holidays. An informal 

docket may also be examined during 


jbell on DSKJLSW7X2PROD with PROPOSALS