Credit Suisse paper up, shows signs of ‘strong risk aversion’; Bed Bath & Beyond down

By Cristal Cody

Tupelo, Miss., Oct. 7 – Credit Suisse Group AG’s paper traded higher on Friday as the financial services company launched up to a $2 billion tender offer for dollar bonds and capped off a week of intense restructuring chatter.

Credit Suisse’s riskiest paper was about ¼ point to more than 4 points stronger in thin trading volume, sources said.

“Most of their paper is up,” a source said.

Credit Suisse’s credit default swap spreads moved out more than 170 basis points this week.

“Cracks continue to multiply across the markets, implying significant tightness in financial conditions,” according to a BofA Securities Inc. note on Friday. “Credit Suisse bonds are 400-500 bp area, implying strong risk aversion.”

Stocks sold off Friday following upbeat September employment data with the S&P 500 index ending down 2.8% and the Nasdaq 3.8% lower.

The iShares iBoxx High Yield Corporate Bond ETF dropped 89 cents, or 1.22%, to $72.12.

The CBOE Volatility index was up 2.95% by late afternoon at 31.42.

The Labor Department reported Friday total U.S. nonfarm payroll employment rose by 263,000 in September, while the unemployment rate fell to 3.5% from 3.7% in August.

Financial markets are tight and liquidity is dwindling as interest rates soar with arguments against more rate increases growing, sources report.

“The market was down in general,” one source said. “The names that are trading up are the names that have been beaten down, that guys want to buy, and people don’t want to sell.”

Bed Bath & Beyond Inc.’s welcome was wearing thin in the secondary market with trading interest not as high, a source said Friday.

“Volume was almost nonexistent on BBY,” the source said. “Only 60 bonds across the whole capital structure traded today, and it was very odd lots.”

Moody’s Investors Service on Friday downgraded the retailer and the bonds on potential the company will pursue distressed exchanges.

Credit Suisse improves

Credit Suisse’s perpetual junk notes climbed as high as 4 points-plus in light trading action on Friday, sources said.

The 7½% perpetual issue was seen about ¼ point to ½ point better on the day at 85¼ bid.

The 7¼% perpetual notes traded more than 3 points better at 72½ bid on $1 million of secondary action.

The 6 3/8% perpetual notes were quoted at 69¼ bid, up 2¼ points.

The issue “traded yesterday at 67,” a source said.

Credit Suisse’s CDS spreads widened 173 bps this past week ended Wednesday to 435 bps, Moody’s reported.

Credit Suisse International announced Friday a cash tender offer to pay up to $2 billion for notes from 12 tranches of securities as part of the group’s “proactive approach to managing overall liability composition and optimizing interest expense and allow us to take advantage of market conditions to repurchase debt at attractive prices.”

Credit Suisse also launched a tender offer to pay up to €1 billion for euro and sterling notes.

The Zurich-based financial services company plans to release third-quarter earnings results on Oct. 27.

Bed Bath & Beyond lower

Bed Bath & Beyond’s 5.165% senior notes due 2044 (C/CCC-) were quoted at 15 bid in very thin activity on Friday, a source said.

The issue has dropped about 2½ points since the end of September.

Moody’s downgraded the rating on the notes on Friday to C from Caa3.

A week ago, the retailer reported second-quarter income declined to a loss of $4.59 a share versus a gain of 72 cents a share a year ago, while revenue was 28% lower at $1.44 billion.

The Union, N.J.-based home products retailer is underway in a search for a new chief executive, new chief financial officer and strategic changes that include closing stores.

Distressed returns edge up

S&P U.S. High Yield Corporate Distressed Bond index one-day returns improved to 0.17% on Thursday after softening Wednesday to minus 0.25%, but remained off of readings of 1.06% on Tuesday and 0.47% on Monday.

Month-to-date total returns were 1.45% on Thursday, compared to 1.28% on Wednesday, 1.54% on Tuesday and 0.47% at the start of the week.

Year-to-date total returns were minus 25.14% on Thursday versus minus 25.27% on Wednesday, minus 25.08% on Tuesday and minus 25.87% on Monday.

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