SVB sinks as FDIC shuts bank, trading volume soars past $1 billion; Bausch, Lumen lower

By Cristal Cody

Tupelo, Miss., March 10 – SVB Financial Group plummeted quickly from a high-grade company with paper trading on handles in the 90s or higher to its bank closed by federal regulators on Friday and its securities trading in single digits.

SVB’s bonds sank an average of 30 points to about 57 points by the day’s end, a source said.

The company’s slide startled financial markets and put banks in the crosshairs.

“It was huge,” a source said. “It impacted the whole market, especially the financial issues, regional banks. A lot of paper traded, over $1 billion.”

SVB’s meltdown to the distressed space so quickly has not been seen in “recent memory,” a trader said.

The run on the bank, stock and bonds came after SVB’s market update on Wednesday that it sold almost all of its securities portfolio, $21 billion worth, at a loss of $1.8 billion and announced new common stock and convertible preferred stock offerings.

More than $1.3 billion of the company’s paper changed hands Friday, a source said.

SVB’s 4% split-rated perpetual securities quickly sank to the 30s by Friday morning and were moving below 5 bid by the end of the session, a source said.

The issue went out Thursday down 8¾ points at 64¾ bid.

SVB’s 4¼% perpetual securities sank below 10 bid by Friday afternoon. The issue traded in the 71 bid area at the start of the week.

“Some of the other paper are still rated investment grade,” a source noted Friday ahead of downgrades from Moody’s Investors Service and S&P Global Ratings. “The perps dropped to single digits and were down like 55 points.”

The company’s stock, trading Thursday at $106 after closing Wednesday at $267.83, sank to $39.49 pre-market before trading was halted Friday.

Other companies started distancing themselves Friday. WonderFi Technologies Inc. announced that neither it nor any of its operating subsidiaries have any exposure to Silvergate Bank or Silicon Valley Bank.

The impact may keep the Federal Reserve from hiking rates an expected 50 basis points in March, sources said.

The “Fed's 2% target may take a back seat if the Fed believes the banks are in trouble,” Confluence Investment Management analysts said in a note Friday. “Movements within the swaps market reinforced this view.”

On Friday, the Labor Department reported February nonfarm payroll figures rose by a seasonally adjusted 311,000, higher than the 225,000 market analysts expected.

Equities continued to slide Friday. The S&P 500 index fell 1.45%.

The iShares iBoxx High Yield Corporate Bond ETF edged up 1 cent to $73.44.

The CBOE Volatility index climbed another 10% after rising more than 17% in the prior session to head out at $24.80.

Distressed bond index returns remained negative over most of the back half of the week.

Elsewhere in the distressed space, Bausch Health Cos. Inc.’s bonds mostly softened Friday in active trading totaling more than $13 million.

Lumen Technologies, Inc.’s bonds also were moving lower Friday.

Lumen’s 4½% senior notes due 2029 (B2/B+) traded down more than ¾ point.

SVB in freefall

“All of the SVB” paper was sinking by the end of the day Friday, a source said.

SVB Financial Group’s perpetual securities were trading around 5½ bid, 6¼ offered, down 55 to 57 points Friday.

The company’s bonds, including the 1.8% notes due 2031 and the 4.57% notes due 2033, dropped an average of 30 points and settled the day around the 39 bid to 43 bid area, depending on the issue, the source said.

SVB’s 4% perpetual preferred securities were quoted down 55 points on a 4 bid handle on $60 million of trading.

The issue went out Thursday off 8¾ points at 64¾ bid on nearly $16.5 million of volume.

SVB’s 4¼% perpetual securities sank to 6¼ bid by the close Friday on $52 million of paper traded.

The securities went out Thursday at 61¾ bid.

SVB’s 4.57% bonds due 2033 also gave back 37¼ points on the day to a quote of 42½ bid. Volume was heavy with $213 million of paper turning over in one of the company’s most active issues.

The Federal Deposit Insurance Corp. announced Friday that it closed the company’s 17-branch Silicon Valley Bank in Santa Clara, Calif., with all insured depositors expected to have full access to their insured deposits by Monday.

The FDIC said as it sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.

The company operates Silicon Valley Bank, as well as SVB Securities and SVB Capital.

On Forbes’ 14th annual America’s Best Banks list posted Feb. 14, SVB had slipped to No. 20 out of the 100 largest publicly-traded banks from No. 15 on its list in 2022.

As of Dec. 31, 2022, the company touted on its website that “nearly half” of all U.S. venture-backed technology and life science companies banked with SVB, while 44% of U.S. venture-backed technology and health care IPOs in 2022 also banked with SVB.

SVB said in its first quarter of 2023 investor report on Wednesday that it sold substantially all of the securities portfolio at an after-tax loss of $1.8 billion with plans to reinvest the proceeds into a more asset-sensitive, short-term AFS portfolio and sought to raise $2.25 billion through equity and mandatory convertible preferred share offerings.

Bausch mostly lower

Bausch Health’s 4 7/8% notes due 2028 (Caa1/CCC+) moved lower Friday, trading down ¾ point to 58¼ bid on more than $7 million of supply, a source said.

The bonds were quoted mostly flat Wednesday at around 61 bid.

The Laval, Quebec-based pharmaceutical company’s 5¾% notes due 2027 (Caa1/CCC-) also fell ¼ point to 62¾ bid in lighter activity totaling less than $2 million during the session.

Lumen softens

Lumen’s 4½% senior notes due 2029 (B2/B+) gave back more than ¾ point to go out Friday at 48 bid on $3 million of secondary action, a source said.

The Denver-based telecommunications company’s 5 1/8% notes due 2029 (Caa1/B) dropped nearly 3 points to a quote of 65 bid on $4 million of volume.

Distressed returns lower

S&P U.S. High Yield Corporate Distressed Bond index one-day returns moved lower for a third consecutive session on Thursday to minus 0.62%.

Returns were minus 0.35% on Wednesday, minus 0.23% on Tuesday and positive at 0.57% on Monday.

Month-to-date returns fell to minus 0.47% Thursday from 0.14% in the prior session.

Quarterly and year-to-date total returns finished Thursday lower at 8.59% versus 9.26% on Wednesday.

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