Credit Suisse paper sinks; Deutsche, KeyCorp drop; SVB, Signature up; Diamond Sports settles

By Cristal Cody

Tupelo, Miss., March 15 – The fallout from three banks failing in less than a week spread Wednesday to Credit Suisse Group AG as its junk preferred securities sank about 24 points to 56 points on more than $106 million of secondary volume.

The 6¼% perpetual preferred securities shed 28½ points as one of the most active issues on $28 million of volume, a source said.

Yields across the preferred stack were seen as high as 242%.

“It’s not pretty,” a trader said. “The perps are the ones that have lost the most value. Part of the capital structure is in distress right now – they’ve lost more than 50 points in the last few days.”

The fallout was spreading to European banks and other major banks, sources said.

Deutsche Bank AG’s 7½ perpetual securities moved down more than 7½ points to 84½ bid by the day’s end on $6.2 million of volume.

KeyCorp’s 5% perpetual securities were trading Wednesday 9 points lower at 75 bid on $5.4 million of volume.

“Last night, Credit Suisse had everybody nervous in terms of the bank ordeal spreading from Silicon Valley Bank and Signature Bank to other banks,” a market source said. “Credit Suisse has been under distress for a long time.”

Credit Suisse received backup late Wednesday after the Swiss National Bank announced that it will provide additional liquidity if necessary.

“The Swiss National Bank SNB and the Swiss Financial Market Supervisory Authority FINMA assert that the problems of certain banks in the U.S.A. do not pose a direct risk of contagion for the Swiss financial markets,” the agencies said in a joint press release. “Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks. If necessary, the SNB will provide CS with liquidity.”

Meanwhile, paper from two of the U.S. banks that were closed and seized by regulators made inroads Wednesday.

SVB Financial Group securities rallied by about ¾ point to 9½ points on $297 million traded, a source said.

SVB’s 1.8% notes due 2026 added 5¼ points on about $54 million of volume.

The company’s Silicon Valley Bank was shut on Friday, and the bonds plunged from high-grade trading levels to the single digits on Friday and Monday on more than $2 billion of volume.

Paper from Signature Bank, closed and seized by New York state regulators on Sunday, also continued to gain in lighter trading Wednesday.

The 4 1/8% notes due 2029 were up 2½ points on $7 million of volume.

SVB and Signature paper likely was trading higher since the government announced plans to “stand behind them” to protect depositors, a source said.

The CBOE Volatility index climbed more than 10% to $26.14 on Wednesday.

The 10-year Treasury note yield dropped 14 basis points to 3.49%, while the 30-year Treasury note yield was down 7 bps at 3.69%.

Trading was volatile across market securities Wednesday, sources said.

“Things were moving quite a bit,” one source said.

In other distressed issues, Diamond Sports Group LLC bonds were little changed following the company’s Chapter 11 bankruptcy announcement the previous day.

“It’s settled there,” a trader said of the single digits.

Credit Suisse slides

Credit Suisse’s 6¼% perpetual preferred securities plunged 28½ points to 41½ bid in one of the most active issues on $28 million of trading Wednesday, a source said.

The 9¾% perpetual securities were down about 38½ points to 40¼ points at the 33, 34 area on about $26 million of volume.

Credit Suisse’s 7½% perpetual securities dropped 42½ points to 36 bid on about $9 million of supply Wednesday. The issue was yielding 242%.

The company’s securities dropped early in the day on reports that shareholder Saudi National Bank will not increase its stake to provide additional funds and following the company’s report Tuesday of a material weakness in its financial reporting.

On Tuesday, the Zurich-based financial services company also reported that customer deposits declined 28% in 2022.

SVB, Signature higher

SVB’s bonds recovered about ¾ point to 9½ points in heavy distressed secondary trading Wednesday, a source said.

In the most active issue, the 1.8% notes due 2026 added 5¼ points to a quote of 58¼ bid on about $54 million of volume.

SVB’s 4.7% perpetual preferred securities improved 2 points to head out at 12 bid on $26 million of trading.

Silicon Valley Bank’s collapse came after SVB’s market update a week ago revealed the company sold almost all of its securities portfolio at a loss of $1.8 billion and had planned to raise $2.25 billion through equity and a mandatory convertible preferred stock offering before depositors fled in a run on the bank.

The Federal Deposit Insurance Corp. seized the company’s 17-branch Silicon Valley Bank in Santa Clara, Calif., on Friday.

Signature Bank’s paper also traded 2¼ points to 2½ points better at the 25 bid area on $9.75 million of volume Wednesday, a source said.

The 4 1/8% notes due 2029 were up 2½ points at 25 bid on $7 million of volume.

The New York-based bank was closed Sunday by state regulators.

Diamond Sports mostly flat

Diamond Sports’ 5 3/8% senior secured notes due 2026 (Caa3) were trading less than ¼ point higher near the 9 bid area on $11 million of volume Wednesday, a source said.

The issuer’s 6 5/8% senior notes due 2027 (Ca) softened less than ¼ point to a print of 1.81 on $2 million of trading.

Diamond Sports Group, LLC announced Tuesday it filed for Chapter 11 bankruptcy with plans to eliminate approximately $8 billion of debt and become a stand-alone company from parent Sinclair Broadcast Group, Inc.

The company released its restructuring support agreement on Wednesday.

The Chesapeake, Va.-based sports broadcast company missed $140 million of interest payments on three tranches of notes due Feb. 15 and had entered into a 30-day default grace period.

S&P Global Ratings said Wednesday it downgraded the company and withdrew the ratings.

Distressed returns improve

S&P U.S. High Yield Corporate Distressed Bond index one-day returns improved Tuesday to minus 0.12% from minus 0.82% at the start of the week.

Month-to-date returns weakened further to minus 2.28% from minus 2.17% on Monday.

Quarterly and year-to-date total returns declined to 6.61% in the prior session from 6.74% at the week’s start.

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