Secondary bounces on bank bailouts; First Republic surges into close; Lumen gains on exchange

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 16 – The primary market remained dormant on Thursday, a fortnight after the most recent dollar-denominated deal was priced.

The active forward calendar was empty at the session's close.

However, recent market volatility that came in the wake of last week's spectacular collapse of Silicon Valley Bank did not by any means bring mergers and acquisitions activity to a standstill, a trader said on Thursday, citing reports that Motive Partners is attempting to secure financing to buy payments-software provider ACI Worldwide, Inc.

High-yield ETFs sustained large daily cash outflows of $603 million on Wednesday after seeing $231 million of outflows on Tuesday, according to a market source.

Actively managed high-yield funds were positive on Wednesday, posting $185 million of inflows on the day and partially mitigating the $243 million of outflows that the cohort sustained on Tuesday, the source said.

The combined funds sustained $1.43 billion of net outflows during the week that concluded with Wednesday's close, according to information posted Thursday online by fund-tracker Refinitv Lipper.

Secondary bounces back

Meanwhile, the secondary space bounced back from a low open that followed Wednesday’s heavy session with the market nearly eliminating its losses from the previous session.

The market remained heavy early in Thursday’s session as the market weighed the Swiss National Bank’s $54 billion injection into Credit Suisse with the European Central Bank’s 50 bps rate increase and headlines that First Republic Bank was exploring a sale.

However, breaking midsession news that the big banks were working on a rescue package for First Republic brought buyers back to the space.

“At some point, ETFs started circulating OWICs,” a source said.

The secondary space surged into the close after First Republic’s rescue package was announced: $30 billion in fresh deposits from a consortium of the country’s largest banks.

The CDX index was in negative territory early in the session. It closed with a nearly 1-point gain, a source said.

However, liquidity remained a concern with trading volumes driven by large, liquid issues where there were markets, a source said.

Lumen Technologies, Inc.’s senior notes gained in heavy volume after the company announced an exchange offer for its unsecured notes.

Lumen’s notes made large gains following the exchange for new 10½% senior secured notes due 2030 to be issued by Lumen subsidiary Level 3 Financing, Inc.

However, Level 3 Financing’s senior notes were lower following the offering.

First Republic in focus

First Republic’s senior notes, which were recently slashed to junk, were in focus as the market watched the situation surrounding the bank unfold.

First Republic’s 4 5/8% subordinated notes due 2047 (Baa1/BB-/B+) opened the day in the low 60s, a source said.

While most prints in the name were in the 60 to 62 range, they skyrocketed into the close on light volume.

The notes closed the day with a 12½ point gain at 70.

There was $18 million in reported volume.

First Republic’s 4 3/8% subordinated notes due 2046 also opened the day in the low 60s. However, they shot up as high as 72 before closing the day wrapped around 71.

S&P slashed First Republic’s issuer credit rating to BB+ from A- and its subordinated rating to BB-, and Fitch Ratings slashed its issuer rating to BB+ from A- and its subordinated rating to B+ on Wednesday.

Lumen’s exchange

Lumen’s exchange offer for eight series of unsecured notes for new Level 3 Financing 10½% senior secured notes due 2030 sent Lumen notes soaring while Level 3’s fell.

Lumen’s 5 1/8% senior notes due 2026 (Caa1/B) jumped almost 8 points on the news to close at 68.

There was $18 million in reported volume.

Lumen’s 5 3/8% senior notes due 2029 gained 4½ points to close at 51.

There was $12 million in reported volume.

Lumen offered to exchange the 5 1/8% senior notes due 2026 for an early exchange consideration of $710 per $1,000 in principal and the 5 3/8% notes due 2029 for an early exchange consideration of $550 per $1,000 in principal, Prospect News reported. (See related article in this issue.)

While the exchange was a boon for Lumen’s notes, Level 3’s senior notes were under pressure on news it would issue up to $1.1 billion in new 10½% senior secured notes due 2030.

Level 3’s 4 5/8% senior notes due 2027 (B1/B+) were down 2½ points to close at 63 with the yield at 16 5/8%.

The 3¾% senior notes due 2029 were off 2 points to 55 with the yield just shy of 15%.

Indexes

The KDP High Yield Daily index rose 23 points to close Thursday at 7.59%.

The index fell 34 points on Wednesday, gained 16 points on Tuesday and was down 7 points on Monday.

The ICE BofAML US High Yield index gained 46.7 basis points with the year-to-date return now 1.65%.

The index fell 78.7 bps on Wednesday, gained 42.2 bps on Tuesday and was down 36.5 bps on Monday.

The CDX High Yield 30 index gained 99 bps to close Thursday at 99.89.

The index fell 70 bps on Wednesday, gained 85 bps on Tuesday and sank 133 bps on Monday.

© 2015 Prospect News.
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