Credit Suisse volatile; First Republic rallies; Lumen notes mostly up on exchange offers

By Cristal Cody

Tupelo, Miss., March 16 – While the Swiss National Bank reported Wednesday it would provide Credit Suisse Group AG with additional liquidity, the issuer’s junk preferreds were seen all over the place in volatile trading on Thursday.

Credit Suisse’s 7½% perpetual securities (/B+) lost 3 points on $14.75 million of volume but were later seen 5 points higher on lighter trading totaling $6 million.

On Wednesday, the issue plunged 42½ points as Credit Suisse’s riskiest paper shed about 24 points to 56 points on more than $106 million of volume.

The financial space continued to dominate trading on Thursday in the wake of the collapse of Silicon Valley Bank and Signature Bank with the day ending with the unusual step of 11 major banks coming to the rescue of First Republic Bank by making $30 billion of deposits to ensure the bank has liquidity.

Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. said Thursday they were making a $5 billion uninsured deposit into First Republic Bank. Goldman Sachs Group Inc. and Morgan Stanley each were making an uninsured deposit of $2.5 billion, while Bank of New York Mellon Corp., PNC Bank, State Street Corp., Truist Financial Corp. and U.S. Bank were making an uninsured deposit of $1 billion, according to a joint statement.

“Following the receiverships of Silicon Valley Bank and Signature Bank, there were outflows of uninsured deposits at a small number of banks,” the banks noted.

First Republic’s subordinated notes rallied about 12 points to 12½ points on more than $40 million of paper traded on Thursday, a source said.

The CBOE Volatility index pulled back about 12% to 23.06 over the session.

Deutsche Bank’s junk paper was down about 2 points to 5 points on Thursday, while Goldman Sachs Group’s junk preferreds traded down about 5 points, a source said.

“If Silicon Valley Bank was the opening shot, Credit Suisse is the bazooka igniting concern about the global banking system,” according to a Confluence Investment Management note on Thursday. “Despite the bank’s bond being investment-grade, on Wednesday it was trading at distress levels due to concerns that the bank could fail without outside financial support.”

Meanwhile, it was a who’s who of financial names that saw implied rating declines in their credit default swap spreads this week, Moody’s Investors Service said in a report on Thursday.

KeyCorp and CIT Group Inc. CDS implied ratings hit junk over the past week ended Wednesday, while U.S. Bancorp, JPMorgan Chase Bank, NA, Wells Fargo, Ally Financial Inc. and the Bank of New York Mellon also saw CDS implied ratings declines.

But, the only financial issuer that had significantly wider CDS spreads this past week was Credit Suisse.

Credit Suisse (USA) Inc.’s CDS spreads gapped out 903 basis points to 1,319 bps for the past week ended Wednesday, according to the note. Credit Suisse’s CDS spreads for the week ended March 8 were 416 bps.

In Europe, Credit Suisse Group and Credit Suisse AG were among names with the widest CDS spread increases over the week.

Credit Suisse Group’s CDS spreads widened 796 bps, while Credit Suisse’s CDS spreads eased 618 bps.

In distressed issues outside the banking space on Thursday, Lumen Technologies, Inc.’s notes improved about 4 points to 10 points after the company launched exchange offers.

The telecom issuer’s 5 1/8% senior notes due 2026 (Caa1/B) climbed more than 7½ points on $18 million of trading on Thursday.

Credit Suisse mixed

Credit Suisse’s junk paper was volatile in the secondary market on Thursday, a source reported.

The 7½% perpetual securities (/B+) lost 3 points on $14.75 million of volume, pushing the paper to 33 bid.

The paper was later seen 5 points higher at 40 bid on lighter trading totaling $6 million.

On Wednesday, the issue plunged 42½ points to 36 bid on about $9 million of supply.

Credit Suisse’s 7½% perpetual securities (B1/B) sank 36¾ points on Thursday to 34½ bid on $6 million of trading.

Credit Suisse’s other securities were mixed.

The 9¾% perpetual securities recovered 10½ points to head out at 40½ bid on $4 million of paper traded.

The issue sank about 38½ points to 40¼ points to the 33, 34 area on about $26 million of volume in the prior session.

Credit Suisse’s 6 3/8% perpetual preferred securities (B1/B) traded 6½ points better on Thursday at 34½ bid on light trading totaling $2 million but were later seen down 5 points at 30 bid on $4 million of secondary action.

The 6½% notes due Aug. 8, 2023 (/BB+) fell 2 points to 58 bid on $8.6 million of trading on Thursday.

The Zurich-based financial services company’s securities plunged on Wednesday and its CDS spreads moved out following the company’s report on Tuesday of a material weakness in its financial reporting.

Credit Suisse International on Wednesday launched tender offers for 10 series of dollar securities issued by Credit Suisse AG, New York branch for up to $2.5 billion of cash, as well up to a €500 million cash tender offer for four euro-denominated tranches.

The offers expire March 22.

First Republic gains

First Republic Bank’s 4 5/8% subordinated notes due 2047 (Baa1/BB-) traded 12½ points better going out at 70 bid on $18 million of supply, a source said.

The bank’s 4 3/8% subordinated notes due 2046 (Baa1/BB-) were about 12 points higher at a 70 bid handle on more than $25 million of volume.

First Republic Bank’s ratings were cut to junk on Wednesday by S&P Global Ratings and Fitch Ratings.

On Sunday, First Republic Bank announced that it had received access to additional liquidity from the Federal Reserve Bank and JPMorgan Chase with then total unused liquidity at more than $70 billion.

The bank is based in San Francisco.

Lumen unsecureds up

Lumen’s 5 1/8% senior notes due 2026 (Caa1/B) climbed more than 7½ points to around 68 bid on $18 million of trading on Thursday, a source said.

The 5 3/8% senior notes due 2029 (Caa1/B) moved up to a 50s handle after adding more than 4 points on $12.3 million of volume. The issue was quoted at 51 bid.

Lumen’s secured notes were weaker with the 4% senior secured notes due 2027 (B3/BB) quoted off ¾ point at 67¼ bid on more than $9 million of trading.

The issuer announced Thursday that subsidiary Level 3 Financing, Inc. launched an offer to exchange eight series of senior notes for up to $1.1 billion of new 10½% senior secured notes due 2030.

The exchange offer includes the 5 3/8% notes and 5 1/8% notes. The offers expire April 13.

The Denver-based telecommunications company’s CDS spreads widened 621 bps to 2,238 bps over the past week ended Wednesday, Moody’s said.

Distressed returns slump

S&P U.S. High Yield Corporate Distressed Bond index one-day returns dropped on Wednesday to minus 2.21% from minus 0.12% on Tuesday and minus 0.82% at the start of the week.

Month-to-date returns slumped to minus 4.44% versus minus 2.28% on Tuesday and minus 2.17% on Monday.

Quarterly and year-to-date total returns declined midweek to 4.26% from 6.61% on Tuesday and 6.74% in Monday’s session.

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