Junk closes volatile week with heavy tone; SVB jumps on bankruptcy filing; DISH pressured

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 17 – The sole deal to clear the junk bond primary market on Friday was in a Nordic execution with PGS ASA pricing a $450 million offering of four-year senior secured notes at a discount.

Elsewhere, the primary market has been in a deep freeze with expectations for new issuance low amid volatile markets.

Meanwhile, the secondary space closed a volatile week with a heavy tone as credit spreads once again blew out dramatic dislocations in markets, a source said.

The uncertainty in the banking sector has sparked a near reversal of rate-hike expectations and a dramatic repricing of markets.

Treasuries once again had large moves on Friday with the two-year yield falling 34.5 basis points to 3.846% and the 10-year yield falling 15.3 bps to 3.43%.

The outsized moves in Treasuries have been attributed to thinning liquidity, which is a growing concern for the high-yield market, sources said.

Liquidity remained low on Friday as the cash bond market gave back the previous day’s gains to close down ½ to ¾ point, a source said.

Trading activity remained driven by topical news and large, liquid issues.

SVB Financial Group’s senior notes again made large gains in heavy volume on Friday after the company announced a Chapter 11 bankruptcy filing.

DISH Network Corp.’s 11¾% senior secured notes due 2027 (Ba3/B+) continued their strong downward trend with the notes breaking below a 94-handle.

Primary eyed

In the Friday primary market Norway oilfield services provider PGS ASA priced a $450 million issue of 13½% four-year senior secured notes (expected ratings B3/B) at 98, with the coupon coming at the wide end of coupon talk, and the price coming on top of price talk.

The Nordic execution appeared to be the week's sole public speculative-grade, dollar-denominated bond execution.

Elsewhere the primary market has been in a deep freeze for the past fortnight.

Market volatility creates an immense challenge in pricing risk assets, market sources say.

As regulators and investors parse the spectacular bank failures of the past week the ultimate culprit is rising rates, a portfolio manager said on Friday, adding that notwithstanding the financial turmoil trailing in their wake, rates will almost certainly move higher in the weeks to come.

The primary market could remain very quiet until the second half of the year, at which point issuers will be under a certain amount of pressure to address maturities, the investor said.

The 2024 maturities have largely been addressed, but there is a significant amount of paper that comes due in 2025, the source added.

In the meantime, there will be an uptick in liabilities management activity, as issuers and lenders will need to come into closer-than-normal collaboration in order to head off catastrophic outcomes, the manager conceded.

Early in the past week Lumen Technologies, Inc., saddled with a heavy debt load, began an exchange for eight series of notes.

The exchange deal would see subsidiary Level 3 Financing, Inc. issue up to $1.1 billion of new 10½% senior secured notes due 2030.

In late February Moody’s Investors Service noted that Lumen’s debt starts maturing in January 2025 and will balloon to more than $9 billion due in 2027.

The dislocation

SVB Financial’s dramatic collapse last Friday revealed the hidden impact of rising rates on a banking sector that was previously believed to be largely insulated from rate risks.

The collapse also sparked a near reversal of rate-hike expectations with significant dislocations occurring as markets reprice.

Following the Federal Reserve’s 25 bps rate increase, the market rallied on optimism the rate hike campaign had run its course and priced in a reduction in the third quarter.

Strong macro data eliminated that early optimism with the market calling for a terminal Fed Fund rate around 5.5% by the end of 2023 as recently as March 8.

The market is now expecting steep rate cuts with the terminal rate on a 3% handle.

“The market doesn’t know what to do,” a source said.

The volatility is expected to persist heading into the Federal Open Market Committee’s March 22 announcement.

SVB jumps

SVB’s senior notes continued to gain on heavy volume following news the parent company of Silicon Valley Bank filed for bankruptcy.

The capital structure was generically bid in the high-50s and offered in the low-60s, a source said.

SVB’s short-duration 1.8% senior notes due 2026 jumped 10 points to 67 following the headlines.

However, they came in as the session progressed with the notes closing the day wrapped around 66.

SVB’s capital structure has jumped more than 20 points over the past week.

The notes were trading in the mid-40s early in the week, which seemed high, sources said.

However, news later broke that creditors – many who bought the bonds in the 30s in the immediate wake of Silicon Valley Bank’s collapse – were organizing ahead of a bankruptcy filing.

SVB announced its bankruptcy filing on Friday.

There is a strong expectation of recovery from the proceedings, a source said.

DISH falls

DISH’s 11¾% senior secured notes due 2027 continued to fall in active trade on Friday as topical news and heavy market conditions dragged the notes down.

The 11¾% notes were off ¾ to 1 point.

They broke below a 94-handle to close the day in the 93¾ to 94¼ context.

The notes closed the previous week above par.

DISH has been under pressure for the past two weeks with the company still in the process of recovering from a cyber attack that caused widespread outages.

Selling in the high-beta name accelerated under the volatile market conditions.

Fund flows

High-yield ETFs had huge daily cash inflows of $1.2 billion on Thursday, the most recent session for which data was available at press time, according to market sources.

A trader described it as the third-largest daily inflow on the year, for the ETFs.

Actively managed high-yield funds sustained negative flows on the day, posting $290 million of outflows on Thursday.

News of Thursday's daily flows trailed a Thursday afternoon report that the combined funds sustained $1.43 billion of net outflows during the week that concluded with the Wednesday, March 15 close, according to fund-tracker Refinitv Lipper.

It was the sixth outflow in excess of $1 billion in the last eight weeks, according to a market source who added that the combined high-yield funds have now had $13 billion of net outflows thus far in 2023, which follow a record $48.9 billion of total net outflows in 2022.

Indexes

The KDP High Yield Daily index was down 4 points to close Friday at 50.7 with the yield 7.61%.

The index rose 23 points on Thursday, fell 34 points on Wednesday, gained 16 points on Tuesday and was down 7 points on Monday.

The index posted a cumulative loss of 16 points on the week.

The CDX High Yield 30 index fell 102 bps to close Friday at 98.87.

The index gained 99 bps on Thursday, fell 70 bps on Wednesday, gained 85 bps on Tuesday and sank 133 bps on Monday.

The index posted a cumulative loss of 121 bps on the week.

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