First Republic Bank paper skids; WW International notes trade lower; QVC improves

By Cristal Cody

Tupelo, Miss., May 1 – First Republic Bank’s two tranches of notes due 2046 and 2047 dominated the distressed secondary market on Monday in the wake of the bank’s closure and sale to JPMorgan Chase & Co.

Yields shot up to 138% and higher on more than $50 million of paper traded.

The 4 3/8% subordinated notes due 2046 (C/B-) went out down around 14 points on $28.5 million of secondary trading on Monday.

First Republic Bank’s notes finished Friday down more than 30 points on the week, while its stock plunged after the bank reported a week ago that first-quarter deposits dropped more than 35%.

The bank is the third recent U.S. bank to fail after Silicon Valley Bank and Signature Bank were seized by regulators in March.

First Republic Bank was closed on Monday by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corp. as the receiver. The bank was promptly sold to winning bidder JPMorgan Chase Bank, NA.9

As of April 13, First Republic Bank had approximately $229.1 billion in total assets and $103.9 billion in total deposits.

The FDIC and JPMorgan Chase Bank also entered into a loss-share transaction on single family, residential and commercial loans of First Republic Bank.

However, JPMorgan did not assume the bank’s corporate debt.

“We expect a wipe-out of common shareholders following FRC entering receivership and being sold to JPM,” Wedbush Securities analyst David J. Chiaverini said in a note on Monday.

Moody’s Investors Service downgraded the issuer and said it will withdraw the ratings, noting the bank’s “expected default on its corporate debt obligations.”

JPMorgan led a group of 11 major banks that deposited $30 billion into First Republic Bank to shore up liquidity in March following the collapses of Silicon Valley Bank and Signature Bank and the mass exodus of depositors in other banks.

The deal with First Republic is considered the best of the past three FDIC-assisted bank closures and sales, and JPMorgan is viewed as a natural fit since it has been a longtime adviser to the bank, Chiaverini said.

“Recall that FRC was once a part of Bank of America and was spun off in 2010,” he said. “FRC has a high net worth client base, which is increasingly being sought after by other banks and wealth managers and has a highly regarded brand reputation with among the highest net promoter scores in the banking industry, along with a top-notch credit quality loan portfolio. While this represents yet another regional bank failure in the last month or so, we do believe that this should be idiosyncratic situation and not lead to bank contagion.”

Other market sources also were noting no “major ripple effects” in the financial markets on Monday, according to a note from Confluence Investment Management analysts.

Market volatility was only slightly higher on the day.

The CBOE Volatility index rose 1.9% by the close to 16.08.

The S&P 500 index declined 0.04%.

The iShares iBoxx High Yield Corporate Bond ETF fell 39 cents, or 0.53%, to $74.64.

High-grade bond issuers flooded the market on Monday to get in ahead of a widely expected rate hike following the Federal Reserve’s monetary policy meeting on Wednesday, sources reported.

Market analysts are expecting a rate increase of 25 basis points, lifting interest rates to their highest level since the 2008 financial crisis.

While the increase may sound small, 25 bps translates “into an extra $1.7 billion in interest charges for credit card users over the next 12 months alone,” WalletHub analyst Jill Gonzalez said in a report Monday. “In fact, the 25-basis-point rate hike expected on May 3 has already increased the cost of the average 30-year mortgage by roughly $11,600, given that rate hikes are usually priced into mortgage rates in advance.”

Although trading in First Republic Bank’s paper dwarfed secondary trading in other issues, a few other distressed names also were active over the session.

WW International Inc.’s 4˝% senior secured notes due 2029 (B3/B) slipped 7/8 point ahead of the company’s first-quarter earnings release later in the week.

The notes from the WeightWatchers brand are off about 3/8 point from a week ago.

Home shopping network QVC Inc.’s notes continued to make inroads on Monday with its bonds up about Ľ point.

Meanwhile, the S&P U.S. High Yield Corporate Distressed Bond index closed out April with the most returns since January so far this year.

First Republic drops

First Republic Bank’s notes shed more than 14 points to trade with a 2 bid handle on more than $50 million of secondary trading following the bank’s swift closure and sale to JPMorgan, a source said.

The 4 3/8% subordinated notes due 2046 (CC/B-) went out down around 14 points on $28.5 million of volume on Monday.

The issue went into the weekend on a handle in the teens after going out Friday down more than 30 points on the week.

First Republic Bank’s 4 5/8% subordinated notes due 2047 (B2/B-) also traded 14 points lower on Monday at 2˝ bid on more than $22 million of secondary action.

The notes sank 10˝ points on Friday and finished the week more than 30 points softer.

First Republic Bank’s stock was up 18.38% in pre-market action before trading was halted.

The San Francisco-based bank’s stock finished Friday 43.3% lower at $3.51. The 52-week high was $171.09.

WW softens

WW International’s 4˝% senior secured notes due 2029 (B3/B) slipped 7/8 point on Monday to 63 1/8 bid on $5.75 million of secondary supply, a source said.

The notes are off about 3/8 point from a week ago.

The issue has gained about 10 points since the company, which operates WeightWatchers, announced April 10 that it closed on its $132 million acquisition of telehealth company Weekend Health Inc., doing business as Sequence.

Shares picked up 5.03% to close at $8.77.

The New York-based weight loss company will report first-quarter earnings on Thursday.

QVC notes improve

In other distressed paper, QVC’s 5.45% senior secured notes due 2034 (B2/B-) were quoted at 43˝ bid on $6.5 million of secondary action on Monday, a source said.

The notes gained more than 4 points over April.

QVC’s 4.85% senior secured notes due 2024 (B2/B-) also were trading more than Ľ point better on the day around 86˝ bid on $6.14 million of volume.

West Chester, Pa.-based parent Qurate Retail Inc. will release first-quarter earnings results on Friday.

Distressed returns up

S&P U.S. High Yield Corporate Distressed Bond index one-day returns finished higher on Friday at 0.37%.

One-day returns were up from 0.18% on Thursday, minus 0.18% on Wednesday and 0.01% on Tuesday but down from 0.43% of returns at the start of the prior week.

April month-to-date returns ended Friday at 2.68%, up from 2.3% in the prior session and 2.3% at the start of the week and well improved from the previous two months.

March bond index returns closed out at minus 4.2%, while February saw returns of 1.03% and January posted 7.99% of distressed returns.

Year-to-date total returns hit 7.32% on Friday, improved from 6.93% on Thursday, 6.74% on Wednesday, 6.93% on Tuesday and 6.92% in the week’s first session.

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