First Republic notes near zero; Community Health pressured after loss; Bausch mixed

By Cristal Cody

Tupelo, Miss., May 2 – First Republic Bank’s paper sank further on Tuesday, trading as low as 5/8 bid a day after it was closed and auctioned to JPMorgan Chase & Co.

First Republic Bank’s 4 3/8% subordinated notes due 2046 (C/B-) sank to ¾ bid by the day’s end.

The bank’s closure marked the second-largest bank failure in U.S. history, sources note.

Three of the top four largest bank failures in U.S. history have taken place in the last two months, including Silicon Valley Bank and Signature Bank in March.

Market volatility climbed on Tuesday as the Federal Reserve kicked off its two-day monetary policy meeting.

The CBOE Volatility index went out 10.7% higher at 17.80.

Stock indices fell more than 1%. The S&P 500 index closed down 1.16%.

The iShares iBoxx High Yield Corporate Bond ETF softened 6 cents, or 0.08%, to $74.63.

The Federal Reserve is widely expected on Wednesday to hike benchmark rates by 25 basis points to 5% to 5¼%, the highest since the Fed lowered the rate to 4¾% from 5¼% in September 2007.

Moody’s Investors Service said in a report that its base case assumptions are calling for the U.S. speculative-grade default rate to rise to 5.6% over the next year.

Corporate defaults doubled in the first quarter to 20 with Moody’s U.S. speculative-grade 12-month trailing default rate rising to 2.7% from 2% in the prior quarter.

“This trend underscores our expectations that higher interest rates, slower economic growth and limited market liquidity will fuel more defaults among lower-rated debt issuers in the months ahead,” Moody’s said.

In other distressed paper, Community Health Systems Inc.’s bonds shed about 3½ points to more than 6 points on about $15 million of volume, while its stock plunged nearly 40%, after the company reported first-quarter losses.

The issuer’s 6 7/8% senior secured notes due 2029 (Caa2/CCC-) fell 6 points on Tuesday.

Bausch Health Cos. Inc.’s bonds traded flat to higher on about $11 million of secondary activity over the session ahead of its earnings release this week.

The company’s 6¼% notes due 2029 (Ca/CCC-) rose ¼ point.

First Republic sinks

First Republic Bank’s distressed paper moved below 1 bid on Tuesday as market sources anticipate a default following the bank’s collapse and sale to JPMorgan in a government auction, sources said.

The 4 3/8% subordinated notes due 2046 (C/B-) sank to ¾ bid on $10.75 million of trading during the session.

On Monday, the notes dropped around 14 points to a 2 bid handle on $28.5 million of volume.

First Republic Bank’s 4 5/8% subordinated notes due 2047 (C/B-) went out down 1 7/8 points at 5/8 bid on $7.75 million of volume on Tuesday.

The notes dropped 14 points on Monday to 2½ bid on more than $22 million of secondary action.

The bank’s paper dove more than 30 points in the prior week, while its stock plunged to close the prior week at $3.51 after First Republic reported deposits sank in the first quarter.

JPMorgan’s purchase does not include the bank’s corporate debt.

A default is widely expected by market participants on the former San Francisco-based bank’s notes.

Community Health lower

Community Health’s notes dropped about 3½ points to more than 6 points on Tuesday in post-earnings release secondary trading, a source said.

The company’s 6 7/8% senior secured notes due 2029 (Caa2/CCC-) fell 6 points to 68¾ bid on more than $10 million of volume.

On Monday, Community Health reported first-quarter losses of $51 million versus a $1 million loss in the same period a year ago.

Shares in the Franklin, Tenn.-based operator of acute care and outpatient facilities closed Tuesday down 38.84% at $3.81.

Bausch flat to higher

Bausch Health’s 4 7/8% senior secured notes due 2028 (Caa1/CCC+) were flat over the day at 65¾ bid on $7 million of trading action, a source said.

The 6¼% senior notes due 2029 (Ca/CCC-) rose ¼ point to 47¾ bid on lighter trading totaling $4 million.

Bausch will release first-quarter financial results on Thursday.

The Laval, Quebec-based pharmaceutical company’s stock slipped 2.13% to $7.35.

Year-to-date returns up

S&P U.S. High Yield Corporate Distressed Bond index one-day returns opened the week softer at 0.01% on Monday.

Returns declined from 0.37% on Friday and 0.43% in the same session a week ago.

Year-to-date total returns improved on Monday to 7.34% versus 7.32% on Friday and 6.92% in the week-ago session.

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