New York Community Bancorp paper drops, sparks bank crisis chatter; Lumen, Level 3 volatile

By Cristal Cody

Tupelo, Miss., Feb. 7 – New York Community Bancorp, Inc.’s paper slid Wednesday, a day after its high-grade notes were dropped to junk and sparked concerns of another banking crisis.

New York Community Bancorp’s floating-rate subordinated notes due Nov. 6, 2028 (Ba2//BB+) were “down 7 points” by the close, a trader said.

Moody’s Investors Service said Tuesday that it dropped the company’s issuer rating and the rating on its subordinated notes and preferred stock as the bank faces heavy losses on its core commercial real estate lending services.

“There’s been a lot of volatility in Treasuries, and we’re having a bit of back-and-forth right now between people watching what’s going on with New York Community Bancorp and if there is some regional bank crisis looming or is it just a one-off with them,” a source said.

Treasury yields edged higher Wednesday.

The benchmark 10-year note yield, up 13 basis points Monday and down 7 bps on Tuesday, rose 2 bps over the day to 4.11%.

Market tone overall seemed “unchanged,” but was ticking higher, a trader said.

“The CDX was up 6 cents, HYG was up 13 cents,” the trader said.

The iShares iBoxx High Yield Corporate Bond ETF rose 13 cents, or 0.17%, to $77.24.

The CBOE Volatility Index fell 1.76% to 12.83.

“The employment data being so strong has really changed everybody’s outlook on how soon the Fed will cut,” a market source said. “People were caught off-guard is why yields went up a good bit in one day on Friday. There’s really a tug-of-war right now with the data expectations, timing of cuts and just other factors that are repressing the market in one way or the other.”

Back in the distressed space, bonds from Lumen Technologies, Inc. and subsidiary Level 3 Financing, Inc. underwent significant volatility in the first session after the company released its fourth-quarter earnings report.

Lumen’s paper gained, while some of Level 3’s distressed bonds were “down 16 points,” a trader said.

Lumen reported heavy fiscal 2023 earnings losses and lower revenue after the markets closed Tuesday.

NYCB declines

New York Community Bancorp’s floating-rate subordinated notes due Nov. 6, 2028 (Ba2//BB+) traded with a price in the 70 to 76½ range over the session and went out at 75, a trader said Wednesday.

The floating-rate notes were quoted with a coupon equal to 8.33% and a spread at a discount margin of 1,045 bps.

New York Community Bancorp originally sold $300 million of the fixed-to-floating-rate subordinated notes with a 5.9% coupon at par in 2018 with the interest rate reset to a floating rate on Nov. 6, 2023.

The company’s 6.375% series A non-cumulative preferred stock (B1//B+) dropped 4.32% Wednesday to $16.17, up from an earlier low of $13.28 during the session.

The yield was 9.86%.

Moody’s said Tuesday that it downgraded the bank’s issuer rating and the rating on its subordinated notes to Ba2 from Baa3, while it also lowered the bank’s preferred stock rating to B1 (hyb) from Ba2 (hyb) as the company faces significant losses on its core commercial real estate lending services.

Moody’s said the issuer’s provision for credit losses jumped 526% to $833 million in 2023 from $133 million in 2022.

The Hicksville, N.Y.-based company is the parent company of Flagstar Bank, NA.

New York Community Bancorp announced, after Moody’s downgrade, updated unaudited financial information with figures as of Tuesday that noted it had $83 billion of total deposits, with insured and collateralized deposits representing 72% of total deposits.

The bank said that its deposit ratings from Moody’s, Fitch Ratings and DBRS still remain investment-grade.

Lumen, Level 3 active

Bonds from Lumen and Level 3 were all over the place Wednesday in the secondary market, sources said.

Lumen’s 4% senior secured notes due 2027 (Caa2/CCC-/CCC-) climbed 7½ points to 53 bid and a 28.12% yield on $7 million of trading.

Level 3 Financing’s 4¼% senior notes due 2028 (B3/CC/CCC+) jumped 3½ points to 40½ bid on more than $20 million of volume Wednesday.

The notes were yielding over 29%.

Level 3’s 3 5/8% senior notes due 2029 (B3/CC/CCC+) sank 16½ points to 36½ bid and a 28.23% yield on $15 million of trading.

The issuer’s 3¾% senior notes due 2029 (B3/CC/CCC+) also dropped 16¾ points to 36¼ bid and a 26.57% yield on $11 million of volume Wednesday.

Level 3’s secured junk bonds, the 10½% senior secured notes due 2030 (B1/B/B-), added ¾ point to head out at 101½ bid and a 10.05% yield on $17 million of trading over the session.

Lumen on Tuesday reported fourth-quarter and 2023 earnings and gave additional information on an amended transaction support agreement reached in January.

While fourth-quarter losses were improved from a year earlier, Lumen reported heavy 2023 losses of $10.3 billion versus a 2022 net loss of $1.55 billion.

The Monroe, La.-based global telecommunications company expects to complete the TSA in the first quarter.

Distressed index declines

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns improved to 0.29% on Tuesday from minus 0.53% on Monday.

Month-to-date total returns also rose to minus 0.44% from negative 0.72% at the week’s start.

Year-to-date total return losses narrowed to negative 2.58% on Tuesday from minus 2.86% Monday.

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