Credit Suisse preferreds at single digits; First Republic gains; DISH mixed; WeWork declines

By Cristal Cody

Tupelo, Miss., March 21 – Distress in the banking space remained at the forefront of market focus Tuesday ahead of the Federal Reserve’s widely anticipated monetary policy announcement with paper mostly higher in heavy trading.

Credit Suisse Group AG notes rallied about 6¾ points to 7¾ points, while the perpetual securities continued to decline following the Swiss Financial Market Supervisory Authority’s statement on Sunday that CHF 16 billion of Credit Suisse’s AT1 debt will be written off to zero as part of its acquisition by UBS Group AG.

“This is unprecedented and discredits subordinated debt in banks and the asset class in general,” Eric Vanraes, portfolio manager of the Strategic Bond Opportunities Fund at Eric Sturdza Investments, said in a statement Tuesday. “In the short term, the AT1 market will suffer.”

Credit Suisse’s 5¼% perpetual notes (B1/C) dropped 20¾ points to a 5 handle Tuesday.

“Hybrid corporate debt has also come under pressure, despite this asset class having nothing to do with AT1 bonds,” Vanraes noted. “In a panic, investors have lumped everything together and simply sold off anything that looked like subordinated debt.”

Although many market participants had not anticipated that Swiss authorities would enforce a total write-down of Credit Suisse’s AT1 instruments without also wiping out common equity shareholders, the AT1 documentation, combined with the authorities' legislative powers, made it possible, according to a S&P Global Ratings report on Tuesday.

The move “highlights that AT1 investors risk taking heavy losses as part of any bail-in, whether as part of a formal resolution or a market-based solution to help an ailing bank and protect its senior creditors,” S&P said, adding that AT1 regulations vary by country.

Paper from First Republic Bank, infused with $30 billion of deposits last week by 11 major U.S. banks, improved following reports that J.P. Morgan was advising the bank.

First Republic Bank’s subordinated notes were trading about 1¾ points to 2½ points higher.

Market sentiment also improved on Treasury secretary Janet Yellen’s remarks at the American Bankers Association summit in Washington, D.C., that reiterated the government’s quick response to the bank failures at Silicon Valley Bank and Signature Bank would be repeated if smaller institutions suffer deposit runs.

Market tone was strong on the eve of the Federal Reserve’s rate decision due Wednesday.

The CBOE Volatility Index declined more than 11% to 21.38.

The S&P 500 index closed up 1.3%.

The iShares iBoxx High Yield Corporate Bond ETF added 80 cents, or 1.09%, to 73.97.

In other active distressed paper, DISH Network Corp.’s notes traded mostly flat to more than 1 point better on about $54 million of volume.

DISH’s 7 3/8% senior notes due 2028 (B3/B) rose more than 1 point on $18.65 million of supply Tuesday.

WeWork Inc.’s 7 7/8% senior notes due 2025 (CC) moved lower Tuesday following a downgrade from S&P. The notes have declined about 3¾ points since Friday.

Credit Suisse preferreds drop

Credit Suisse’s 6½% notes due Aug. 8, 2023 (BB+) climbed between 6¾ points and 7¾ points Tuesday to 90, 90¼ on more than $12 million of secondary trading, a source said.

The issue rallied 30¼ points on Monday to hit 83¼ bid on $52 million of paper traded.

The yield was cut nearly in half from Monday’s levels at 60% to around 36% on Tuesday.

Meanwhile, Credit Suisse’s 5¼% perpetual notes (B1/C) dropped 20¾ points to 5¾ bid on $3 million of volume Tuesday.

The 7½% perpetual notes (C) were quoted down 25¾ points at 4¼ bid on $1 million of trading.

The Zurich-based financial services company will be acquired by UBS Group in an all-stock deal expected to close in the second quarter.

First Republic gains

First Republic Bank’s 4 3/8% subordinated notes due 2046 (Baa1/BB-) went out up 1¾ points at 60¼ bid on $12 million of paper traded Tuesday, a source said.

The 4 5/8% subordinated notes due 2047 (Baa1/BB-) also improved 2½ points to 62 bid on $8.25 million of volume over the session.

The yield has come back in to under 10% with the long bonds yielding around 8% on Tuesday.

First Republic Bank was cut to junk ratings last week by Moody’s Investors Service, S&P and Fitch Ratings.

The San Francisco-based bank’s stock rallied over 29% to $15.77 on Tuesday.

DISH mostly flat to higher

DISH’s paper traded mostly higher in heavy secondary supply with the 7 3/8% senior notes due 2028 (B3/B) up more than 1 point at 58¾ bid on $18.65 million of volume Tuesday, a source said.

The company’s 5 1/8% senior notes due 2029 were mostly unchanged at the 53½ bid range on $12.71 million of trading.

DISH’s 7¾% senior notes due 2026 (B3/B) slipped ½ point to 65¾ bid on $9 million of volume.

The Englewood, Colo.-based satellite cable operator’s shares rose more than 6% to $9.58 on Tuesday.

WeWork declines

WeWork’s 7 7/8% senior notes due 2025 (CC) were trading Tuesday at 56¾ bid on $7.25 million of volume, a source said.

The paper has declined about 3¾ points since Friday.

WeWork’s notes had improved about 5 points on Friday after the company announced new funding and plans to eliminate debt and extend a debt maturity wall from 2025 to 2027.

WeWork said it has entered into a series of agreements with an ad hoc group representing over 60% of the company’s public bonds, a third-party investor, and SoftBank’s Vision Fund II that will reduce WeWork’s net debt by approximately $1.5 billion at closing, extend a debt maturity wall from 2025 to 2027 and provide new funding and new and rolled capital commitments of more than $1 billion.

S&P downgraded the notes and said it considers the transaction the equivalent of a default.

The New York-based office share company expects to file a late 10-K report by March 31.

WeWork’s stock broke $1 on Tuesday and closed up 10.28% at $1.07.

Distressed index down

S&P U.S. High Yield Corporate Distressed Bond index one-day returns opened the week soft at minus 0.57% on Monday.

One-day returns were down from minus 0.34% on Friday but improved from minus 0.82% in the same session last week.

Month-to-date returns widened Monday to minus 4.69% versus minus 4.14% on Friday and minus 2.17% in the week ago session.

Quarterly and year-to-date total returns remained positive at 3.99% on Monday but decreased from 4.59% ahead of the weekend and 6.74% the same day a week ago.

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