SVB bonds up after Chapter 11 filing, paper recovers; WeWork up on funding transactions

By Cristal Cody

Tupelo, Miss., March 17 – The contagion that engulfed the banking industry over the week appeared to quiet on Friday, despite the Chapter 11 bankruptcy filing announced early in the session by SVB Financial Group.

SVB Financial Group’s bonds were recovering from steep distressed handles the paper hit a week ago and on Monday after SVB’s Silicon Valley Bank was seized by the Federal Deposit Insurance Corp.

SVB’s 1.8% notes due 2031 were back to trading on a handle in the 60s after sinking to the 30s a week ago, sources said.

“I don’t know if it was expected, but it’s not that huge in context of the paper that’s traded,” an investment fund portfolio manager said Friday of SVB’s bankruptcy filing. “The bonds relative to when the news first came out are up. Depending on the tenor, they’re trading in the low 60s and had traded as low as the 30s. The preferreds traded as low as $2, $3 and are now $12, so they’re actually higher than they were when the news first was announced a week ago.”

The failures of Silicon Valley Bank, Signature Bank and Silvergate Bank were followed this week by concerns with numerous banks.

Credit Suisse Group AG received assurances of additional funding by the Swiss National Bank on Wednesday, and on Thursday, 11 major banks announced $30 billion of deposits into First Republic Bank.

“What we’re seeing in most banks outside high-grade and higher quality high yield, spreads are wider because not a lot is trading and Treasury yields are lower,” the portfolio manager said. “That’s not true in some bank paper, but it’s the names you’ve heard that are doing less well. Credit Suisse paper is in the 60s. Bank bonds are wider, but’s it’s actually not that bad. Prices really haven’t moved that much – spreads are wider because Treasuries are lower.”

The 10-year Treasury note yield dropped 19 basis points to 3.39% on Friday.

The CBOE Volatility index was up 11.66% at 25.67.

Market participants are looking to next week’s rate decision by the Federal Reserve with predictions the Fed may pause its rate hikes following the shakeup in the bank landscape or limit an increase to 25 bps.

Light trading volume was seen in WeWork Inc. following its announcement of new funding and plans to eliminate debt and extend a debt maturity wall from 2025 to 2027.

WeWork’s 7 7/8% senior notes due 2025 rallied 5 points on the day and were going out about 15 points better on the week.

“Cleaner and simpler than bankruptcy,” Piper Sandler & Co. analyst Alexander Goldfarb said in a note Friday. “While there were plenty of billables created in advisors' time, this restructuring shows the efficiency of self-restructuring versus going through the bankruptcy process. The much anticipated balance sheet restructuring exceeds our expectations, in that it's not just Softbank participating, but independent bondholders as well.”

SVB paper higher

SVB Financial Group’s 1.8% notes due 2031 recovered to trade with a handle in the low 60s on Friday, sources said.

The notes were quoted Wednesday at 58¼ bid and on Monday at the 44¼, 44½ range.

In the same session a week ago, the 1.8% notes due 2031 sank around 30 points to the 39 bid area.

Santa Clara, Calif.-based SVB said Friday it filed for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York, a week after Silicon Valley Bank was taken over by the FDIC.

The bank, as well as SVB Securities and SVB Capital's funds and general partner entities, are not included in the Chapter 11 filing.

Silicon Valley Bank’s collapse came after SVB’s market update on March 8 revealed the company sold almost all of its securities portfolio at a loss of $1.8 billion and had planned to raise $2.25 billion through equity and a mandatory convertible preferred share offering before depositors fled.

WeWork improves

WeWork’s 7 7/8% senior notes due 2025 rallied 5 points to 60½ bid on Friday and were going out about 15 points better on the week in light trading, sources said.

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. The ad hoc group includes funds and accounts managed by King Street Capital Management, LP, BlackRock and Brigade Capital Management.

The transactions will reduce WeWork’s net debt by about $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.

The company has featured high on recent default lists with $1.2 billion of debt trading in the 40s in the prior week, according to a BofA Securities note.

“Hopefully this transaction relieves pressure on the stock, especially as independent debt and equity holders no longer have to underwrite the potential for a Softbank-led restructuring,” Goldfarb said Friday. “The positives of WE remain that management continues to steadily deliver on its path to cash flow positivity, which we forecast to be 1Q24.”

WeWork reported it achieved adjusted EBITDA profitability for the first time in company history in December 2022.

The company said it will file a late 10-K report by March 31.

The New York-based office share company’s stock closed Friday up 0.21% at 98 cents, well off its 52-week high of $8.08.

Distressed index up

S&P U.S. High Yield Corporate Distressed Bond index one-day returns saw the first session of gains this week on Thursday.

Returns were 0.66%, up from minus 2.21% on Wednesday, minus 0.12% on Tuesday and minus 0.82% on Monday.

Month-to-date returns improved to minus 3.81% on Thursday versus minus 4.44% on Wednesday, minus 2.28% on Tuesday and minus 2.17% at the week’s start.

Quarterly and year-to-date total returns rose to 4.94% from 4.26% on Wednesday, 6.61% on Tuesday and 6.74% on Monday.

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