Credit Suisse mixed in volatile trading; bank tier 1 paper under pressure; Lumen lower

By Cristal Cody

Tupelo, Miss., March 20 – Credit Suisse Group AG topped distressed and junk trading action on Monday, a day after the announcement that CHF 16 billion of its additional tier 1 bonds will be wiped out in its government-sanctioned acquisition by UBS Group AG.

Credit Suisse’s notes rallied about 4½ points to more than 30 points on heavy trading, while the issuer’s perpetual securities sank about 18 points to nearly 30 points in lighter trading.

The 6½% notes due Aug. 8, 2023 (/BB+) caught the most interest with the notes jumping 30¼ points on $52 million of trading on Monday.

Numerous issuers have tapped the primary market with recent AT1 paper, including UBS Group and ING Groep in February.

Bank preferred securities declined about 4½ points to 8½ points, including from UBS, Societe Generale, Barclays, Standard Chartered plc, Lloyds Banking Group plc and BNP Paribas SA, a source said Monday.

UBS’ 7% tier 1 perpetual securities (Baa3/BB/BBB) fell over 6 points to the 89, 90 bid range on more than $9 million of volume.

Lloyds’ new 8% reset additional tier 1 perpetual subordinated contingent convertible securities (Baa3/BB-) shed about 7 points to 83½ bid on $17.7 million of volume.

The paper was priced March 6 in a $1.25 billion offering at par.

The weekend events followed Friday’s Chapter 11 bankruptcy filing by SVB Financial Group, which helped kick off the firestorm in the banking industry after SVB’s Silicon Valley Bank was seized by the Federal Deposit Insurance Corp.

The failures of Silicon Valley Bank, Signature Bank and Silvergate Bank earlier in March was followed last week with Credit Suisse receiving assurances of additional funding by the Swiss National Bank on Wednesday and 11 major banks announcing $30 billion of deposits into First Republic Bank on Thursday.

Moody’s Investors Service dropped First Republic Bank to junk on Friday.

Markets were mostly positive on Monday with stocks gaining.

The CBOE Volatility index fell 5½% to 24.09.

The iShares iBoxx High Yield Corporate Bond ETF was 19 cents softer on Monday at 73.18.

The 10-year Treasury note yield, which dropped 19 basis points on Friday, rose 8 bps to 3.48% on Monday.

In other distressed paper on Monday, Lumen Technologies, Inc.’s notes gave back about 1½ points to 2½ points of gains made last week following the company’s exchange offer announcement.

Credit Suisse mixed

Credit Suisse’s 6½% notes due Aug. 8, 2023 (/BB+) shot up 30¼ points to a quote of 83¼ bid on $52 million of paper traded on Monday, a source said.

The notes were yielding 60%.

Credit Suisse’s 7½% perpetual securities (/B+) traded 7 points better by the day’s end at 30 bid on $12 million of supply.

Meanwhile, the 9¾% perpetual securities dropped 29¾ points to a quote of 4¼ bid on $2 million of trading on Monday.

S&P Global Ratings said a default on Credit Suisse’s AT1 hybrid capital instruments is a virtual certainty following the Swiss Financial Market Supervisory Authority’s statement on Sunday that the CHF 16 billion of Credit Suisse’s AT1 debt will be written off to zero.

The Zurich-based financial services company’s credit default swap spreads moved out 903 bps in the prior week ended Wednesday.

Lumen paper lower

Lumen’s 4% senior secured notes due 2027 (B3/BB) slipped 1½ points to 64¼ bid going out Monday, a source said.

The issue was fairly active in the secondary market on more than $11 million of trading.

Lumen’s 5 1/8% senior notes due 2026 (Caa1/B) also dropped 2½ points by the day’s end to 65¼ bid on $6 million of secondary activity.

The Denver-based telecommunications company’s paper had improved about 4 points to 10 points following the exchange offer announcement.

Lumen announced on Thursday that subsidiary Level 3 Financing, Inc. launched an offer to exchange eight series of senior notes for up to $1.1 billion of new 10½% senior secured notes due 2030.

The exchange offer, which includes the 5 1/8% notes, expires April 13.

Distressed returns decline

The S&P U.S. High Yield Corporate Distressed Bond index finished Friday soft with one-day returns of minus 0.34%.

Returns were 0.66% on Thursday, minus 2.21% on Wednesday, minus 0.12% on Tuesday and minus 0.82% at the prior week’s start.

Month-to-date returns were minus 4.14% on Friday, minus 3.81% on Thursday, minus 4.44% on Wednesday, minus 2.28% on Tuesday and minus 2.17% at the first of the week.

Quarterly and year-to-date total returns were 4.59% on Friday, 4.94% on Thursday, 4.26% on Wednesday, 6.61% on Tuesday and 6.74% at the start of the week.

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