Credit spreads widen, liquidity thins amid SVB fallout; SVB senior notes in focus on restructuring; DISH falls

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 13 – The high-yield primary market remained shuttered on Monday as risk aversion took hold amid the catastrophic collapse of Silicon Valley Bank last week, and the ensuing collapse of Signature Bank, which was closed by regulators on Sunday.

No deals were priced, and none were announced.

The active forward calendar remained empty at Monday's close.

Meanwhile, it was a heavy day in the secondary space as credit spreads, which had been resilient in the face of the mid-February market downturn, continued to blow out.

The HY index credit spread blew past 500 on Monday, a source said.

Spreads were just north of 400 on Wednesday, March 8.

However, the dramatic implosion of SVB Financial Group has dramatically altered the Macro environment, sources said.

Silicon Valley Bank collapsed on Friday and was placed in a FDIC receivership less than 36-hours after disclosing a $1.8 billion loss from the liquidation of its for-sale securities portfolio and launching a $2.25 billion equity and equity-linked capital raise.

The disclosure and capital raise sparked liquidity concerns at the bank, which culminated in a bank run and shook investor confidence in the banking sector, which had been looked to as a safe haven.

SVB was a warning that banks are not immune to rising rates with the banking sector also vulnerable to rate and recession risk, sources said.

However, the emergency federal interventions undertaken to stabilize the banking sector has dramatically altered the rate hike narrative.

Treasuries continued to rally with the two-year yield falling 62 basis points to close Monday at 3.976% and the 10-year note yield falling 15 bps to close at 3.553% in early trade.

Market players were debating how high the Federal Reserve would hike rates on Wednesday, March 8. They are now debating whether the Federal Reserve will increase rates next week with the possibility of a rate reduction before the end of 2023 again on the table.

As market players assessed the dramatically altered landscape, liquidity continued to thin, a source said.

There was some opportunistic buying in select credits as spreads widened with the market lifted off its lows in intraday activity.

However, the cash bond market was down another 3/8 to ½ point with sellers dragging the market down into the close, a source said.

SVB Financial Group’s senior notes (C/NR) dominated the tape with the notes slashed from investment grade to the lowest junk tier before ratings were withdrawn.

The notes were trading on recovery expectations, sources said.

DISH Network Corp.’s 11¾% senior secured notes due 2027 (Ba3/B+) hit a new all-time low in heavy volume on Monday with the notes now trading below their initial discounted issue price.

SVB eyed

SVB’s senior notes dominated the tape on Monday as the notes sank from investment grade to distressed territory in three trading sessions.

The senior notes were trading in the 44 to 46 context heading into the market close with each tranche seeing between $100 million to $250 million in reported volume.

The notes were trading on the expectation of recovery, a source said.

“There should be some type of recovery, but it depends on how they restructure,” a source said.

SVB announced on Monday that it had formed a restructuring committee to explore strategic alternatives. (See related article in this issue)

While banking regulators have stepped in to guarantee all deposits at Silicon Valley Bank, investors will not be bailed out, President Joe Biden announced early Monday.

While the trading levels on SVB’s senior notes seemed high to some given the lack of a federal bailout, there may be some short covering in the name, a source said.

DISH’s new low

DISH’s 11¾% senior secured notes due 2027 fell to a new all-time low with the large, liquid issue, among the most actively traded of Monday’s session.

The 11¾% notes were down ¾ to 1 point with the notes closing Monday in the 97 5/8 to 97 7/8 context heading into the market close.

There was $28 million in reported volume.

Monday’s trading level marked the lowest for the notes since the initial $2 billion issue priced at 98.171 in November 2022.

DISH returned to the market and priced a $1.5 billion add-on at 102 on Jan. 17.

There was some selling of highly liquid names to raise cash with liquidity concerns growing in the market, source said.

Indexes

The KDP High Yield Daily index was down 7 points to close Monday at 50.69 with the yield now 7.64%.

The index posted a cumulative loss of 64 points on the week last week.

The ICE BofAML US High Yield index was down 36.5 bps with the year-to-date return now 1.548%.

The CDX High Yield 30 index sank 133 bps to close Monday at 98.75.

The index plunged 251 bps on the week last week.

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