Junk ‘sloppy’ as spreads widen; SVB jumps as creditors organize; DISH, Uniti hit new lows

By Paul A. Harris to Abigail W. Adams

Portland, Me., March 15 – The high-yield primary market remained shuttered on Wednesday as volatility driven by further turmoil in the banking sector continued to stoke risk aversion, sources said.

The active forward calendar is empty.

There was heavy dislocation in markets amid the recent turmoil with high-yield credit spreads, which had been resilient until last week, again blowing out, sources said.

The secondary space gave back gains from the previous session as fresh unrest in the banking sector and the latest producer price index report sent Treasuries soaring and risk assets plunging.

News Credit Suisse’s largest shareholder would not increase its stake sent markets reeling early in the session.

The high-yield market was “sloppy and a little frozen,” with low-ball bids getting hit early in the session, a source said.

However, the tone improved into the close following news that Swiss authorities would intervene to help stabilize Credit Suisse.

While the tone improved and the cash bond market closed off its lows, it was still down about ¾ point with liquidity a growing concern, sources said.

There was no evidence yet that people needed to raise cash; however, traders ae keeping a close eye on the situation, a source said.

SVB Financial Group’s senior notes continued to make large gains in heavy volume with the head-scratching trading level for the notes explained by reports that creditors were organizing.

DISH Network Corp.’s 11¾% senior secured notes due 2027 (Ba3/B+) continued a strong downtrend with the notes hitting a new historical low amid negative topical news and heavy market conditions.

Uniti Group LP, Uniti Fiber Holdings Inc., Uniti Group Finance 2019 Inc., CSL Capital, LLC’s 10½% senior secured notes due 2028 (B2/B/BB+) also sank to a fresh low with the high-beta name among those getting hit by the heavy market conditions.

SVB creditors organize

SVB’s senior notes continued to shoot higher in heavy trading with news that creditors were organizing bolstering the notes.

SVB’s short-duration notes made the largest gains with the 3½% notes due 2025 jumping almost 10 points.

The notes were trading in the 60 to 63 context heading into the market close, a source said.

The 3 1/8% senior notes due 2030 jumped 8 points to trade in the 58 to 60 context and the 1.8% senior notes due 2031 jumped 6 points to trade in the 56 to 58 context.

SVB’s capital structure was marked in the 49 bid, 51 offered context on Tuesday with the notes continuing to bounce off the lows hit following Silicon Valley Bank’s collapse.

The trading level for the notes was “head-scratching,” given its upcoming liquidation and no bailout for investors, sources previously said.

However, The Wall Street Journal reported post-close Tuesday that SVB creditors were organizing.

Centerbridge Partners LP, Davidson Kempner Capital Management LP and Pacific Investment Management Co. (Pimco) are part of the investor group that is pushing SVB Financial to file for bankruptcy in the hope of profiting from the sale of assets.

Goldman Sachs helped facilitate the sale of about $700 million of SVB bonds to investors last weekend when SVB bonds were marked in the low 30s.

DISH’s new low

DISH’s 11¾% senior secured notes due 2027 continued their strong downtrend on Wednesday with negative topical news and heavy market conditions dragging the notes lower.

The 11¾% notes were down more than 2 points.

They traded as low as 94½ early in the session but pared their losses as the broader market firmed into the close.

The notes were changing hands in the 95¼ to 95¾ context heading into the close.

The 11¾% notes were the most actively traded issue in the secondary space outside of SVB with $35 million in reported volume.

News that DISH must pay $469 million in a censor patent infringement case further pressured a capital structure still reeling from a ransomware attack that resulted in widespread service outages two weeks ago.

Despite the topical news, the 11¾% notes were holding above par as recently as early last week before SVB’s implosion threw financial markets into turmoil.

Uniti’s new low

Uniti’s 10½% senior secured notes due 2028 sank to a fresh low under Wednesday’s heavy market conditions.

The 10½% notes fell about 2 points on Wednesday.

They broke below a 95-handle to trade in the 94¾ to 95¼ context heading into the close.

There was $21 million in reported volume.

Wednesday’s trading level marked the lowest for the notes since the $2.6 billion issue priced at par on Feb. 2.

Fund flows

The dedicated high-yield bond funds sustained $474 million of net daily cash outflows on Tuesday, according to a market source.

Actively managed high-yield funds saw $243 million of outflows on the day.

High-yield ETFs sustained $231 million of outflows on Tuesday, the source said.

The combined funds are tracking $1.53 billion of net outflows on the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index fell 34 points to close Wednesday at 50.51 with the yield now 7.71%. The index gained 16 points on Monday and was down 7 points on Monday.

The ICE BofAML US High Yield index fell 78.7 basis points Wednesday with the year-to-date return now 1.183%.

The index was up 42.2 bps on Tuesday and down 36.5 bps on Monday.

The CDX High Yield 30 index fell 70 bps to close Wednesday at 98.9.

The index gained 85 bps on Tuesday and sank 133 bps on Monday.

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