Corporate Bonds Are Being Cut to Junk at Fastest Pace Since 2020​​​

Ratings firms are on track to cut the most U.S. corporate bonds to junk since the early part of the pandemic, further boosting funding costs for some companies just as economic growth is slowing, Bloomberg News reported. In the first quarter, a total of $11.4 billion of bonds were downgraded to high-yield status, a figure that’s about 60% of 2022’s full-year total, according to Barclays Plc research. Full-year volume is on pace to be the highest since 2020, when the pandemic sparked a massive wave of downgrades, according to the bank’s estimates. The latest downgrades reflect the pressure that many companies are facing as the Federal Reserve has hiked interest rates at the fastest pace in decades. Borrowing costs are rising across the board, but corporations that see their bond ratings cut to junk face an extra boost in funding expenses because a smaller universe of investors is eligible to buy their bonds .​​​Read more.

Bank Executives See No ‘Cracks’ Even as Credit Card Write-Offs Soar​​​

Bank of America Corp. joined its largest rivals in setting aside more reserves as a growing number of consumers couldn’t keep up with their loan payments, even as executives dialed down fears of a looming crisis, Bloomberg News reported. The four biggest U.S. lenders wrote off a combined $3.4 billion in bad consumer loans in the first three months of 2023, a 73% increase from a year earlier. That, combined with additional reserves, boosted provisions at all four institutions to levels not seen since the earliest days of the COVID-19 pandemic. For years, banks benefited from the financial strength of U.S. consumers as credit losses fell to record low levels. Now, with once-in-a-generation levels of inflation whittling away at their savings, Americans are once again beginning to fall behind on payments. But so far, bank executives have been adamant that the recent increase in provisions is nothing more than losses returning to normal after pandemic-era government stimulus programs kept consumer defaults artificially low. “We haven’t seen any cracks in that portfolio yet,” Bank of America Chief Financial Officer Alastair Borthwick said Tuesday on a conference call with reporters. “The consumer is in great shape.” At Charlotte, N.C.-based Bank of America, firmwide provisions were less than expected, helped by reserve releases tied to corporate loans, according to a statement. Still, the firm was forced to set aside an additional $360 million in reserves tied to its consumer business, which the bank blamed on higher-than-expected credit card balances. ​​​Read more.

Sessions Get Underway Tomorrow at ABI’s Annual Spring Meeting!​​​

More than 20 hot topical sessions get underway tomorrow at ABI’s Annual Spring Meeting, with programming catered toward business and consumer professionals of all industry expertise levels, on such topics as subchapter V, ethics and compensation, bankruptcy court jurisdiction and much more! The conference schedule is loaded with dynamic speakers, including judges, practitioners and seasoned financial pros — including appearances by Ken Feinberg (9/11 Special Master) and keynote speaker Prof. Kenji Yoshino (with a talk on diversity issues), and inspiring presentations, including a panel of bankruptcy judges discussing circuit splits and hot topics led by ABI Editor-at-Large Bill Rochelle. ​​​

Networking starts tonight with the Opening Reception at the DC Wharf and many more events will follow culminating in the President’s Inauguration Dinner. We look forward to seeing you at the conference!​​​

FDIC Starts Selling $114 Billion of Bonds from Failed Banks​​​

The Federal Deposit Insurance Corp. has begun selling bonds it inherited from Silicon Valley Bank and Signature Bank SBNY to recoup the cost of rescuing the failed banks’ depositors, the Wall Street Journal reported. The FDIC put up for auction about $700 million of high-quality mortgage-backed bonds Tuesday in what could prove to be a test of how much the U.S. government recovers on the $114 billion in face value of the bonds it assumed. “Per the median price guidance from the six dealers who have published price talk so far, the government should expect to get back around 86 cents on the dollar for the entire portfolio,” said Adam Murphy, founder of Empirasign, a bond-data service. The FDIC estimates that its deposit-insurance fund will lose about $22.5 billion from depositor payouts. Most of that will be reimbursed through an assessment on other banks, resulting in a $3.3 billion net loss, the agency said. (Subscription required.) ​​​Read more.

U.S. Weekly Jobless Claims Increase Moderately​​​

The number of Americans filing new claims for unemployment benefits increased moderately last week, suggesting that the labor market is gradually slowing, Reuters reported. Initial claims for state unemployment benefits rose 5,000 to a seasonally adjusted 245,000 for the week ended April 15. The combination of spring breaks, which temporarily left support staff at some school districts unemployed, and people who have exhausted their severance packages following a rush of layoffs in technology and interest rate-sensitive sectors, could account for part of the rise in claims last week. Claims were little changed between the March and April survey weeks. The economy created 236,000 jobs in March, more than double what is needed to keep up with growth in the work-age population. Data next week on people receiving benefits after an initial week of aid, a proxy for hiring, will offer more clues on the state of the labor market in April. The so-called continuing claims increased 61,000 to 1.865 million during the week ending April 8, the claims report showed. Continuing claims remain low by historical standards, as some of the laid-off workers are quickly finding employment. There were 1.7 job openings for every unemployed person in February. Read more.

Analysis: Home Sales Fell in March, Plunged 22 Percent over the Past Year ​​​

U.S. home sales fell in March after bouncing back from nearly a year in declines a month earlier, according to data released today by the National Association of Realtors (NAR), The Hill reported. Existing home sales, which include transactions for single-family homes, townhomes, condominiums and co-ops, dipped by 2.4 percent last month to an annual rate of 4.4 million, the data showed. Sales declined 22 percent year-over-year. “Home sales are trying to recover and are highly sensitive to changes in mortgage rates,” NAR Chief Economist Lawrence Yun said in a statement. Mortgage rates continue to decline from their high point late last year, falling to 6.27 percent last week. But Yun said starter homes are receiving multiple offers, meaning more supply is needed to satisfy demand. Existing home sales figures follow data released earlier this week showing a drop in the number of homes under construction. ​​​Read more.

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