Distressed debt closes week with positive tone; Rite Aid bonds back up to pre-earnings levels

By Stephanie N. Rotondo

Portland, Ore., Sept. 24 - Traders saw upward momentum in distressed bonds during Friday's session, helped out in part by a thriving equity market.

"Yesterday the market was feeling a little squishy at the top," remarked one source, who added that overall, bonds were "firm again.

"There were marginally better bids," he noted. "We averted what looked like bids backing off more this morning until the equity markets took off."

"It was the exact reverse of yesterday," said another trader. "Everything is trading through the roof.

"It was actually hard to find something that was down," he said.

The healthier market helped companies like Rite Aid Corp. and Blockbuster Inc. regain the losses incurred on Thursday, after both had bad news. Rite Aid's debt had drifted in the previous two sessions, first before earnings and then after the disappointing numbers came out on Thursday. For Blockbuster's part, news of a bankruptcy filing had put pressure on the movie rental chain's notes.

Also, there was no news out on Catalyst Paper Corp. or NewPage Corp., but that didn't stop the companies' debt from trading at higher levels.

Rite Aid recoups losses

Rite Aid made up for losses incurred in the previous sessions on Friday, ending the week about where they had been before the declines.

One trader said Rite Aid bonds were "back to where it was or higher," after falling in the previous session on the back of disappointing quarterly results.

He said the most active issue continued to be the 9½% notes due 2017, which improved about 1½ points on the day, "which was pretty much how much they lost." He pegged the paper at 831/2.

He also saw the 9 3/8% notes due 2015 moving up to 85 and the 7.70% notes due 2027 gained a point to close at 56.

All told, about $75 million of the Camp Hill, Pa.-based drugstore chain's debt changed hands, he said.

Another trader said the 9½% notes were "probably the most active," trading between 82½ and 831/2, "but mostly with an 83 handle." The issue had previously closed at 81½ bid, 82½ offered.

Second quarter numbers

On Thursday, Rite Aid announced its second quarter results. For the quarter ending Aug. 28, the company reported a net loss of $97 million, or 23 cents per share, on revenues of $6.2 billion, a 2.5% decline from the year before. Net loss in the second quarter of fiscal 2010 came to $116 million.

Analysts polled by Thomson Reuters had expected to see a loss of 17 cents per share on $6.19 billion in revenue.

Adjusted EBITDA came to $181.2 million.

In addition to lower sales, Rite Aid said the wider net loss was because of expenses related to the retirement of its $648.0 million Tranche 4 term loan due 2015 under its senior secured credit facility.

Also, the company repurchased nearly $94 million of its 8 ½% notes due 2015, added a new $1 billion revolving credit facility due 2015 - replacing a $1.175 billion facility - and issued $650 million of 8% senior secured notes due 2015.

The refinancing and retirements resulted in a $13 million decrease in annual interest expense.

In the release, Rite Aid also noted that it had revised its fiscal 2011 guidance, forecasting sales to be between $25 billion and $25.4 billion for the year.

Adjusted EBITDA also narrowed to between $875 million and $950 million, which in turn resulted in a total net loss expectation of $400 million to $590 million.

Blockbuster firms

In Blockbuster bonds, a trader said the 11¾% senior notes due 2014 "moved up a bit" to 56½ bid, 57½ offered. The 9% notes due 2012, however, remained in a 2½ bid, 4 offered context.

Another trader said the senior paper experienced a "big jump," gaining 8 points to finish the week at 57 bid, 58 offered. He added that the subs were "a little better," though still in a 21/2-3½ range.

On Thursday, the Dallas-based movie rental chain said it had officially filed for bankruptcy, bringing months of speculation to an end. The prepackaged bankruptcy filing will give all new equity to the senior noteholders.

Paper sector improves

Catalyst Paper moved up a point during the trading day, with the 11% notes due 2016 trading between 81 and 84, "starting lower and obviously ending the day at the highs," a trader said.

The trader also saw NewPage's 11 3/8% notes due 2014 inching up to 901/4.

There was no fresh news out on either papermaker.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.