Rite Aid notes rise on earnings report, debt reduction; Community Health paper mixed

By James McCandless

San Antonio, Sept. 27 – Retail names came back into view for distressed debt traders as the end of the week approached.

Rite Aid Corp.’s notes rose after a mixed earnings report, coupled with a debt reduction announcement and a board shuffle.

Meanwhile, Fresh Market Inc., a grocer, saw its notes gain for a second day following the release of its earnings late Tuesday. Retail peer Sears Holdings Corp.’s issues were mixed amid reports that CEO Eddie Lampert’s investment firm would rake in $1 billion from a restructuring plan proposed on Monday.

In the medical space, Community Health Systems, Inc.’s notes were mixed as a subsidiary was handed a ratings downgrade from Moody’s Investors Service. The move was in response to reports that another subsidiary would pay $260 million to the Department of Justice to settle criminal charges.

Elsewhere, the distressed energy space saw Ultra Petroleum Corp.’s paper holding at Wednesday’s levels as traders anticipate the company’s next move following a halt in negotiations with bondholders and a weakening of its borrowing base.

An uptick in oil futures led to bellwether oil tranches largely gaining, namely from Sanchez Energy Corp. and California Resources Corp.

Murray Energy Corp.’s notes were seen climbing after trending lower for the better part of two months.

Meanwhile, Frontier Communications Corp.’s issues were mixed in distressed telecom trading.

Retail rules Thursday

Rite Aid’s notes improved on Thursday, traders said, following the release of the company’s second-quarter earnings.

The 7.7% notes due 2027 gained ½ point to close at 80½ bid. The 6 1/8% notes due 2023 rose 1¾ points to close at 92½ bid.

The Camp Hill, Pa.-based drugstore retailer released mixed numbers in its earnings report Thursday morning showing a 1 cent loss per share and growing revenues of $5.42 billion.

The company also announced that it had reduced its debt to about $3.4 billion after the completion of asset sales to Walgreens Boots Alliance Inc.

Rite Aid will also make changes to its board of directors, nominating three new members and removing chief executive officer John Standley from his position as chairman, giving the title to board member Bruce Bodaken. Shareholders will vote on the new members in October.

“I think when you look at all of it together they come out looking positive,” a trader said.

Meanwhile, Fresh Market, another retailer, saw its notes strengthen, market sources said.

The 9¾% notes due 2023 picked up 2½ points to close at 75¼ bid.

On Wednesday, the 9¾% notes rose 5 points.

The Greensboro, N.C.-based grocer reported positive numbers in its late Tuesday earnings report, though the numbers remain private.

Elsewhere in the sector, Sears’ paper was mixed, traders said.

The 6 5/8% notes due 2018 lost 2 points to close at 86¾ bid. The 8% paper due 2019 gained 2¾ points to close at 22¾ bid.

The market showed renewed interest in the Hoffman Estates, Ill.-based department store chain amid reports that chief executive officer Lampert’s investment fund, ESL Investment, would gain $1 billion if the board of directors accepted Lampert’s restructuring proposal.

“My understanding is that he wants to do an exchange of the term loan into new convertible securities, which nobody thinks will get done,” a trader said. “But it was the talk of the market today.”

Community Health mixed

Meanwhile, Community Health’s issues were mixed, traders said.

The 6 7/8% notes due 2022 remained level a 57½ bid. The 6¼% notes due 2023 lost ¼ point to close at 95¼ bid.

On Wednesday, the 7 1/8% notes rose 1¼ points and the 6 7/8% notes gained 1 point.

On Thursday, Moody’s issued downgrades for subsidiary CHS/Community Health Systems, Inc., lowering its corporate family rating, probability of default rating, several debt ratings and its speculative grade liquidity rating.

The move comes after the company announced Wednesday that subsidiary Health Management Associates would pay $260 million to settle criminal charges brought by the Department of Justice.

The company allegedly paid physician kickbacks and defrauded Medicare, Medicaid and other federal programs.

Ultra Petroleum flat

In the energy space, Ultra Petroleum’s notes ended level, traders said.

The 6 7/8% notes due 2022 were flat at 47 bid.

On Wednesday, the 6 7/8% notes lost about 2¼ points.

The company disclosed on Tuesday that it has been holding discussions with certain holders of its senior secured first-lien term loan about a transaction that could amend its terms. Those talks had been halted because of a failure to reach a deal.

The Houston-based oil producer also disclosed that creditors had cut the company’s borrowing base on its credit facility by $100 million, leaving it at $1.3 billion.

“They have to go back to the table,” a trader said. “Right now, they don’t have enough liquidity to weather the storm. They have to go back or throw it all away.”

An improvement in oil futures led to largely positive swings in bellwether oil names.

Sanchez Energy, another Houston-based independent producer, saw more gains, market sources said.

The 6 1/8% paper due 2023 rose 1¾ points to close at 57½ bid.

On Wednesday, the 6 1/8% paper gained 2½ points.

Los Angeles-based peer California Resources ended mixed, traders said.

The 6% notes due 2024 rose ¼ point to close at 87 bid. The 8% notes due 2022 shed 1 point to close at 94½ bid.

On Wednesday, the 6% notes lost ½ point and the 8% notes fell ¼ point.

West Texas Intermediate crude oil futures finished the day 1 cent ahead to close at $72.13 per barrel. North Sea Brent crude oil ended with a gain of 34 cents, finishing at $81.68 per barrel.

Away from oil and gas, coal producer Murray Energy’s issues climbed, traders said.

The 11¼% notes due 2021 added 2 points to close at 70¾ bid.

The St. Clairsville, Ohio-based coal producer’s notes saw another day of gains, adding another 2 points on Wednesday after a two-month negative trend.

“There’s no news out, but it saw some better than usual activity today,” a trader said.

Frontier mixed

In distressed telecom, Frontier’s paper saw mixed results, market sources said.

The 7 5/8% notes due 2024 shaved off 1 point to close at 63½ bid. The 10½% notes due 2022 gained ¼ point to close at 89½ bid. The 11% notes due 2025 jumped up 1½ points to close at 79½ bid.

Frontier is a Norwalk, Conn.-based wireline communications name.

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