Rite Aid notes, CDS soften; Qurate Retail declines; Staples lower; default rate eyed

By Cristal Cody

Tupelo, Miss., May 18 – Rite Aid Corp.’s paper remained soft after a downgrade on Thursday from S&P Global Ratings, while its credit default swap spreads also widened a second consecutive week.

Rite Aid’s 8% senior secured notes due 2026 (B3/CCC-/BB-) fell 1 5/8 points.

Qurate Retail Inc.’s notes and CDS spreads remained under pressure this week.

The shopping network owner’s 8½% senior debentures due 2029 (B2/B) dropped about 1¼ points on Thursday.

CDS spreads from the company formerly known as Liberty Interactive Corp. have softened in May.

The junk space was stronger with the iShares iBoxx High Yield Corporate Bond ETF closing up 51 cents to $76.51.

Measured market volatility also moved lower after climbing over 18% in the prior session.

The Chicago Board Options Exchange’s CBOE Volatility index went out Thursday down 5.2% at 29.35.

Office supplies retailer Staples Inc.’s 10¾% senior notes due 2027 declined about 2½ points on Thursday and were trading 15 points weaker this month.

The company’s CDS spreads widened nearly 500 basis points over the past week.

Meanwhile Thursday, S&P reported the U.S. trailing-12-month speculative-grade corporate default rate could reach 3% by March 2023, up from 1.4% in March 2022, on growing risks and higher interest rates.

Under the forecast, S&P said 57 speculative-grade companies would need to default.

“Through 2020-2021, the relative cost of debt was manageable despite increased levels of borrowing because interest rates hit new all-time lows for speculative-grade bonds and loans,” Nick Kraemer, head of ratings performance analytics at S&P, said in the release. “But the age of easiest money is likely past.”

Rite Aid paper off

Rite Aid secured and unsecured paper moved lower in the distressed space on Thursday after S&P downgraded the company, while its CDS spreads widened a second consecutive week, market sources reported.

The company’s 8% senior secured notes due 2026 (B3/CCC-/BB-) fell 1 5/8 points to 75 3/8 bid.

The notes have given back over 8 points since April.

Rite Aid’s 7.7% senior notes due 2027 (Caa2/CCC-/CCC) declined over 5 points by the close to a print of 55.32.

S&P dropped Rite Aid to CCC+ from B- and noted Thursday the highly leveraged company’s operating prospects for fiscal 2023 are weaker than previously anticipated.

The Camp Hill, Pa.-based the drugstore chain’s CDS spreads also moved out 385 bps in the past week ended Wednesday to 3,351 bps.

Rite Aid’s CDS spreads eased over 800 bps in the prior week.

Qurate weakens

Qurate Retail’s paper and its CDS spreads have been weaker in May, sources said Thursday.

Subsidiary Liberty Interactive LLC’s 8½% senior debentures due 2029 (B2/B) declined about 1¼ points to the 76½ bid area over the day.

Qurate’s notes have dropped over 10 points since the company released a weak first-quarter earnings report on May 6.

Liberty Interactive’s CDS spreads also eased 106 bps to 1,241 bps over the past week ended Wednesday.

The company’s CDS spreads widened over 300 bps in the prior week.

On Wednesday, Qurate announced a $2 regular quarterly cash dividend for holders of its 8% series A cumulative redeemable preferred stock.

The West Chester, Pa.-based media company operates retailer brands that include QVC and HSN.

Staples under pressure

Staples’ 10¾% senior notes due 2027 (Caa2/CCC+) slid 2½ points on Thursday to 73½ bid, a market source said.

Trading was steady with $10 million of volume.

The Framingham, Mass.-based office supply chain’s bonds have declined about 15 points since April.

Staples’ CDS spreads also moved out 488 bps in the past week ended Wednesday to 1,924 bps.

The company’s CDS spreads widened over 200 bps in the prior week.

Distressed returns drop

Returns in the S&P U.S. High Yield Corporate Distressed Bond index dove on Wednesday.

One-day total returns dropped to minus 1.34%, compared to 0.23% on Tuesday and minus 0.13% on Monday.

Month-to-date total returns widened to minus 9.06% from minus 7.82% on Tuesday and minus 8.04% at the week’s start.

Year-to-date index returns declined to minus 16.23% from minus 15.09% on Tuesday and minus 15.29% on Monday.

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