Bath & Body Works, Michaels, Bed Bath & Beyond paper higher; retail under pressure

By Cristal Cody

Tupelo, Miss., July 6 – Distressed retail paper traded mostly higher on Wednesday, while the sector remains under pressure amid downgrades amid inflation.

Bath & Body Works, Inc.’s 6¾% senior notes due 2036 (Ba2/BB) gained about 1 point over the day but remained well off of where the issue started the year trading at better than 122 bid.

Arts and crafts retailer Michaels Cos., Inc.’s 7 7/8% senior notes due 2029 (B3/CCC+) rose about ½ point.

Bed Bath & Beyond Inc.’s senior notes also mostly improved in busy trading activity after sinking in the prior week.

The company’s paper was seen trading flat to more than 4 points higher on the day.

S&P Global Ratings said in a report on Tuesday that the retail space “is testing ratings resilience” after the sector pushed downgrades past upgrades over the prior week.

The U.S. distress ratio jumped this week to 8.7% from 6.4% in the prior week and from 2.4% at the end of May, according to the report.

“Funding conditions are becoming more restrictive, especially for speculative-grade issuers, with credit spreads in the U.S. and Europe rising sharply to over 550 basis points,” S&P said.

Overall distressed returns remain weak so far in 2022.

Markets were mixed on Wednesday following the release of the minutes from the Federal Reserve’s June monetary policy meeting.

The iShares iBoxx High Yield Corporate Bond ETF declined 0.38% to $73.63.

Bath & Body Works up

Bath & Body Works’ 6¾% senior notes due 2036 (Ba2/BB) were up about 1 point on Wednesday in strong trading at 81 bid, a source said.

The bonds started the year trading at better than 122 bid.

L Brands Inc. spun off Victoria’s Secret into an independent public company in August 2021 and changed its name to Bath & Body Works.

The Columbus, Ohio-based company reported in May revised fiscal 2022 earnings guidance from continuing operations of $3.80 to $4.15 per diluted share, compared to previous guidance of $4.30 to $4.70 per share.

Michaels improves

Michaels’ 7 7/8% senior notes due 2029 (B3/CCC+) rose about ½ point on Wednesday to 66½ bid, a source said.

The bonds were mostly unchanged from last week.

The Irving, Tex.-based retail company was taken private by funds managed by Apollo Global Management, Inc. affiliates in April 2021.

Bed Bath gains

Bed Bath & Beyond’s paper made inroads in strong trading action over Wednesday’s session, a source said.

The company’s 5.165% senior notes due 2044 (B3/B-) improved 5/8 point to 20 5/8 bid.

The notes sank about 15 points in the prior week after the Union, N.J.-based home products retailer reported a heavy fiscal first-quarter net loss and a shake-up of its senior management.

Bed Bath & Beyond’s 3.749% senior notes due 2024 (B3/B-) jumped more than 4¼ points to 39 bid by the end of the day.

The issue traded at the low 70s area at the start of last week.

Bed Bath & Beyond’s 4.915% notes due 2034 (B3/B+) were mostly flat at the 30½ bid range.

The bonds have dropped more than 20 points since the previous week.

Distressed returns weak

S&P U.S. High Yield Corporate Distressed Bond index returns have been soft so far in July, tallying minus 0.95% on Tuesday and minus 0.39% in the session ahead of the Fourth of July holiday.

Month-to-date total returns declined on Tuesday to minus 1.34% versus minus 0.39% on Friday.

Year-to-date total returns also fell to minus 23.66% in the first post-holiday session from minus 22.93% on Friday.

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