Carnival dominates secondary, notes, CDS spreads weak; Rite Aid edges up; Embarq gains

By Cristal Cody

Tupelo, Miss., Sept. 30 – Paper from Royal Caribbean Group and Carnival Corp. dominated secondary action in the junk and distressed markets in otherwise mostly light trading on Friday.

Carnival’s paper dropped about 2¼ points to more than 6 points in trading totaling more than $68 million, a source said.

The heavy trading focus followed Carnival’s third-quarter business update on Friday.

Carnival’s 10½% senior notes due 2030 (B3/B) went out Friday down 5 points.

The cruise operator’s credit default swap spreads also widened nearly 200 basis points this week.

Markets were mixed on Friday with volatility elevated but slightly lower on the day.

The CBOE Volatility index fell 0.69% to 31.62.

Equity continued to falter. The S&P 500 index, down 2.11% on Thursday, closed Friday off another 1.51%.

The iShares iBoxx High Yield Corporate Bond ETF softened 33 cents, or 0.46%, to $71.39.

Rite Aid Corp.’s 7.7% senior debentures due 2027 (Caa2/CCC-/CCC) clawed back ½ point in light trading after sliding 7 points on Thursday following the retailer’s weak second-quarter earnings report.

Embarq Corp.’s 7.995% notes due 2036 (Caa2/BB/BB) also improved about 1½ points on Friday in light volume.

Carnival declines

Carnival’s 10½% senior notes due 2030 (B3/B) went out Friday down 5 points at 81½ bid, a source said.

The bonds were among the most active paper traded during the session on more than $23 million of secondary volume.

Carnival’s 6% senior notes due 2029 (B3/B) shed more than 6 points to head out at 66 bid on $6.5 million of trading activity.

Meanwhile, the company’s CDS spreads moved out 196 bps for the past week ended Wednesday to 1,101 bps, according to a Moody’s Investors Service report.

The Miami-based cruise operator said Friday third-quarter revenue was up nearly 80% from the second quarter and much higher than the year-ago period. Losses also improved to $770 million versus $2.84 billion a year ago.

Rite Aid edges up

In other distressed paper, Rite Aid’s 7.7% senior debentures due 2027 (Caa2/CCC-/CCC) clawed back ½ point to head out at 59½ bid in light trading on Friday, according to a market source.

The bonds dropped about 7 points to the 59 bid area on Thursday after the company reported steep second-quarter losses.

The Camp Hill, Pa.-based drug retailer’s CDS spreads also widened more than 250 bps this week.

Embarq bonds higher

Embarq’s 7.995% notes due 2036 (Caa2/BB/BB) saw some recovery on Friday with the paper up about 1½ points at the 51½ bid area in mostly light trading, a source said.

The notes declined 2¼ points on Thursday after Connect Holding II LLC, doing business as Brightspeed, announced that Brightspeed withdrew an offering of senior secured notes and a first-lien term loan due to market conditions.

The Overland Park, Kan.-based telecommunications company is expected to become a subsidiary of Connect Holding II as part of its acquisition from Lumen Technologies, Inc. by Apollo Global Management, Inc. funds.

Brightspeed still plans to complete the acquisition in early October with equity from Apollo and proceeds from committed financing.

Embarq’s paper plunged more than 24 points in the prior week.

Distressed returns slip

S&P U.S. High Yield Corporate Distressed Bond index one-day returns dropped to minus 1.25% in Thursday’s session.

One-day returns were minus 0.83% on Wednesday, minus 0.6% on Tuesday and minus 0.56% on Monday.

Month-to-date total returns dropped to minus 6.73% on Thursday from minus 5.55% on Wednesday, minus 4.76% on Tuesday and minus 4.18% at the week’s start.

Year-to-date total returns also softened to minus 26.4% versus minus 25.47% on Wednesday, minus 24.85% on Tuesday and minus 24.4% on Monday.

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