Carvana notes flat in active trade; Staples adds to gains; Michaels’ uptrend pauses

By Abigail W. Adams

Portland, Me., Jan. 17 – While the risk-on rally in broader markets wavered on Tuesday, the distressed debt space saw continued strength.

The S&P U.S. High Yield Corporate Distressed Bond index added another 0.30% on Tuesday with year-to-date returns now 6.88%.

While distressed debt credits have outperformed since the start of the year, the retail sector remains a mixed bag.

Bed Bath & Beyond Inc. and Party City Holdings Inc. are widely anticipated to file for bankruptcy protection in the coming weeks while other credits in the sector have soared since the start of the year.

Staples, Inc.’s 10¾% senior notes due 2027 (Caa2/CCC+) continued to add in active trade on Tuesday while the uptrend in other names in the sector paused or pulled back.

Michaels Cos., Inc.’s 7 7/8% senior notes due 2029 (Caa1/CCC) saw a minor pullback on Tuesday after a strong rally since the start of the year.

Meanwhile, Carvana Co.’s 10¼% senior notes due 2030 (Caa2/CCC) saw renewed attention on Tuesday on topical news.

While the company’s stock was on the rise following the news, the 10¼% notes were flat in active trade.

Retailers mixed

The retail sector remained a mixed bag on Tuesday with some distressed credits continuing to add to the large gains made over the past month while others prepare for bankruptcy filings.

Staples’ 10¾% senior notes due 2027 continued to gain in active trade on Tuesday.

The 10¾% notes added another 1¼ points to close Tuesday at 76¾ with the yield just shy of 19%, a source said.

There was $7.5 million in reported volume.

The notes have logged steady gains and added more than 4 points since last week.

However, the rally in Michaels’ 7 7/8% senior notes due 2029 paused on Tuesday after the notes traded up to a 75-handle last Friday.

The notes fell back about ½ point to trade in the 74½ to 75 context with the yield about 14%, a source said.

The arts and crafts retailer’s notes have ripped since the start of the year with the notes rising more than 7 points over the past two and a half weeks.

Carvana active

Carvana’s 10¼% senior notes due 2030 were active but flat on Tuesday with topical news reigniting activity in the name.

The 10¼% notes continued to trade on a 47-handle on Tuesday.

The notes were changing hands in the 47 to 47½ context heading into the market close with the yield about 27¼%, a source said.

There was $7 million in reported volume.

While distressed debt credits have rallied strongly since the start of the year, Carvana has not participated with the notes stuck on a 47-handle.

Carvana announced on Tuesday that it had adopted a net operating loss “poison pill” to prevent a hostile shareholder takeover and reached an agreement to sell $4 billion in car loans to Ally Bank and Ally Financial.

While Carvana’s stock reacted favorably to the news, its bonds were unchanged.

The company is widely believed to be pursuing a soft restructuring, and two of its largest debt holders signed a memorandum of understanding in December, which will last three months, to work together in negotiations.

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