Rite Aid bonds rebound, CDS spreads gap out; Staples notes, CDS improve; Level 3 higher

By Cristal Cody

Tupelo, Miss., July 13 – Rite Aid Corp.’s bonds saw a rebound on Thursday after the paper slid about 1¾ points to 9 points in the previous session.

The notes were up 2½ points to 4¾ points over the day.

Meanwhile, Rite Aid’s credit default swap spreads gapped out to more than 10,000 basis points this week.

Distressed retail paper saw mostly gains on Thursday in strong trading activity after positive economic data releases over the morning.

Staples Inc.’s 10¾% senior notes due 2027 (Caa2/CCC+) added 1½ points in one of the day’s most active distressed issues.

Staples’ CDS spreads also firmed nearly 60 bps this week.

The Federal Reserve Bank of New York reported Thursday its Weekly Economic Index rose to a preliminary estimate of 1.37% for the week ended July 8, up from 1.12% in the prior week.

The Fed attributed the increase “to rises in consumer confidence and fuel sales, and a decrease in initial unemployment insurance claims, which more than offset falls in retail sales, steel production, tax withholding, railroad traffic, and electricity output.”

Also Thursday, labor conditions remained tight with weekly unemployment claims falling below market forecasts and spurring market predictions of a 25 bp hike at the Federal Reserve’s July 25-26 meeting.

A rate increase is “almost certain,” S&P Global Ratings said in a note Thursday, adding it anticipates the Fed then will pause any further changes until beginning to lower rates in June 2024.

On Thursday, the Labor Department reported that initial unemployment benefit claims for the week ended July 8 fell to a seasonally adjusted 237,000, below the 250,000 economists expected and down 12,000 from the previous week’s revised level of 249,000.

Market tone stayed upbeat with stock indices all stronger on the day.

The iShares iBoxx High Yield Corporate Bond ETF added 45 cents, or 0.6%, to $75.65.

Volatility was marginally higher. The CBOE Volatility index rose 0.52% to 13.61.

Level 3 Financing, Inc.’s notes continued to improve with the issuer’s bonds seen trading more than 2 points better on the day.

Rite Aid claws back losses

Rite Aid’s notes picked up some of the slack on Thursday after the company’s bonds slid the previous day, a source said.

The 8% senior secured notes due 2026 (Caa3/CCC-/B) were up 2½ points at 43 bid on $5 million of volume.

The notes dropped 1¾ points on Wednesday.

The 7.7% senior bonds due 2027 (Ca/CCC-/CC) went out nearly 4¾ points higher at a print of 24.70 on $1.82 million of trading.

The issue traded around 26¾ bid in the same session a week ago.

Rite Aid’s bonds declined about 1¾ points to 9 points on Wednesday following the company’s 10-Q filing the previous day that detailed its first-quarter results and activity, including 27 store closures.

In June, Rite Aid reported heavy fiscal 2024 first-quarter losses, as well as reduced its adjusted EBITDA guidance for fiscal 2024 and projected a fiscal year net loss of $650 million to $680 million.

Rite Aid’s CDS spreads moved out past 10,000 bps this week, according to a Moody’s Investors Service report on Thursday.

The issuer’s CDS spreads widened 2,702 bps for the week ended Wednesday to 10,520 bps.

The Camp Hill, Pa.-based drugstore chain’s stock (NYSE: RAD) closed up 3.73% at $1.67.

Staples better

Staples’ 10¾% senior notes due 2027 (Caa2/CCC+) traded 1½ points better on Thursday at a print of 60.96 on $16.1 million of secondary action, a source said.

The bonds carried a 58 bid handle at the start of July.

Staples’ 7½% notes due 2026 were up more than ½ point with an 83 bid handle on $8.7 million of trading during the session.

The retailer’s CDS spreads firmed 58 bps to 2,521 bps this past week ended Wednesday, Moody’s said.

Staples is a Framingham, Mass.-based office products retail company owned by private equity firm Sycamore Partners.

Level 3 improves

Lumen Technologies, Inc. subsidiary Level 3 Financing’s bonds gained more than 2 points on $11 million of trading on Thursday, a source reported.

The issuer’s 4 5/8% senior notes due 2027 (B1/B/B+) added 2 7/8 points to head out at 75 5/8 bid on $5 million of trading.

Level 3’s 3¾% senior notes due 2029 (B1/B/B+) were up 2 3/8 points at 65 5/8 bid on $6 million of volume.

Meanwhile, Lumen’s CDS spreads eased 226 bps to 2,530 bps over the past week ended Wednesday, Moody’s said.

Lumen plans to post its second-quarter earnings results on Aug. 1.

Shares (NYSE: LUMN) in the Denver-based telecommunications company rose 0.98% to $2.06 on Thursday.

Distressed returns

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns dipped Wednesday to 0.52% from 0.55% on Tuesday but remained up from 0.15% on Monday.

Month-to-date total returns improved midweek to 1%, compared to 0.48% on Tuesday and 0.07% at the week’s start.

Year-to-date distressed total returns rose to 12.75% on Wednesday from 12.17% on Tuesday and 11.55% on Monday.

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