Trucking paper strong; AMC, Endo notes trade; Frontier drops; Rite Aid lower on week

By Cristal Cody

Tupelo, Miss., July 14 – Bonds in the transportation space are holding strong this week after Yellow Corp. diverted a potential bankruptcy, though its future remains turbulent with a lawsuit filed June 27 against the International Brotherhood of Teamsters.

Yellow’s issues were not seen causing “any spillover” in other transportation paper such as RXO Inc. this week, a source said.

The split-rated XPO Escrow Sub LLC 7½% senior notes due 2027 (Baa3/BB+) were quoted on Friday little changed at 102½ bid, 103½ offered.

“There’s not a lot of them,” a source said. “It was 102¼ bid earlier in the month.”

The notes were issued in a $355 million offering on Oct. 11, 2022 at 98.962 to yield 7¾% as part of RXO’s spinoff from XPO Logistics, Inc. last year.

S&P Global Ratings changed the outlook on RXO to stable from positive on June 29, citing a weaker freight transportation environment in 2023.

S&P warned on July 6 it sees a growing risk for a distressed exchange or default from Yellow.

Moody’s Investors Service also in June downgraded Yellow and revised the company’s outlook to negative from stable.

On June 27, Yellow (Nasdaq: YELL) reported it filed suit against the Teamsters, alleging its union contract was breached and caused more than $137 million in damages by blocking Yellow’s restructuring plan, known as One Yellow. The company said the modernization efforts must be completed in 2023 since it needs to refinance $1.3 billion of debt – a $567.4 million term loan due June 30, 2024 and a $729.4 million U.S. Treasury loan that matures Sept. 30, 2024.

The Nashville-based transportation company said it is entitled to $137.3 million for damages from the union, or “in the event of its demise, at least $1.5 billion for the loss in enterprise value.”

On Monday, Yellow reported in a regulatory filing that it entered into an amended and restated credit agreement with lenders and a waiver agreement on its term loans regarding the minimum consolidated EBITDA financial covenants for the testing periods ending on June 30 and Sept. 30.

On Wednesday, AFS Logistics and TD Cowen said its third-quarter TD Cowen/AFS Freight Index projects the first quarter-over-quarter increase since the first quarter of 2022 for truckload, less-than-truckload and parcel transportation markets.

“Sluggish demand pushes carriers to drop rates, but the move by FedEx to close 29 locations is indicative of the broader trend of LTL carriers removing excess capacity and cost to mitigate the extent of the decline,” Kevin Day, president of LTL for AFS, said in the announcement. “A major threat to the current favorable trend for shippers is a potential Yellow bankruptcy. That’s a wild card that could present an extraordinary opportunity for LTL carriers to push up rates in a way that’s inconsistent with current data.”

Yellow’s stock (Nasdaq: YELL) was down 2.78% on Friday at $1.05 but had recovered from midweek when it dropped 26.58% to 95 cents on Wednesday.

Quiet session

Overall, secondary market action was “dead” on Friday with summer vacations kicking into full force, a trader said.

Stocks were mixed in the slower session.

The iShares iBoxx High Yield Corporate Bond ETF fell 55 cents, or 0.73%, to $75.10.

Volatility declined. The CBOE Volatility index fell 1.98% to 13.34.

“It’s pretty quiet. In the distressed space, the most active bond was a whopping $6 million traded,” the trader said.

AMC Entertainment Holdings, Inc.’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) were the day’s big volume mover and went out nearly 1 point better on the week.

Also, one of the day’s more active distressed names was bankrupt Endo International plc on $4 million of trading supply.

Endo’s 6% senior notes due 2028 remained deep in the distressed space and “traded in the single digits” on Friday, a source said.

Some of Frontier Communications Holdings LLC’s paper also was moving in the distressed market on a low 70s handle following news reports over potential liability from leaking lead cables, sources said.

Frontier Communications’ 6% senior secured second-lien notes due 2030 (Caa2/CCC+/BB-) traded down 2¾ points to 3 points going out the door.

Rite Aid Corp.’s notes went out Friday lower on the week after the midweek slide following the drugstore company’s 10-Q regulatory filing.

The paper, though, “bounced back” from its midweek lows, a trader said.

AMC better

AMC Entertainment’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) went out Friday at 71¾ bid, 72¾ offered, a source said.

The notes were up nearly 1 point on the week from where they were quoted on Monday at 70½ bid, 71½ offered.

AMC is awaiting a ruling from a June 29-30 settlement hearing in the Delaware Court of Chancery to resolve a shareholder lawsuit brought by Allegheny County Employees’ Retirement System over its issuance of preferred stock.

The Leawood, Kan.-based movie theater owner’s common stock (NYSE: AMC) fell 2.48% on Friday to $4.33.

AMC’s preferred stock (NYSE: APE) closed down 3.05% at $1.91.

Endo active

Endo’s 6% senior notes due 2028 were quoted on Friday steady on the week at 5 bid, 6 offered, a source said.

The company filed for Chapter 11 bankruptcy nearly a year ago on Aug. 16, 2022.

Endo International had an accelerated sale hearing scheduled Aug. 4 in the U.S. Bankruptcy Court for the Southern District of New York.

The company will continue to mediate through Aug. 4, according to a Wednesday court filing.

The Dublin-based pharmaceutical company was scheduled for an exclusivity extension hearing in bankruptcy court next week on Thursday.

Frontier declines

Frontier Communications’ 6% senior secured second-lien notes due 2030 (Caa2/CCC+/BB-) were down 3 points by the close on Friday at 70 bid, 71 offered, a source said.

Earlier in the session, another source saw the notes off 2¾ points at 71¾ bid on more than $18 million of paper changing hands.

On Thursday, the notes traded at 74 bid, 75 offered.

Frontier’s higher-rated junk paper was down more than 2½ points and trading with handles in the low 90s on Friday.

Frontier Communications Parent, Inc.’s stock (Nasdaq: FYBR) dropped 11.88% to $14.31.

Rite Aid soft

Rite Aid’s 8% senior secured notes due 2026 (Caa3/CCC-/B) held in on Friday mostly unchanged at 43 bid, 44 offered, a source said.

The notes traded 2½ points higher on Thursday at 43 bid.

The issue started the week at 47 bid, 48 offered and dropped to as low as 39½ bid, 40½ offered on Wednesday, the source said.

Rite Aid’s 7½% senior secured notes due 2025 (Caa3/CCC-/B) went out Friday at 51 bid, 52 offered, better than where the issue dropped as low as 48 bid, 49 offered on Wednesday but still down from the 50½ bid, 60½ offered levels seen Monday.

The paper slid following the company’s 10-Q filing on Tuesday that detailed its first-quarter results and activity, including 27 store closures.

Rite Aid’s credit default swap spreads gapped out more than 2,700 basis points this week to well over 10,500 bps.

The Camp Hill, Pa.-based drugstore chain’s stock (NYSE: RAD) dropped 7.78% to $1.54 on Friday.

Distressed returns gain

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns hit 0.95% on Thursday, up from 0.52% on Wednesday, 0.55% on Tuesday and 0.15% on Monday.

Month-to-date total returns rose steadily over the week to 1.96% on Thursday from 1% on Wednesday, 0.48% on Tuesday and 0.07% on Monday.

Year-to-date distressed total returns were stronger on Thursday at 13.82%, compared to 12.75% on Wednesday, 12.17% on Tuesday and 11.55% at the start of the week.

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