Lumen notes cautiously higher; Level 3 paper drops; QVC gains over summer; Rite Aid up

By Cristal Cody

Tupelo, Miss., Aug. 1 – Lumen Technologies, Inc.’s notes edged higher on Tuesday in light, cautious secondary action before the company released its second-quarter earnings results after the market close.

Subsidiary Level 3 Financing, Inc.’s paper was down under ¼ point to more than 2½ points on more than $21 million of volume over the session.

Lumen reported steep losses of more than $8 billion, while quarterly revenue also was down $1 billion.

Lumen’s stock rallied 13% by the close.

Distressed retail paper was mixed over the session.

QVC Inc.’s 4¾% notes due 2027 (B2/B-) dropped more than 1½ points as August kicked off but remained nearly 10 points higher from May.

Rite Aid Corp.’s 8% senior secured notes due 2026 (Caa3/CCC-/B) improved slightly after declining about ½ point on Monday.

Stock indices finished mixed on the day.

The S&P 500 index declined 0.27%.

The iShares iBoxx High Yield Corporate Bond ETF gave back 37 cents, or 0.5%, to $74.77.

Volatility rose slightly. The CBOE Volatility index was 2.2% higher at 13.93.

Meanwhile, the distressed debt market is expected to heat up over the back half of 2023.

Leveraged finance defaults will increase in the second half of the year and in 2024 in both the U.S. and European markets, Fitch Ratings said in a report Monday.

U.S. high-yield and institutional leveraged loan default rates soared to 2.6% and 3% in the trailing 12 months to July from 0.8% and 1% at mid-2022, Fitch said.

“We anticipate these rates to rise further as issuers face persisting macroeconomic challenges and higher costs of debt,” Fitch said. “We forecast HY and LL default rates of 4.5%-5% and 4%-4.5%, respectively, by end-2023, before moderating slightly to 3.5%-4.5% for both HY and LL in 2024.”

Defaults jumped around 30% in the second quarter, according to a report Monday from Moody’s Investors Service.

“Overall, there were 27 corporate family defaults – up from 21 in Q1,” Moody’s said. “Our 12-month trailing spec-grade default rate finished June at 3.8%, up significantly from 1.4% a year ago. We forecast that our base-case default rate will continue to rise, peaking at 5.8% in Q1 2024, and then easing a bit to a still elevated 5.2% by June next year.”

Lumen, Level 3 mixed

Lumen Technologies’ 4% senior secured notes due 2027 (B3/BB-/BB) rose ¼ point on Tuesday to 66¼ bid in light trading totaling $4.5 million, a source said.

Level 3 Financing’s 3¾% senior notes due 2029 (B1/B/B+) fell over 2½ points to a 63 bid handle on $3 million of volume over the session.

Level 3’s 4 5/8% senior notes due 2027 (B1/B/B+) also went out 1½ points lower at 74½ bid. Trading totaled $6 million.

Lumen reported Tuesday a second-quarter loss of $8.74 billion, compared to $344 million of profit in the same quarter last year.

Total revenue declined to $3.66 billion in the second quarter from $4.61 billion in the second quarter of 2022.

Shares (NYSE: LUMN) in the Denver-based telecommunications company climbed 13.4% on Tuesday to $2.03.

QVC softens

QVC’s 4¾% notes due 2027 (B2/B-) dropped more than 1½ points to 63 bid on $4 million of trading at the start of August, a source said.

The home shopping network company’s notes have improved nearly 10 points since May.

West Chester, Pa.-based parent Qurate Retail Inc.’s stock (Nasdaq: QRTEA) closed down 0.98% to $1.01 on Tuesday.

Rite Aid improves

Rite Aid’s 8% senior secured notes due 2026 (Caa3/CCC-/B) were under 1/8 point higher on Tuesday on a 50 bid handle after declining about ½ point on Monday, a source said.

Secondary supply totaled $3 million.

Rite Aid’s notes added about 2½ points last week and gained about 4½ points in the week prior.

The Camp Hill, Pa.-based drugstore chain’s stock (NYSE: RAD) climbed 5.25% on Tuesday to $1.70.

Distressed index higher

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns started the week off strong, finishing at 0.5%.

One-day returns rose from minus 0.06% on Friday and 0.18% in the same session last week.

Month-to-date total returns for July ended at 2.96% on Monday in the month’s last session. Returns for the month had improved from 2.45% on Friday and 2.16% in the week-ago session.

July returns softened from June returns of 4.67% but remained up from May’s return level of minus 0.63%.

Year to date, January and June have posted the strongest gains.

January had distressed index returns of 7.99%.

On Monday, year-to-date distressed total returns climbed to 14.94% from 14.36% on Friday and 14.04% in the same session a week ago.

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