Carvana bonds higher after exchange offer launch; Michaels declines; AMC bonds soften

By Cristal Cody

Tupelo, Miss., Aug. 2 – Carvana Co.’s senior notes (Ca/C) improved in mostly light trading action on Wednesday after the company launched its exchange offers for outstanding senior notes.

The 10¼% senior notes due 2030 rose about 1¾ points in thin activity.

Carvana’s 4 7/8% senior notes due 2029 were more active over the afternoon and about ¾ point higher from Tuesday.

Stocks sank under the weight of Fitch Ratings’ downgrade the previous day of the United States of America.

The S&P 500 index closed off 1.38%. The Nasdaq dropped 2.17%.

The iShares iBoxx High Yield Corporate Bond ETF fell 32 cents, or 0.43%, to $74.45.

The Fear Factor index swelled.

The CBOE Volatility index rose 15.51% to 16.09.

Fitch’s downgrade of the country is the first by a ratings firm since S&P Global Ratings in 2011, according to a report Wednesday from analysts at Confluence Investment Management.

Fitch dropped the United States to AA+ from AAA.

The move has cut into riskier credits, the Confluence note said.

“We have not been able to identify any major Treasury holder that would be forced to sell the obligations because of the downgrade,” the analysts said. “More immediately, the rating cut has undermined sentiment toward risk assets today.”

Distressed retail and entertainment paper softened.

Michaels Cos, Inc.’s 7 7/8% senior notes due 2029 (Caa2/CCC) declined 1¼ points.

AMC Entertainment Holdings, Inc.’s 7½% senior secured first-lien notes due 2029 (Caa1/B-) were among the most active distressed names over the session, a source said.

The bonds fell nearly 2 points on $8.5 million of trading.

Carvana up in light trading

Carvana’s 10¼% senior notes due 2030 (Ca/C) rose about 1¾ points on Wednesday to 81 bid and a 14.78% yield in thin trading, a source said.

The issuer’s 4 7/8% senior notes due 2029 (Ca/C) were more active over the afternoon, trading ¾ point higher from Tuesday at 63 bid and a 14.15% yield.

Carvana’s paper gave back some of the gains made earlier in July when it announced the exchange offer, though it still remained up from handles in the low 50s in March. The 10¼% senior notes due 2030 had traded as high as 84 bid in July.

The 4 7/8% notes held on to gains made in July when it rallied from around 55 bid to a handle in the low 60s.

Carvana announced Wednesday that it launched its exchange offer for its outstanding senior notes for new secured notes.

The exchange offer includes the company’s 10¼% senior notes due 2030, 4 7/8% senior notes due 2029, 5½% senior notes due 2027 and 5 7/8% senior notes due 2028 for up to an aggregate principal amount of $4.275 billion in new cash/PIK senior secured notes.

Carvana also said it has started a $425 million cash tender offer for its 5 5/8% senior notes due 2025 at a price of 85% of the principal.

The exchange offers expire Aug. 30.

Carvana reported in July its best quarter on record when it released second-quarter results.

The company also filed to sell $1 billion of its class A common stock.

The Tempe, Ariz.-based online car retailer’s stock (Nasdaq: CVNA) closed Wednesday up 5.58% to $51.85.

Michaels’ notes down

Michaels’ 7 7/8% senior notes due 2029 (Caa2/CCC) declined 1¼ points over the session to 69¾ bid, according to a market source.

The bonds were last quoted in mid-July trading at 69½ bid.

The Irving, Tex.-based arts and crafts retailer was taken private in 2021 by funds managed by Apollo Global Management, Inc. affiliates.

AMC moves lower

AMC’s 7½% senior secured first-lien notes due 2029 (Caa1/B-) fell nearly 2 points to 66 5/8 bid on $8.5 million of trading on Wednesday, a market source said.

AMC reported Monday its strongest weekend movie attendance yet, thanks to movies including Barbie and Oppenheimer.

Last week, the company announced the Delaware Court of Chancery on July 21 denied its settlement plans in a shareholder lawsuit brought by Allegheny County Employees’ Retirement System over its issuance of preferred stock.

The company filed an addendum to the stipulation to address the issues raised by the court and requested approval with the revised release.

AMC plans to release its second-quarter results after the market closes on Aug. 8.

The Leawood, Kan.-based movie theater owner’s common stock (NYSE: AMC) fell 2.63% on Wednesday to $4.80.

AMC’s preferred stock (NYSE: APE) closed up 0.56% to $1.81.

Distressed returns down

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns declined in the first session of August to minus 0.17%, down from 0.5% on Monday.

Month-to-date total returns sit at minus 0.17% so far for August after July ended with 2.96% of total returns on Monday.

Year-to-date distressed total returns fell on Tuesday to 14.75% from 14.94% at the week’s start.

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