Cracks widen in Rite Aid, CDS spreads ease nearly 5,000 bps; DISH drops; Lumen softens

By Cristal Cody

Tupelo, Miss., Aug. 17 – Rite Aid Corp.’s bonds saw thin trading on Thursday, while its credit default swap spreads gapped out more than 4,500 basis points this week.

The 8% senior secured notes due 2026 (Caa3/CCC-/B) were about ¼ point better on the day.

The retail space was under some pressure this week with CDS spreads from Staples Inc. also wider.

Walmart Inc. and Ross Stores Inc. posted second-quarter results on Thursday.

Some retailers have reported record sales this quarter, according to a note from Christine Short of Wall Street Horizon.

“Last week’s report from the Federal Reserve Bank of New York showed that Americans are going further into debt to make purchases, with credit card debt hitting $1 trillion for the first time ever,” Short said.

The Federal Reserve Bank of New York said Thursday its weekly economic index dropped to a preliminary estimate of 1.12% for the week ended Aug. 12 from 1.28% in the prior week.

The bank said the decrease was “due to falls in steel production, tax withholding, consumer confidence, railroad traffic and fuel sales, which more than offset increases in retail sales and electricity output and a decrease in initial unemployment insurance claims.”

Retail is contributing to a higher default rate.

The U.S. speculative-grade corporate default rate could hit 4½% by June 2024, S&P Global Ratings said Thursday.

S&P said it expects the U.S. trailing 12-month speculative-grade corporate default rate to rise from 3.2% in June.

Sectors including consumer products, media and entertainment and retail/restaurants make up the biggest portion of its weakest issuers, according to the report.

Fitch Ratings said Tuesday it expects high-yield defaults to end the year in the 4½% to 5% range.

Technology, media and telecom defaults have seen an uptick this year.

The U.S. trailing 12-month broadcasting and media default rate is now at 7.2%, up from 5% in 2022, Fitch said. The technology default rate is at 2.4%, up from 0.7% in 2022, while the default rate in telecoms is 3.2%, up from 2.1% last year.

Bonds from DISH Network Corp. and Lumen Technologies, Inc. were under the gun on Thursday.

DISH’s bonds saw the bulk of trading in the distressed market over the session with the paper down about 1 point or more on more than $30 million of activity.

DISH’s 7¾% senior notes due 2026 (Caa2/B-) dropped 1 point on over $12 million of paper changing hands.

Lumen Technologies’ bonds moved lower on about $10 million of trading following a two-notch downgrade from S&P.

The 4% senior secured notes due 2027 (B3/BB-/BB) dropped nearly 1½ points.

Market tone was weak a third day.

The Nasdaq, down 1.14% on Tuesday and 1.15% on Wednesday, fell 1.17% on Thursday.

The iShares iBoxx High Yield Corporate Bond ETF gave back 31 cents, 0.42%, to $74.04.

The CBOE Volatility index rose 6.62% on the day to 17.89.

Rite Aid mixed

Rite Aid’s 8% senior secured notes due 2026 (Caa3/CCC-/B) picked up about ¼ point on Thursday to a quote of 56¾ bid, a source said.

The bonds were thinly traded over the session.

In the same day a week ago, the issue was quoted at 57¼ bid.

Rite Aid’s CDS spreads moved out 4,538 bps this week ended Wednesday to 16,340 bps, according to a report from Moody’s Investors Service.

Last week, the company’s CDS spreads widened 1,069 bps and eased 1,060 bps a week earlier.

The Camp Hill, Pa.-based drugstore chain’s stock (NYSE: RAD) closed up 5.14% to $1.84.

DISH notes decline

DISH DBS Corp.’s 7¾% senior notes due 2026 (Caa2/B-) went out Thursday 1 point lower at 75½ bid, a source said.

The issue was among the top traded distressed bonds during the session on more than $12 million of volume.

DISH’s 7 3/8% senior notes due 2028 (Caa2/B-) declined over 1¼ points to trade at 64 bid on $13.7 million of secondary supply.

DISH’s 5 1/8% senior notes due 2029 (Caa2/B-) also shed more than 2¾ points on the day to a trade with a 54 handle on about $6 million of activity.

The company’s bonds have given back gains from the prior week made after the company announced plans to merge with EchoStar.

In the same session last week, the 7¾% senior notes due 2026 (Caa2/B-) were quoted at 79 bid, while the 5 1/8% notes traded at 59 bid.

The Englewood, Colo.-based satellite cable operator’s stock (Nasdaq: DISH) declined 2.67% on Thursday to $6.92.

Lumen softens

Lumen Technologies’ 4% senior secured notes due 2027 (B3/B/BB) traded off nearly 1½ points on Thursday to around 67½ bid, a source said.

Volume totaled about $7 million.

The issue was up 1 point at 70 1/8 bid on $8.5 million of trading on Wednesday.

Lumen’s CDS spreads tightened this week by 219 bps to 3,187 bps, according to a Moody’s report.

S&P said Wednesday it downgraded Lumen to CCC+ from B and dropped its senior paper to CCC- from CCC+ and the secured debt to B from BB-.

Lumen reported heavy second-quarter losses of $8.74 billion earlier in August.

The Denver-based telecommunications company’s stock (NYSE: LUMN) closed unchanged at $1.72.

Distressed returns up

The S&P U.S. High Yield Corporate Distressed Bond index one-day total returns improved midweek to 0.1% versus minus 0.05% on Tuesday but remained lower than Monday’s reading of 0.41%.

Month-to-date total returns rose to 2.08% on Wednesday from 1.98% on Tuesday and 2.04% at the start of the week.

Year-to-date distressed total returns increased to 17.33% from 17.21% on Tuesday and 17.28% on Monday.

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