Rite Aid distressed bonds mostly improve; Level 3 senior notes gain; CommScope higher

By Cristal Cody

Tupelo, Miss., Aug. 29 – Rite Aid Corp.’s bonds stayed mixed on Tuesday but remained mostly better as investors and traders await a possible Chapter 11 bankruptcy filing.

Rite Aid’s 7.7% senior notes due 2027 (Ca/C/CC) added more than 1 point over the session after S&P Global Ratings downgraded the retailer on an increased restructuring risk.

Bonds from Lumen Technologies, Inc. subsidiary Level 3 Financing, Inc. also were on the move higher following a downgrade from Fitch Ratings on Tuesday.

Level 3’s 4¼% senior notes due 2028 (B3/CCC+) added 1½ points over the session.

While banks stayed a concern with Bank of Montreal and Bank of Nova Scotia missing analysts’ earnings estimates Tuesday, market tone was strong.

The S&P 500 index closed up 1.45%, with the iShares iBoxx High Yield Corporate Bond ETF adding 47 cents, or 0.63%, to $75.36.

The CBOE Volatility index declined 4.18% to 14.45.

Elsewhere, CommScope Holding Co., Inc.’s 8¼% senior notes due 2027 (Caa1/CCC+) improved 1 point over the day in one of the session’s top distressed gainers.

Rite Aid mostly quiet

Rite Aid’s 8% senior secured notes due 2026 (Caa3/C/B) fell ¼ point in little activity on Tuesday to around 60 bid, 61¼ offered, a source said.

Trading in the name has been on the light side following news reports on Friday that the retailer is planning to file for bankruptcy.

The notes picked up ¼ point on Monday on $2 million of volume.

Rite Aid’s 7.7% senior bonds due 2027 (Ca/C/CC) were pretty active over the day in smaller lots, a source said.

The notes went out Monday down more than 1 point from Friday on a 9 handle and climbed back to above 11 bid on Tuesday.

The issue gave back 6 points in thin trading on Friday following a Wall Street Journal report that the Camp Hill, Pa.-based drugstore chain is preparing to file for Chapter 11 in the coming weeks.

On Tuesday, S&P said it lowered Rite Aid’s credit ratings on the view that a default, distressed exchange or redemption is likely within six months.

The Camp Hill, Pa.-based drugstore chain reported heavy first-quarter losses in June and faces an opioid-related complaint announced March 13 from the Department of Justice.

Rite Aid’s stock (NYSE: RAD) added 4.84% on Tuesday to close at 80 cents.

Shares plunged over 51% on Friday and took back 8.23% on Monday.

Level 3 notes up

Level 3’s 4¼% senior notes due 2028 (B3/CCC+/B) rallied 1½ points to 67 bid by the close on Tuesday, according to a market source.

The bonds traded at 64 bid in the same session a week ago following a downgrade from Moody’s, which also dropped parent Lumen Technologies.

On Tuesday, Fitch said it downgraded Lumen and its subsidiaries on increased risks from the company’s disclosure of the formation of a bondholder group to discuss refinancing options and covenant compliance for the proceeds from the sale of its Latin American business.

Moody’s said last week that it dropped Lumen, Level 3 and Qwest Corp.’s ratings to reflect growing risks for a distressed debt exchange, given its weak operating performance and heavy debt load that includes $1.8 billion of debt due in early 2025 and $9.4 billion of debt due in 2027.

Earlier this month, Lumen reported heavy second-quarter losses of $8.74 billion versus a $344 million profit in the same quarter last year.

The Denver-based telecommunications company’s stock (NYSE: LUMN) declined 1.87% to $1.57.

CommScope better

CommScope, Inc.’s 8¼% senior notes due 2027 (Caa1/CCC+) traded up 1 point to head out Tuesday at 67 bid, a market source said.

The issue remains down from where it traded around 74 bid at the start of the month.

CommScope’s bonds and stock came under pressure in early August when the company reported second-quarter losses and decreased its outlook for core adjusted EBITDA for 2023 to $1.15 billion from $1.25 billion.

The Hickory, N.C.-based network infrastructure manufacturer’s stock (Nasdaq: COMM) closed up 3.37% to $3.37.

Distressed index gains

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns kicked off the final week of August higher.

Returns on Monday totaled 0.26%, up from minus 0.3% on Friday and minus 0.09% in the same session last week.

Month-to-date total returns hit 1.07% on Monday, improved from 0.8% on Friday but down from 1.14% in the week-ago session.

Year-to-date distressed total returns were 16.17% on Monday, up from 15.86% on Friday and catching up to 16.24% of returns in the same session a week earlier.

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