AMC notes recover some losses after reverse stock split; Rite Aid bonds move higher

By Cristal Cody

Tupelo, Miss., Aug. 30 – Distressed trading tracked higher on Wednesday in AMC Entertainment Holdings, Inc.’s paper, which took back some of the losses following the company’s reverse stock split.

“AMC bonds have been active today,” a trader said, noting $17 million of the 10% senior secured second-lien notes due 2026 (Caa3/CCC-) changed hands. “That is up a good amount. It’s in the top 10.”

The issue rallied over 5 points over the session.

Rite Aid Corp.’s paper continued to grab some focus in the late summer session on bankruptcy chatter.

The 8% senior secured notes due 2026 (Caa3/C/B) picked up about 2 points on $5 million of secondary activity.

Rite Aid’s notes have mostly traded higher since Friday after a Wall Street Journal report broke that the retailer intends to soon file for Chapter 11 bankruptcy.

Overall market tone was stronger with equity indices higher, though the junk space was soft as market volatility waned.

The S&P 500 index finished 0.38% better, while the iShares iBoxx High Yield Corporate Bond ETF slipped 3 cents, or 0.04%, to $75.33.

The CBOE Volatility index dropped 3.94% to 13.88.

Trading overall was light again on Wednesday in the distressed space.

“It’s pretty quiet,” a trader said. “I think it will be pretty quiet until the week after next. This week isn’t a great barometer of anything. It’s dead.”

Secondary action in WeWork Inc.’s notes has been nonexistent in late August with some of the company’s bonds not seen trading in three weeks.

“It’s not very active to say the least,” a trader said.

WeWork’s 7 7/8% notes have dropped to the single digits from where it traded with a low 30s handle at the start of the month before the company posted its second-quarter earnings and reported doubts about its ability to continue as a going concern.

The company is expected to undertake a 1-for-40 reverse stock split effective Friday to regain compliance with New York Stock Exchange listing requirements.

A reverse stock split is considered a “desperate corporation action” in which a company will reduce its share count and simultaneously increase its stock price, typically after a prolonged period of poor equity performance, Christine Short of Wall Street Horizon said in a report this week.

WeWork’s valuation has “cratered” from a peak of $47 billion to less than $300 million today, according to the report.

WeWork and AMC are not alone this year in conducting reverse stock splits with the strategy on the rise in 2023, Short said.

In 2021, just 68 reverse stock splits were undertaken.

“The following year featured a more normal 159 reverse splits globally, and we are on pace to do more than 200 in 2023,” Short said.

AMC notes on the mend

AMC’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) went out Wednesday better at 67 bid, 68 offered on $17 million of volume, a trader said.

The bonds were quoted at 61 bid in the prior session.

The issue finished the prior week down more than 8 points and shed another 1½ points on Monday and about ½ point on Tuesday after AMC’s preferred equity conversion into common stock.

AMC’s other paper also saw improvement with the 7½% senior secured first-lien notes due 2029 (Caa1/B-) at 68 bid, 69 offered on Wednesday on $11 million of supply.

“They’re up a little bit, but not as much as the 10s,” the trader said.

The issue traded on Tuesday at 66½ bid, 67½ offered.

Last week, AMC conducted a share increase and reverse stock split to allow the conversion of all of its outstanding preferred equity units into shares of class A common stock.

AMC announced the conversion after the Delaware Court of Chancery approved the settlement of a shareholder lawsuit brought by Allegheny County Employees’ Retirement System over the issuance of its preferred stock.

The Leawood, Kan.-based movie theater owner’s post-conversion shares (NYSE: AMC) closed 16.68% higher on Wednesday at $12.73 after initially dropping to near the 52-week low of $10.72.

The stock traded as low as $10.73 to as high as $13.64 over the day.

Rite Aid notes rising

Rite Aid’s 8% senior secured notes due 2026 (Caa3/C/B) added about 2 points to trade at 63 bid, 64 offered on Wednesday on $5 million of volume, a source said.

The notes went out in the prior week more than 4 points higher at 56 bid, 57 offered following news reports that the retailer plans to file for bankruptcy.

Rite Aid’s 7.7% senior bonds due 2027 (Ca/C/CC) were back Wednesday to around where the issue traded Friday at 10 bid, 12 offered.

Before the Wall Street Journal report, the 7.7% bonds traded at 15 bid, 17 offered.

S&P Global Ratings downgraded Rite Aid on Tuesday 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) has recovered about 15% week to date after sinking over 50% on Friday.

Shares closed Wednesday up 2.5% to 82 cents.

WeWork little traded

WeWork’s notes continued to see little trading action as August nears a close, a trader said.

The company’s 7 7/8% senior notes due 2025 (/CCC-/C) and the 5% notes due 2025 were last seen down around 7 bid, 9 offered.

The bonds traded at 31 bid, 33 offered on Aug. 8 before the company’s second-quarter earnings announcement.

WeWork’s 15% notes due 2027 traded last at 48 bid, 50 offered on Aug. 9, while the 11% notes due 2027 were last seen at 15 bid, 17 offered on Aug. 11, the trader said.

The bonds were downgraded by Fitch Ratings and S&P on the weaker-than-expected second-quarter results and the company’s going-concern warning.

WeWork intends to conduct the reverse stock split of its outstanding class A and class C common stock effective at 4:01 p.m. ET on Friday. The class A shares will begin trading on a post-split basis on Monday.

The company had reported the move was being taken to increase its share trading price and regain compliance with the NYSE’s $1 per share minimum closing price.

The New York-based office share company’s stock (NYSE: WE) edged up 0.25% to 11 cents on Wednesday.

Distressed returns improve

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns improved on Tuesday to 0.37% from 0.26% on Monday.

Month-to-date total returns rose to 1.44% in the prior session from 1.07% at the week’s start.

Year-to-date distressed total returns increased on Tuesday to 16.6% versus 16.17% on Monday.

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