Rite Aid keeps week’s gains; AMC second-lien notes up; Lumen slips; August returns down

By Cristal Cody

Tupelo, Miss., Sept. 1 – Distressed debt trading slowed on Friday as desks cleared ahead of the long Labor Day holiday weekend with secondary volume topping out around $46 million in the day’s most active issues, sources reported.

Rite Aid Corp.’s 8% notes were among the busiest of the day’s distressed paper on just $4 million of notes traded.

The bonds were going out flat on the day but over 7 points better on the week.

AMC Entertainment Holdings, Inc.’s paper also was among the day’s most active distressed bonds on $7.5 million of trading supply but were mixed by late afternoon.

AMC’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) traded up ¼ point, while the 7½% senior secured first-lien notes due 2029 (Caa1/B-) dropped 1 3/8 points on Friday.

In the broader equity markets, stocks were mixed in light activity following the Labor Department’s August jobs report.

The iShares iBoxx High Yield Corporate Bond ETF rose 14 cents, or 0.19%, to $75.07.

The S&P 500 index improved 0.14%, while the Nasdaq declined 0.08%.

Total nonfarm payroll employment rose by 187,000 in August, though the unemployment rate increased 0.3% to 3.8%, the Labor Department reported Friday.

The figures were mixed as far as market forecasts with payroll numbers beating expectations of a 170,000 increase and missing forecasts for a flat 3½% unemployment rate.

The CBOE Volatility index moved back by over 3½% by the close to 13.09.

Investor optimism remains strong, as evidenced by the Fear Factor index, according to a Moody’s Investors Service report.

The VIX dropped below 14 points on Wednesday, its lowest value in August.

“In the past, there has been a significant correlation between credit spreads and equity market volatility, as measured by the VIX,” according to the report. “This relationship was disrupted in recent years, but the recent decline in the VIX has brought it back in line with high-yield spreads.”

The S&P U.S. High Yield Corporate Distressed Bond index ended August with returns down from July and at less than half of June’s total.

In other active distressed paper, Lumen Technologies, Inc.’s bonds gave back nearly ½ point to 1 7/8 points with some of its paper now trading with a 20s handle.

Rite Aid flat

Rite Aid’s 8% senior secured notes due 2026 (Caa3/C/B) went out unchanged at 63½ bid on $4 million of volume on Friday, a source said.

The yield was 25.34%.

The notes were going out more than 7 points better on the week after news reports a week ago that the retailer plans to file for bankruptcy.

Rite Aid’s credit default swap spreads gapped out more than 8,000 basis points this week ended Wednesday.

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’s stock (NYSE: RAD) traded off 1.69% to 75 cents on less-than-average volume on Friday.

AMC paper mixed

AMC’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) traded up ¼ point to 69¾ bid on $4 million of secondary action on Friday, a market source said.

The issue was about 2¼ points better from a week ago.

The notes finished the prior week down more than 8 points after AMC converted its preferred equity into class A common stock.

Meanwhile Friday, AMC’s 7½% senior secured first-lien notes due 2029 (Caa1/B-) dropped 1 3/8 points to 68¼ bid on $3.52 million of volume.

The Leawood, Kan.-based movie theater owner’s common stock (NYSE: AMC) gained 4.38% to close at $13.10 in strong activity.

Lumen notes decline

Lumen Technologies’ 7.65% senior notes due 2042 (Caa3/CCC-/CCC+) dropped 1 7/8 points to 28 bid on $3 million of trading late afternoon Friday, a source said.

The yield was 27.9%.

Lumen’s 5 5/8% senior notes due 2025 (Caa3/CCC-/CCC+) fell ¾ point to 78 bid on $1.64 million of volume during the session.

Lumen’s CDS spreads also widened 224 bps over the past week ended Wednesday to 4,163 bps, according to a Moody’s report.

Fitch Ratings downgraded Lumen on Tuesday, noting the company’s disclosure of a bondholder group formed to discuss refinancing options and covenant compliance for the proceeds from the sale of its Latin American business.

The Denver-based telecommunications company’s stock (NYSE: LUMN) softened 0.62% to $1.58 in thin activity.

August returns lower

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns dropped on Thursday to 0.14% from 0.31% on Wednesday, 0.37% on Tuesday and 0.26% on Monday.

Month-to-date total returns for August ended Thursday at 1.9%, up from 1.76% on Wednesday, 1.44% on Tuesday and 1.07% at the week’s start.

August returns declined from 2.96% in July and 4.67% in June.

Year-to-date distressed total returns rose Thursday to 17.12% versus 16.96% on Wednesday, 16.6% on Tuesday and 16.17% on Monday.

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