AMC Entertainment notes decline; iHeart slips in quieter supply; Lumen, Level 3 improve

By Cristal Cody

Tupelo, Miss., Sept. 18 – The distressed debt market focused on a handful of names on Monday that took a bulk of the day’s trading supply, sources reported.

AMC Entertainment Holdings, Inc.’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) slipped ¼ point under heavy secondary interest.

The distressed notes, yielding around 25%, racked up nearly $12 million of volume.

iHeartCommunications, Inc.’s paper settled down Monday after experiencing heavy trading action on Friday.

The company’s 8 3/8% senior notes due 2027 (Caa1/CCC+) softened more than ½ point in thin activity.

Meanwhile, bonds from Lumen Technologies, Inc. and subsidiary Level 3 Financing, Inc. rallied about ¾ point to 1¾ points in strong secondary supply following news reports the company was hit with a class-action lawsuit.

Level 3’s 3 5/8% senior notes due 2029 (B3/CCC+) improved ¾ point on $12.5 million of secondary trading.

Lumen’s 4% senior secured notes due 2027 (Caa2/B) saw the biggest bump in the issuer’s paper on Monday and added 1¾ points but in lighter trading totaling $3.5 million.

Overall market tone was cautiously higher.

The S&P 500 index rose 0.07%, while the iShares iBoxx High Yield Corporate Bond ETF added 5 cents, or 0.07%, to $74.69.

Market volatility increased slightly. The CBOE Volatility index was up 1.52% at 14 by the close.

So far this year, defaults and distressed debt exchanges are on the rise.

August had 16 defaults, the highest August monthly total since 2009, according to a S&P Global Ratings report.

Distressed exchanges represented 60% of the month’s tally.

Also, leveraged loan defaults total 20 year to date from among issuers in the Morningstar LSTA US Leveraged Loan index, up from six in the same period last year, according to a separate S&P note.

The leveraged loan default rate was 1.9% in August and is projected to hit 2¾% by June 2024, S&P said.

The CLO market also has seen rising defaults with the year-to-date total at its highest since 2020. So far in 2023, 30 issuers have defaulted and emerged, while another 16 issuers have defaulted and remained in default at the end of August, according to a Fitch Ratings report.

Distressed bond issuers Envision Healthcare Corp. and Diamond Sports Group, LLC are the most widely held defaulted issuers in CLO portfolios, Fitch said.

Several junk bond issuers, including Capex SA and Vericast Corp., have been able to extend or refinance near-term maturities in the last month that have helped them avoid a near-term default and drove down the volume of Fitch’s market concern bond list by $3.3 billion.

An additional $6.5 billion was removed due to defaults, Fitch said in the report on Friday.

Fitch’s market concern bond list totals $43.9 billion across 31 issuers with no additions made so far in September.

The U.S. high-yield trailing 12-month default rate by issuer was unchanged in August at 2.8% from the same level in July, while the rate by volume fell to 2.5% in August from 2.6% in July, Fitch said.

As of Thursday, year-to-date default volume totaled $31.8 billion from 26 issuers, up from $14.6 billion of default volume from 12 issuers in the same period last year, Fitch said.

So far this month, September defaults include $5.52 billion from Carvana Co. and a $125.3 million missed interest payment from bankrupt Party City Holdings Inc. balloon subsidiary Anagram International Inc., which was not included in the parent company's bankruptcy filing, according to the report.

AMC bonds slip

Heavy secondary trading that totaled $11.75 million on Monday pressured AMC’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) with the issue shedding ¼ point by the close, a source reported.

The bonds were quoted at 71½ bid and yielding 24.95%.

AMC’s notes added about 4 points in the prior week.

The company’s bonds were volatile in August after AMC converted its preferred equity into class A common stock and at the start of September on the issuer’s plans to sell up to 40 million shares of class A common stock.

The Leawood, Kan.-based movie theater owner’s stock (NYSE: AMC) fell 6.7% on Monday to $7.80 in heavy trading.

iHeart higher

iHeartCommunications’ 8 3/8% senior notes due 2027 (Caa1/CCC+) saw just one trade on Monday, softening more than ½ point but holding on to the 74 bid handle, a source said.

The company’s 8 3/8% senior notes due 2027 (Caa1/CCC+) were heavily traded on Friday and went out more than 2 points higher on a 74 handle.

The issue finished about 4 points better on the week.

San Antonio-based media broadcasting company iHeartMedia, Inc. shares (Nasdaq: IHRT) fell 0.6% to $3.38 in thin activity on Monday.

Level 3, Lumen on the rise

Level 3’s 3 5/8% senior notes due 2029 (B3/CCC+) piqued the strongest trading among the issuer’s paper over the day, a source said.

The notes improved ¾ point to head out at 61 bid on $12.5 million of secondary supply.

Parent Lumen Technologies’ 4% senior secured notes due 2027 (Caa2/B) saw the biggest bump in the issuer’s paper on Monday, adding 1¾ points by the close to a quote of 68 1/8 bid.

Trading in the issue was light with $3.5 million of paper changing hands.

Lumen’s 4½% notes due 2029 (Caa3/CCC-) were more active and were quoted at a print of 32.95 on $7 million of volume.

Meanwhile, Lumen’s credit default swaps had a run tighter last week by 655 basis points.

The company’s CDS spreads ended Wednesday at 3,673 bps, improved from 4,328 bps a week earlier, according to a Moody’s Investors Service report.

On Monday, the company was reportedly charged with complaints in a lawsuit over the risks to its lead-covered cable infrastructure.

Lumen was on the defensive last week and reported Thursday that a bondholder group formed to discuss refinancing options and its covenant compliance for the proceeds from the sale of its Latin American business has no evidence to support its claims.

The Denver-based telecommunications company’s stock (NYSE: LUMN) declined 1.3% to $1.52 in light trading on Monday.

Distressed returns

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns finished at zero on Friday.

Month-to-date total returns were at 1¾% going into the weekend.

Year-to-date distressed total returns were reported at 19.17% on Friday.

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