Rite Aid distressed bonds move higher, CDS spreads gap out; Michaels sheds gains

By Cristal Cody

Tupelo, Miss., Oct. 12 – Rite Aid Corp.’s bonds continued to rally on Thursday in the distressed debt market after the retailer reported that “it is unable” to file its quarterly report.

Rite Aid announced in a regulatory filing that it cannot file “without unreasonable effort or expense” the 10-Q for the quarter ended Sept. 2 but expects to on or before Oct. 17.

But when it does, it warned investors that it anticipates it will report a “significant increase in net loss for the quarter,” along with a major increase in outstanding debt.

Rite Aid’s notes were trading about ¾ point to over 1 point higher on Thursday and have added about 5 points over the last three sessions.

Meanwhile, Rite Aid’s credit default swap spreads again topped the chart this week for the biggest increases.

The drugstore chain’s CDS spreads moved out to nearly 60,000 basis points.

Back in February, the company’s CDS spreads were around the 5,000 bps area and had more than doubled that to over 10,000 bps by July.

Also in the pharmacy retail space, high-grade issuer Walgreens Boots Alliance, Inc. on Thursday reported fiscal 2023 and fourth-quarter losses, which were boosted by a $5.5 billion after-tax charge for opioid-related claims and litigation.

The company said it is not providing guidance beyond fiscal 2024 and is “continuing to evaluate macroeconomic trends and challenges.”

Walgreens said fourth-quarter earnings per share dropped to 21 cents from 48 cents a year ago and fiscal 2023 losses per share were $3.57, compared with $5.01 in earnings per share a year ago.

The results were “a bit worse than expectations,” Elizabeth Anderson, an analyst with Evercore Group LLC, said in a note on Thursday.

“Total revenues beat, but gross margins, including in the core U.S. retail pharmacy business came in a bit under expectations,” according to the note. “Turning to FY24, the company is guiding EPS to $3.20-3.50, significantly below sellside consensus, but more in line with buyside expectations.”

In other distressed retailers, Michaels Cos, Inc.’s 7 7/8% senior notes due 2029 (Caa2/CCC-) gave back 1 point over the session.

The bonds were about ¼ point higher on the week after pulling back on gains made Tuesday.

Weaker-than-expected September inflation data weighed on markets on Thursday with stock indices all lower and Treasury yields up 13 bps in the 30-year bond.

The S&P 500 index finished down 0.62%.

The iShares iBoxx High Yield Corporate Bond ETF fell 39 cents, or 0.53%, to $72.81.

The CBOE Volatility index moved up 3.73% to 16.69 after declining the prior two sessions.

September’s Consumer Price Index rose by a seasonally adjusted 0.4%, more than the 0.3% increase market analysts expected.

Elsewhere, AMC Entertainment Holdings, Inc.’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) moved back to a 70s handle on Thursday after slipping ¾ point in strong trading totaling $15 million.

The bonds, though, have mostly climbed in post-holiday trading and were about 2½ points higher on the week.

Rite Aid bonds up

Rite Aid’s 7½% senior secured notes due 2025 (Caa3/C/B) climbed over 1¼ points on Thursday to head out at 66 bid, a source said.

Trading was fairly active on $6 million of volume.

The notes on Wednesday had improved more than ¾ point on $4 million of activity.

Rite Aid’s 8% senior secured notes due 2026 (Caa3/C/B) also added ¾ point on Thursday to 66¼ bid on $4.3 million of trading.

The bonds went out Wednesday about 1½ points better on $6 million of volume.

The company’s bonds have added about 5 points over the last three sessions.

Meanwhile, Rite Aid’s CDS spreads moved out 12,488 bps for the week ended Wednesday to 59,384 bps, according to a Moody’s Investors Service report.

The issuer’s CDS spread had widened 4,134 bps in the prior week.

On Thursday, Rite Aid said in the regulatory filing that it has been conducting an ongoing review that along with the preparation of filing the 10-Q form require significant resources from the company’s financial, accounting and administrative personnel.

The distressed retailer noted that it has been engaged in reviewing strategic alternatives to recapitalize, refinance or otherwise optimize its capital structure.

Rite Aid also said that it “expects to report a significant increase in net loss for the quarter ended September 2, 2023, as compared to the corresponding quarter ended August 27, 2022. Such increase would result in part from the increase in impairment charges, litigation charges and higher professional expenses. Additionally, the company expects to also report a significant increase in its outstanding debt for the quarter ended September 2, 2023, as compared to the corresponding quarter ended August 27, 2022.”

The company received notice on Sept. 28 that its stock is no longer in compliance with New York Stock Exchange price listing requirements.

The Camp Hill, Pa.-based drugstore chain’s shares (NYSE: RAD) fell 5% to 78 cents on Thursday.

Michaels’ notes drop

Michaels’ 7 7/8% senior notes due 2029 (Caa2/CCC-) declined 1 point on Thursday to head out at 61 bid, a market source said.

Trading was active on $6.3 million of volume by the day’s close.

The notes have shed some of the gains made on Tuesday when the issue climbed 1½ points to 62¼ bid in heavy trading totaling $15 million.

The Irving, Tex.-based arts and crafts retailer’s paper gave back about 3 points in the prior week following a downgrade from S&P Global Ratings.

AMC notes lower

AMC’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) were quoted down ¾ point at 79½ bid in one of the day’s most active bonds in the junk and distressed secondary markets, a source reported.

Trading was strong on $15 million of paper changing hands.

The bonds have mostly climbed in post-holiday trading and were about 2½ points higher on the week.

The Leawood, Kan.-based movie theater owner’s stock (NYSE: AMC) closed up 5.57% at $11 in heavy trading on Thursday.

Distressed index positive

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns remained positive on Wednesday but declined to 0.15% from 1.39% on Tuesday.

Month-to-date total returns improved to minus 0.99%, compared to minus 1.14% at the start of the short holiday week.

Year-to-date distressed total returns were higher at 16.61% on Wednesday versus 16.43% on Tuesday.

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