Rite Aid notes decline after bankruptcy filing; Walgreens pressured; Michaels higher

By Cristal Cody

Tupelo, Miss., Oct. 16 – Rite Aid Corp.’s bonds fell more than 1 point on Monday following the retailer’s Chapter 11 bankruptcy filing, but volume stayed light as the move brought little wonder.

“No surprise on that one,” a source said. “I think people have already done their valuations on it.”

The company had taken some time with news reports circling since August that a filing was imminent. Just on Thursday, Rite Aid had announced a delay to its quarterly filing but expected to release it on Tuesday.

“They were looking to get their ducks in order,” a source noted. “The bonds aren’t doing too much. They’re a little weaker.”

Rite Aid’s notes declined about 1¼ points to 3 points on about $8 million of trading during the session.

Conditions at the company had soured this year with at least one analyst skipping issuing notes on Rite Aid over the last few months, a market source said.

Rite Aid was facing numerous issues, including an opioid-related complaint announced March 13 from the Department of Justice.

Also in the pharmacy retail space on Monday, bonds from high-grade issuer Walgreens Boots Alliance, Inc. widened about 15 basis points after the company was put on review for downgrade by Moody’s Investors Service, a source said.

The retailer on Thursday reported fiscal 2023 and fourth-quarter losses, which included a $5.5 billion after-tax charge for opioid-related claims and litigation.

Walgreens’ 3.2% senior notes due 2030 (Baa3/BBB) declined about ½ point in dollar price and were about 15 bps wider by spread on Monday, a source said.

The notes went out at 80¾ bid, 81¾ offered, down from 81¼ bid, 82¼ offered on Friday.

Secondary market action was quieter with Treasury yields higher, stock indices up, overall volatility down and market focus scattered among earnings reports due this week and the Israel-Hamas war and other geopolitical conflicts.

“It’s not busy,” a trader said. “People have yet another reason to be on the sidelines.”

The S&P 500 and Nasdaq both closed up more than 1%.

The iShares iBoxx High Yield Corporate Bond ETF edged 2 cents lower to $72.73.

The CBOE Volatility index was down 10.92% at 17.21.

In other distressed retailers, Michaels Cos, Inc.’s 7 7/8% senior notes due 2029 (Caa2/CCC-) went out ¼ point higher on Monday.

Rite Aid drops on filing

Rite Aid’s secured paper saw lower activity over the session following the bankruptcy filing and downgrade from S&P Global Ratings, a source said.

The 8% senior secured notes due 2026 (Caa3/D/B) had $3.5 million of secondary supply, while the 7½% senior secured notes due 2025 (Caa3/D/B) had only $1 million of volume.

The 8% and 7½% secured notes were trading at the same levels on Monday at around 62½ bid, 63½ offered, down from 65½ bid, 66½ offered on Friday, the source said.

Rite Aid’s 7.7% debentures due 2027 (Ca/D/CC) saw more action over the day on $3.8 million of paper changing hands.

The notes last printed at 5 bid and were going out at 5¼ bid, 6¼ offered.

On Friday, the bonds traded at 6½ bid, 7½ offered.

Rite Aid’s credit default swap spreads had gapped out to nearly 60,000 bps in the prior week.

Rite Aid had reported on Thursday that it anticipated it would post a significant increase in net loss for the quarter and a major increase in outstanding debt on or before Tuesday.

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

Rite Aid announced on Monday that it filed Chapter 11 bankruptcy on Sunday in the U.S. Bankruptcy Court for the District of New Jersey to implement a restructuring support agreement after reaching an agreement with holders of its secured notes.

The company has secured a $3.25 billion super-priority senior secured DIP ABL facility and a $200 million DIP term loan with Bank of America, NA with proceeds set to help provide working capital.

Rite Aid said that subsidiary Hunter Lane, LLC entered into a stalking horse asset purchase agreement to sell its Elixir assets to MedImpact Healthcare Systems, Inc. for $575 million and assumed liabilities.

The Philadelphia-based drugstore chain received notice on Sept. 28 that its stock was no longer in compliance with New York Stock Exchange price listing requirements.

Rite Aid’s shares (NYSE: RAD) closed Friday at 64 cents and were down 5.58% in pre-market trading on Monday.

Michaels edges up

Michaels’ 7 7/8% senior notes due 2029 (Caa2/CCC-) went out modestly higher by about ¼ point on Monday, a source said.

The notes rose to 61¼ bid, 62¼ offered by the close.

The Irving, Tex.-based arts and crafts retailer’s bonds were among the prior week’s strongest movers in the secondary market and about 1 point lower on the week, according to a note from the desk of BofA analysts.

Michaels’ paper was trading 8 points lower from a month ago.

Distressed index soft

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns improved slightly to minus 0.11% on Friday from minus 0.4% on Thursday, but remained down from 0.15% on Wednesday and 1.39% on Tuesday at the short week’s start.

Month-to-date total returns finished Friday lower at minus 1.5%, compared to 1.39% on Thursday, minus 0.99% on Wednesday and minus 1.14% on Tuesday.

Year-to-date distressed total returns were lower at 16.01% on Friday versus 16.14% on Thursday, 16.61% midweek and 16.43% on Tuesday.

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