Bankrupt Rite Aid climbs; distressed space expands in October; AMC Entertainment steady

By Cristal Cody

Tupelo, Miss., Oct. 17 – Secondary trading ramped up on Tuesday in Rite Aid Corp.’s bonds in the session after the company announced its weekend Chapter 11 bankruptcy filing.

The bonds recovered from Monday’s slide and climbed about 4½ points to 5 points on nearly $30 million of volume, a source said.

Rite Aid’s notes had declined about 1¼ points to 3 points on about $8 million of trading on Monday.

The 8% senior secured notes due 2026 (Caa3/D/B) rallied 4 points out of the gate on Tuesday and went out about 5 points better on the day.

October defaults so far include $1.36 billion from Rite Aid and a missed interest payment of $450 million from Akumin, according to a report from Fitch Ratings.

Rite Aid’s bankruptcy filing was a “widely expected move,” Fitch said. “With $1.36 billion of high-yield bond debt, the pharmacy retailer had been facing headwinds from significant debt burden, high leverage, limited cash flow generation and approaching maturities. Notably, it faces material opioid lawsuits which the company hopes to resolve in the bankruptcy process, similar to other issuers such as Mallinckrodt who used bankruptcy as a platform to resolve legacy opioid liability.”

Default volume year to date through Monday totaled $33.6 billion from 30 issuers, significantly higher than the $20.2 billion from 13 issuers in the same period last year.

The U.S. high-yield trailing-12-month default rate stands at 2.5% by volume and 2.8% by issuer count in September, in line with August, Fitch said.

More defaults are expected over the fourth quarter.

WeWork Inc. and Audacy, Inc. both missed or elected not to pay interest payments due Oct. 2 and are currently in grace periods, Fitch noted.

Audacy Capital Corp. skipped an $18 million interest payment on its $540 million second-lien notes due March 2029, while WeWork skipped interest payments across their first-, second- and third-lien notes with 2027 maturities totaling $37.3 million in cash payments.

Stocks were mixed on stronger retail sales data for September and earnings results reported Tuesday from issuers including Bank of America Corp.

The Nasdaq declined 0.5%.

The CBOE Volatility index was up 3.89% to 17.88 as the market gauged another Federal Reserve rate hike this year.

The iShares iBoxx High Yield Corporate Bond ETF fell 34 cents to $72.39.

“September retail receipts suggests consumption remains strong,” Confluence Investment Management strategists said in a note on Tuesday. “Retail sales rose 0.7% last month. The reading was above expectations of 0.3%, but below the previous month’s reading of 0.8%. This report likely boosts the case for the Fed to raise rates by another 25 bps before the end of the year.”

Retail sales were stronger in September but not likely to continue in the fourth quarter, according to a note Tuesday from BNP Paribas Securities analysts.

“September retail sales coupled with upward revisions to prior data imply significant strength in consumer activity in Q3, suggesting even stronger personal consumption growth than previously estimated,” BNP said. “University of Michigan sentiment suggesting a pullback going into Q4, student loan repayments, and diminished credit availability point to a slowdown in activity going into the holiday season.”

Elsewhere in the secondary market, AMC Entertainment Holdings, Inc.’s bonds were little changed Tuesday after the company reported a preliminary settlement in a stockholder derivative lawsuit.

AMC’s 7½% senior secured first-lien notes due 2029 (Caa1/B-) declined more than ¼ point on about $8 million of activity.

Rite Aid paper gains

Rite Aid’s 8% senior secured notes due 2026 (Ca/D/CC) rallied 4 points out of the gate on Tuesday and went out about 5 points better at 67½ bid, market sources said.

Secondary action was heavy on more than $24 million of notes traded.

In the prior session on the heels of the bankruptcy announcement, the issue was quoted down 3 points from Friday at around 62½ bid, 63½ offered on $3.5 million of volume.

Rite Aid’s 7.7% debentures due 2027 (C/D/C) climbed to 9½ bid by the close on Tuesday, up from 5¼ bid, 6¼ offered on Monday in lighter trading of more than $2 million.

The 7½% senior secured notes due 2025 (Ca/D/CC) also saw light trading of over $3 million on Tuesday, with the issue going out stronger at 67 bid.

The notes were quoted around 62½ bid, 63½ offered in the prior session.

Rite Aid was facing numerous issues, including expected significant quarterly losses and a federal opioid-related complaint.

The Philadelphia-based drugstore chain established in 1962 announced Monday that it filed for Chapter 11 bankruptcy on Sunday in the U.S. Bankruptcy Court for the District of New Jersey.

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 to help provide working capital.

AMC mostly steady

AMC’s 7½% senior secured first-lien notes due 2029 (Caa1/B-) declined more than ¼ point to 71 7/8 bid on about $8 million of trading on Tuesday in the theater owner’s most active issue seen trading, a source said.

The company’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) were quiet during the session after going out Monday less than 1/8 point lower at 79 bid.

AMC’s 5 7/8% subordinated notes due 2026 (Ca/CCC-) also were little changed in light trading on Tuesday at around 52 bid.

The Leawood, Kan.-based movie theater owner said in a regulatory filing on Monday that a settlement regarding a stockholder derivative complaint was preliminarily approved on Oct. 6 by the U.S. District Court for the Southern District of New York Court. A court hearing has been scheduled for Dec. 18 to consider whether to approve the proposed settlement.

Distressed returns lower

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns opened the week softer.

Returns were at minus 0.17% on Monday, down from minus 0.11% on Friday.

Month-to-date total returns declined to minus 1.66% in the prior session from minus 1.5% ahead of the weekend.

Year-to-date distressed total returns dropped to 15.81% on Monday from 16.01% on Friday.

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