Rite Aid notes, CDS spreads better; Talen paper, CDS spreads soften; Mallinckrodt up

By Cristal Cody

Tupelo, Miss., April 14 – Secondary action thinned on Thursday ahead of the long holiday weekend with a handful of distressed bond issuers active over the day.

Rite Aid Corp.’s notes improved about 7/8 point to 1 point following its weak earnings announcement.

“Rite Aid was up on the day for the credit, and the equity bounced around but ended the day down 3%,” a source said.

Rite Aid’s credit default swap spreads also tightened this week.

Talen Energy Supply LLC’s senior notes and CDS spreads remained soft on the heels of a second downgrade.

In the distressed pharmaceuticals space, Mallinckrodt plc’s notes were higher following the company’s announcement of plans for a $900 million first-lien term loan as it nears exiting Chapter 11 bankruptcy.

Market tone was soft amid the heavy earnings reports digested Thursday from Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley and Wells Fargo & Co.

The iShares iBoxx High Yield Corporate Bond ETF closed down 54 cents to $80.24.

May and June oil prices continued to gain for a third consecutive session.

West Texas Intermediate crude oil benchmark futures for May delivery settled $2.70 higher at $106.95 a barrel.

Distressed energy paper was not seen trading heavily during the short session, according to market sources.

“Not a lot happened today with the long weekend coming up,” a trader said. “The main thing was the Mallinckrodt news. There was barely anything in distressed besides Rite Aid.”

Rite Aid higher

Rite Aid’s 7½% senior secured notes due 2025 (B3/CCC/BB-) rallied to 91 bid by the early close, up 1 point on $13 million of volume after the company reported heavy fourth-quarter losses, a source said.

The company’s 8% senior secured notes due 2026 (B3/CCC/BB-) traded 7/8 point better at 90 7/8 bid on $18 million of secondary supply.

Rite Aid’s 7.7% senior debentures due 2027 (Caa2/CCC/CCC) also were quoted 1 point better at 75 bid on $6 million of volume.

The drug retailer’s notes softened last week after a Deutsche Bank analyst report slashed the company’s stock price target to $1.

Rite Aid on Thursday reported a fourth-quarter loss of $389.06 million, or $7.18 per share, for the period ended Feb. 26, up from losses of $18.5 million, or 34 cents a share, a year ago. Fourth-quarter revenue improved 2.5% to $6.07 billion.

The Camp Hill, Pa.-based drugstore company’s CDS spreads decreased this past week ended Wednesday by 46 bps to 1,670 bps, a source said. Spreads were 363 bps wider in the prior week.

Talen soft on week

Talen’s 6½% senior notes due 2025 (C/CC/CCC) were last seen Thursday afternoon in heavy trading at 32 7/8 bid, modestly better than where the notes finished the prior session, a source said.

The notes were going out over 3 points softer on the week.

Talen was downgraded by S&P Global Ratings on Thursday following a downgrade from Moody’s Investors Service a day earlier.

Both S&P and Moody’s said the company’s capital structure is unsustainable.

The Woodlands, Tex., and Allentown, Pa.-based power generation and infrastructure company’s senior notes dove to the low 20s in late March on reports the company is in restructuring talks.

Talen’s CDS spreads widened 242 bps for the week ended Wednesday to 8,346 bps, a source said.

Mallinckrodt better

Mallinckrodt’s 5 5/8% notes due 2023 moved higher Thursday to 50 bid, according to a market source.

The notes have been thinly traded in April and were last active a week ago at the 48¾ bid area.

Mallinckrodt’s 5½% senior notes due 2025 also traded Thursday at 50 bid.

The notes were last active in the secondary market in March and trading at the 49¼ bid area.

The Dublin- and St. Louis-based pharmaceutical company said in the 8-K filing on Thursday that in addition to a $900 million first-lien secured term loan, it also plans to obtain a new $200 million accounts-receivable-backed revolving credit facility.

Distressed index returns

The S&P U.S. High Yield Corporate Distressed Bond index one-day total return was better on Wednesday at minus 0.04%, versus minus 0.46% on Tuesday and minus 0.59% on Monday.

Month-to-date total returns softened to minus 1.74%, compared to minus 1.71% on Tuesday and minus 1.25% on Monday.

Year-to-date index returns also dropped Wednesday to minus 6.97% from minus 6.93% on Tuesday and minus 6.5% at the week’s start.

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