Carvana sinks following third-quarter report; Prog bonds gain; Rite Aid up on tender offer

By Cristal Cody

Tupelo, Miss., Nov. 4 – Carvana Co.’s paper slid about 5¼ points to 7 points on Friday with the issuer’s bonds trading in the 30s and 40s after the online car retailer reported third-quarter profit plunged more than 30%.

Secondary supply hit about $89 million on Friday with Carvana's 10¼% senior notes due 2030 (Caa2/CCC) among the most active junk and distressed names seen trading, a source said.

Carvana’s stock closed down 39%.

Prog Holdings Inc.’s bonds were making somewhat of a comeback in the secondary market late in the prior week and the current week, though still off the year’s starting point.

The financial markets shook off the soft tone seen since the Federal Reserve’s interest rate hike on Wednesday with stock indices all more than 1% higher on Friday.

The iShares iBoxx High Yield Corporate Bond ETF rose 50 cents, or 0.69%, to $72.90.

The West Texas Intermediate crude oil benchmark futures for December delivery settled up $4.44 at $92.61 a barrel.

Rite Aid Corp.’s 7½% senior secured notes due 2025 (B3/CCC-/BB-) jumped 3½ points over the day in busy trading that ranked the issue as one of the most active distressed names in the secondary market.

The drugstore chain on Thursday announced a cash tender offer to purchase up to $200 million of the notes.

Distress ratio rises, conditions tight

In other market action Friday, S&P Global Ratings reported the U.S. distress ratio rose to 7.6% as of Oct. 17 from 6.6% as of Sept. 22.

While the level is above its five-year average, the U. S. distress ratio is down from 9.2% reached on July 5, S&P said.

Health care and retail lead with the largest year-over-year increase in volume of debt trading at distressed levels, according to the report.

Tight financial conditions are causing extreme stress in financial markets with the latest ripple from South Korea’s insurance sector after South Korea’s financial regulator temporarily relaxed liquidity rules and asked companies to refrain from bond sales, BofA Securities Inc. analysts said in a report on Friday.

“By Thurs[day] morning, stresses were also spread to insurers in Hong Kong,” BofA said.

BofA Securities said Friday it projects 6% par-weighted defaults in 2023 as a base-case scenario.

Quality-level defaults are projected at 1% in BBs, 8% in Bs, and 22% in CCCs, according to the note.

Carvana bonds drop

In the U.S. secondary market Friday, Carvana’s notes dropped about 5¼ points to 7 points in heavy trading action that climbed to about $89 million, a source said.

Carvana's 10¼% senior notes due 2030 (Caa2/CCC) slid more than 6½ points on $41.5 million of volume.

The bonds were quoted at 45¾ bid late in the day.

Carvana's 5½% senior notes due 2027 (Caa2/CCC) gave back 7 1/8 points to head out at 36 7/8 bid on more than $15 million of paper traded Friday.

The 5 7/8% notes due 2028 (Caa2/CCC) also dropped 7 points to a quote of 37 bid on $14.4 million of trading.

Carvana’s stock closed down 38.95% to $8.76.

The Phoenix-based online car retailer on Thursday reported third-quarter gross profit plunged 31%.

Prog notes higher

Prog’s 6% senior notes due 2029 (B1/BB-) moved up from trading in the 76¾ bid to 77 bid area in the prior week to 84 bid on Friday, a source said.

The bonds started the year trading with a 103 bid handle and declined to the mid 70s in July and again in October.

The issue was quoted 6.7 points better on the week at 82.4 on $6 million of volume, according to a BofA Securities, Inc. note on Friday.

The Salt Lake City-based financial technology and consumer goods rental company, formerly known as Aaron’s Holdings Co., Inc., reported in the prior week weaker third-quarter revenue and earnings.

Rite Aid paper up

Rite Aid’s 7½% senior secured notes due 2025 (B3/CCC-/BB-) also were actively traded in supply that totaled about $20 million on Friday, a source said.

The notes climbed 3½ points to 72 bid.

On Thursday, Rite Aid announced a cash tender offer to purchase up to $200 million of the notes.

The issue was previously included in a tender offer Rite Aid conducted in June to purchase up to $150 million of its 7½% senior secured notes due 2025, 7.7% senior debentures due 2027 and 6 7/8% debentures due 2028.

The new tender offer expires Dec. 2 with an early deadline set for Nov. 17.

The Camp Hill, Pa.-based drug retailer’s credit default swaps spreads widened more than 350 basis points to 3,654 bps for the past week ended Wednesday, according to a Moody’s Investors Service report.

Distressed returns drop

S&P U.S. High Yield Corporate Distressed Bond Index one-day returns dropped Thursday to minus 1.19% from minus 0.18% on Wednesday, minus 0.15% on Tuesday and 0.15% on Monday.

Month-to-date total returns for November declined to minus 1.51% from minus 0.33% on Wednesday and minus 0.15% on Tuesday.

Year-to-date total returns widened to minus 26.8% from minus 25.91% on Wednesday, minus 25.78% on Tuesday and minus 25.67% on Monday.

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