Carvana paper mostly weathers storm, equity sinks; Rite Aid lower after tender wrap

By Cristal Cody

Tupelo, Miss., Dec. 7 – Carvana Co. moved into the spotlight on Wednesday as its stock plummeted in the wake of restructuring talk and a target price cut, while the company’s bonds weathered the day down only about 1 to 2 points.

“Right this second, I see better buyers at these levels,” a source said. “Not a lot of sellers.”

Carvana’s 10¼% senior notes due 2030 (Caa2/CCC) saw the heaviest trading out of the company’s capital stack on close to $30 million of volume.

The issue went out about 1 point lower from Tuesday.

Carvana’s shortest-dated tranche, the 5 3/8% notes due 2028, fell 2 points to 43 bid, 44 offered on Wednesday, a source said.

Carvana’s stock plunged more than 40% as restructuring talk grew on news reports and its stock price was cut to $1 by Wedbush Securities analyst Seth Basham. Shares traded close to $300 a year ago.

Carvana’s director of investor relations recently left the company and its “bonds have been trading at 50 cents on the dollar, indicating investors see a high probability of default,” according to the Wedbush note.

Since a majority of holders were reported to have signed on to the agreement to cooperate in a restructuring, those securities probably were not trading Wednesday, a market source said.

“That’s probably what’s saving the bond side,” the source said. “It’s not doing much for the equity.”

Markets were mixed but mostly soft by the end of the session.

The iShares iBoxx High Yield Corporate Bond ETF improved 41 cents, or 0.55%, to $74.98.

The CBOE Volatility index was up 2.26% at $22.67 by the close.

Oil prices have given back more than $7 week to date.

West Texas Intermediate crude oil benchmark futures for January deliveries declined $2.24 to settle Wednesday at $72.01 a barrel.

“In general, it was a little sloppy,” a market source noted.

Rite Aid Corp.’s paper mostly declined about 2 points to 3 points on Wednesday following the completion of the company’s tender offer for the 7½% senior secured notes due 2025.

“They’re a little lower,” a source said.

AMC Entertainment Holdings, Inc.’s notes saw further declines over the day with the bonds down 1 7/8 points to 2 1/8 points.

In other market action, the U.S. distress ratio declined marginally to 7½% as of Nov. 15 from October, near the five-year average of 7.4%, S&P Global Ratings said in a report on Wednesday.

The ratio of speculative-grade issues with option-adjusted composite spreads of more than 1,000 basis points peaked at 9.2% in July.

Health care, capital goods, and retail lead with the highest current distress ratios at 17.9%, 17.9%, and 13.6%, respectively, S&P said.

The U.S. trailing-12-month speculative-grade corporate default rate is expected to reach 3¾% by September 2023, according to the report.

Carvana slightly lower

Carvana’s paper traded about 1 point to 2 points lower with the short-dated issues the softest among the capital structure, according to market sources.

“They don’t look that much different,” one source said. “They’re all down about 1 point, 2 points.”

The 10¼% senior notes due 2030 (Caa2/CCC) were quoted at 41 bid, 42 offered on Wednesday.

The bonds saw the heaviest trading down Carvana’s capital structure on almost $29 million of volume.

Later, the notes were quoted down ¼ point at 41 5/8 bid on $28.6 million of supply.

The issue traded Tuesday at 42 bid, 43 offered and the prior week at 44½ bid.

Carvana sold the issue at par on April 27, 2022 in a $3.28 billion offering.

The company’s 4 7/8% senior notes due 2029 (Caa2/CCC) also saw active trading on $25 million of volume on Wednesday.

The issue was quoted at 33½ bid, 34½ offered.

Another source saw the notes down 3/8 point at 32½ bid on $26.5 million of trading.

Carvana's 5 5/8% notes due 2025 (Caa2/CCC) were quoted at 43½ bid, 44½ offered by the end of the session.

After the close, the bonds were seen 3 points weaker at 42½ bid on $9 million of secondary supply.

The Phoenix-based online car retailer’s stock closed down 42.92% at $3.83. The 52-week high was $274.35.

Wedbush analyst Basham said in the note on Wednesday the 12-month price target of the company’s stock was dropped to $1 from $9 on a higher probability of a restructuring following news reports that a majority group of creditors signed an agreement to cooperate in restructuring negotiations.

“This move will help avoid the infighting among lenders that has occurred in other restructurings recently,” according to the note.

Carvana has approximately $2 billion of owned real estate that is not encumbered by the outstanding debt, “leading us to see real estate sales as the best alternative to raise capital in the coming months,” according to the note.

Rite Aid mostly soft

Rite Aid’s 7½% senior secured notes due 2025 (B3/CCC-/CCC) were quoted lower at 71 bid, 73 offered from 74 bid, 75 offered the previous day, though the issue was not active during the session, a source said.

Rite Aid’s other paper was more active with the 8% senior secured notes due 2026 (B3/CCC-/CCC) seeing nearly $9 million of secondary trading on Wednesday.

The issue was quoted down 2 points from Tuesday at 59 bid, 60 offered.

After the close, the bonds were seen 4½ points lower at 57 bid on $8.7 million of trading, a source said.

S&P said Wednesday it raised the issuer’s rating to CCC+ from selective default and upped the 2025 notes to CCC- from D following the completion of the below-par cash tender for about $160.5 million of the bonds.

About $300 million of the notes remains outstanding, S&P said.

The cash tender offer for up to $200 million of the notes expired on Wednesday.

Rite Aid touts to investors on its web site that it is in a strong financial position with $1.85 billion of liquidity, no debt due until 2025 and $200 million-plus of debt paid down in fiscal year 2022.

The company said Wednesday it will post results for the fiscal 2023 third quarter ended Nov. 26 on Dec. 21.

The Camp Hill, Pa.-based drug retailer’s stock closed down 4¼% at $4.51.

AMC extends declines

AMC’s paper fell another 1 7/8 points to 2 1/8 points in active trading on Wednesday after declining about 2 points to more than 2½ points on Tuesday, a market source said.

The 7½% notes due 2029 (Caa1/B-) dropped to 50½ bid, down 1 7/8 points on $11 million of trading.

The bonds fell more than 2½ points on Tuesday.

AMC’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) traded down 2 1/8 points to head out at 35 1/8 bid on nearly $15 million of secondary volume.

The Leawood, Kan.-based movie theater owner and gold and silver mine company’s equity dropped 10.37% to close at $6.05.

Distressed index declines

S&P U.S. High Yield Corporate Distressed Bond index one-day returns softened on Tuesday to minus 0.56% from 0.27% on Monday.

Month-to-date total returns declined to 0.6% versus 1.16% on Monday.

Year-to-date total returns widened to minus 25% from minus 24.58% at the week’s start.

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