Rite Aid bonds higher on whiff of bankruptcy; DISH paper improves; AMC notes decline

By Cristal Cody

Tupelo, Miss., Aug. 25 – Rite Aid Corp.’s bonds mostly rallied in the secondary market on Friday while its stock plunged to a new low as distressed traders got a whiff of a possible bankruptcy following news reports.

Rite Aid’s credit default swap spreads had gapped out by more than 10,000 basis points over the last two weeks.

The drugstore chain’s 8% senior secured notes due 2026 (Caa3/CCC-/B) shot up over 4 points on over $6 million of trading in an otherwise mostly quiet late summer session.

The bonds were seen as high as 5 points better over the day after the Wall Street Journal reported Rite Aid is preparing to file in the coming weeks.

Secondary action by late afternoon topped out at $8 million in the distressed space in paper from DISH Network Corp., a source reported.

DISH’s 7¾% senior notes due 2026 (Caa2/B-) traded 1¼ points better over the day.

Market tone improved with volatility lower and equities on the upside following comments Friday from Federal Reserve chairman Jerome Powell at the Jackson Hole Economic Symposium.

“The prevailing view is that interest rates will remain elevated for an extended period of time,” according to a Confluence Investment Management note on Friday. “This has led investors to revise their expectations upwards of future interest rates, as they believe that the central bank may not cut rates as quickly or aggressively as it did in the past. In fact, investors have already purchased protection against any sell-off that could occur if Powell reinforces this hawkish stance.”

The S&P 500 index finished up 0.67%.

The iShares iBoxx High Yield Corporate Bond ETF added 31 cents, or 0.42%, to $74.61.

The CBOE Volatility index retreated 8.9% to 15.68.

AMC Entertainment Holdings, Inc.’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) declined further on Friday following its stock conversion the previous session.

The bonds were down 2½ points on the day and going out more than 8 points lower on the week.

The issuer was among the day’s most active distressed names in the secondary market, but overall volume was around $10 million, compared to about $45 million of AMC paper trading on Thursday, a source said.

Rite Aid bonds active

Rite Aid’s 8% senior secured notes due 2026 (Caa3/CCC-/B) climbed 4 1/8 points by Friday afternoon to 61 1/8 bid as news reports erupted, a source said.

Secondary supply totaled $6.2 million with the issue among the top of the stack of most active distressed names.

The notes were seen earlier 5 points better at 62 bid on $5.2 million of volume.

Another source saw the bonds by the close 4¼ points higher at 61¼ bid.

Meanwhile, the company’s 7.7% senior notes due 2027 (Ca/CCC-/CC) slid 6 points to 11¼ bid on Friday, but trading was thin.

Rite Aid’s stock sank over 50% over the day following news reports that the retailer was preparing to file for Chapter 11 bankruptcy in the coming weeks.

Indications that something was amiss have been afoot for a few weeks with Rite Aid’s CDS spreads gapping out 5,776 bps this week ended Wednesday to 22,116 bps after widening 4,538 bps in the previous week, according to a Moody’s report.

Rite Aid is facing an opioid-related complaint announced March 13 from the Department of Justice that the drugstore chain knowingly filled unlawful prescriptions for controlled substances.

In June, Rite Aid reported heavy fiscal 2024 first-quarter losses.

The Camp Hill, Pa.-based drugstore chain’s stock (NYSE: RAD) plunged 51.39% to end the day at 70 cents. Shares touched a new low of 66 cents during the session.

DISH notes improve

DISH DBS Corp.’s 7¾% senior notes due 2026 (Caa2/B-) picked up 1¼ points to a quote of 75 bid on Friday afternoon, a source said.

Trading totaled $8 million with the issue leading the day’s distressed secondary volume.

The notes went out in the same session a week ago at 73¾ bid.

DISH’s bonds have been volatile this month on its plans to merge with EchoStar.

The Englewood, Colo.-based satellite cable operator’s stock (Nasdaq: DISH) closed Friday down 3.69% to $6.

AMC paper declines

AMC’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) fell 2½ points to trade Friday at 67½ bid, a source reported.

While volume totaled $6.2 million, the issue was among the day’s most active distressed bonds with overall trading mostly light during the late summer session.

On Thursday, the notes dropped 4 1/8 points on $20 million of paper changing hands.

The notes were going out more than 8 points lower on the week.

AMC’s 7½% senior secured first-lien notes due 2029 (Caa1/B-) traded more than ½ point weaker to a quote of 68 bid on Friday on $3.7 million of activity.

In the prior session, the notes slipped over ¾ point on $15.6 million of trading.

The company on Thursday conducted a share increase and reverse stock split to allow the conversion of all of AMC’s outstanding preferred equity units into shares of class A common stock.

AMC filed to register 6,918,090 shares of class A common stock that will be issued as settlement shares at a ratio of one share of class A common stock for every 7½ shares of class A common stock on or soon after Monday.

After the markets closed on Friday, AMC said in a regulatory filing that it filed a certificate of elimination from its incorporation for the preferreds, which were delisted from the New York Stock Exchange.

AMC announced the conversion after the Delaware Court of Chancery earlier this month approved the settlement of a shareholder lawsuit brought by Allegheny County Employees’ Retirement System over the issuance of its preferred stock.

The Leawood, Kan.-based movie theater owner’s post-conversion shares (NYSE: AMC) opened Thursday at $19.60 and closed the session down 26.68% to $14.37.

On Friday, the stock fell 13.5% to end at $12.43.

Distressed index down

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns turned negative again on Thursday, going out at minus 0.24%.

Returns were 0.38% on Wednesday, minus 0.18% on Tuesday and minus 0.09% on Monday.

Month-to-date total returns were 1.1% on Thursday, compared to 1.34% on Wednesday, 0.96% on Tuesday and 1.14% on Monday.

Year-to-date distressed total returns softened to 16.2%, compared to 16.48% on Wednesday, 16.04% on Tuesday and 16.24% at the start of the week.

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