AMC notes attract favor; Rite Aid bonds up on bankruptcy reports; Michaels extends weakness

By Cristal Cody

Tupelo, Miss., Sept. 25 – Distressed trading supply stayed fairly quiet Monday with activity mostly subdued, according to market sources.

AMC Entertainment Holdings, Inc.’s 7½% senior secured first-lien notes due 2029 (Caa1/B-) went out over ¾ point better in the session’s most active issue on over $11 million of paper traded.

Rite Aid Corp.’s stock sank 34% over the day, while its distressed bonds climbed in the first session after the Wall Street Journal reported late Friday that the drugstore chain is negotiating with creditors over the terms of a bankruptcy plan.

The 8% senior secured notes due 2026 were up ¼ in early trading and added a full point by the close.

A bankruptcy filing “wouldn’t surprise me,” a source said Monday. “The 8% of 2026 are trading at 60 cents on the dollar and that’s a first lien. A lot of these retailers have struggled.”

Also in the distressed retail space, Michaels Cos, Inc.’s 7 7/8% senior notes due 2029 (Caa2/CCC) shed more than ¾ point after softening over 2 points last week.

Equities turned positive Monday with volatility receding as the market fully digested the Federal Reserve’s decision last week to leave rates unchanged.

The S&P 500 rose 0.4%, while the iShares iBoxx High Yield Corporate Bond ETF fell 10 cents, or 0.14%, to $73.90.

The CBOE Volatility Index moved down 1.74% to 16.9.

Meanwhile, defaults remain on the rise.

Last week saw five corporate defaults, the highest weekly count in six weeks, according to an S&P Global Ratings report on Monday.

The increase follows the highest monthly tally for August defaults since 2009.

The prior week’s defaults were spread across five sectors.

“Three defaults were due to distressed exchanges, while two were issuers with confidential ratings,” S&P said. “Speculative-grade credit default swaps spreads are now roughly 100 basis points wider than their five-year average.”

AMC higher

AMC’s 7½% senior secured first-lien notes due 2029 (Caa1/B-) attracted the heaviest trading interest Monday in the distressed space, a source reported.

The bonds went out over ¾ point better at 69½ bid on more than $11 million of volume.

AMC’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) improved 3/8 point to 71 bid on $3.4 million of secondary activity over the day.

The company’s bonds were yielding 16.19% on the 2029 tranche and 25.37% on the 2026 notes.

The Leawood, Kansas-based movie theater owner’s bonds have been volatile since AMC converted its preferred equity into class A common stock in August and after the issuer announced plans earlier in September to sell up to 40 million shares of class A common stock.

Rite Aid gains

Rite Aid’s 8% senior secured notes due 2026 (Caa3/CCC-/B) were seen going out trading around 60 cents on the dollar Monday, a source said.

The issue was quoted up 1 point at 61¼ bid by the close after trading ¼ point better over the morning.

Rite Aid’s credit default swaps spreads soared to more than 31,000 bps in the prior week.

Back in June, the drugstore chain’s CDS spreads were in the 6,000 bps range.

Bankruptcy chatter has surrounded the company over the past few weeks.

The company’s plan would reportedly include liquidating the bulk of its more than 2,300 stores in 17 states.

Rite Aid also 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.

The Camp Hill, Pa.-based drugstore chain’s stock (NYSE: RAD) plunged 33.9% on Monday to close at 39 cents.

Michaels lower

Michaels’ 7 7/8% senior notes due 2029 (Caa2/CCC) fell more than ¾ point Monday to head out with a 66 bid handle on $3.5 million of secondary supply, a source said.

The yield was 17.61%.

The Irving, Texas-based arts and crafts retailer’s notes added ½ point on Friday to a quote of 67 bid but were down more than 2 points on the week.

Distressed index improves

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns improved Friday to 0.15% in one of the week’s strongest sessions.

Returns were minus 0.8% on Thursday, 0.15% on Wednesday, minus 0.17% on Tuesday and 0.05% at the prior week’s start.

Month-to-date total returns rose to 1.11% as the week closed, up from 0.97% in the prior session but down from 1.8% at the start of the week.

Year-to-date distressed total returns improved to 18.43% on Friday versus 18.25% on Thursday but remained down from 19.23% in the first session of the week.

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