CCC-rated credits eyed; AMC Entertainment notes add to losses; Michaels paper active

By Abigail W. Adams

Portland, Me., Jan. 5 – The distressed debt space firmed on Friday after a brutal start to the new year.

The market was largely unchanged after selling over the past three sessions drove the S&P U.S. High Yield Corporate Distressed Bond index’s year-to-date returns down 1.59%.

However, the heavy selling on Tuesday and Wednesday subsided on Thursday with the index down 0.12%.

Market players entered the year apprehensive about distressed credits amid an anticipated economic downturn in 2024.

However, the still strong labor market reflected in the latest U.S. nonfarm payrolls report, which came in hotter than expected, was a boon to the CCC space, which outperformed in 2023 amid stronger-than-anticipated economic conditions.

There is still a scenario where the CCC space could continue to outperform, particularly if credit conditions continue to improve and lower quality credits are able to refinance their looming maturities.

The CCC space could see returns of more than 10% if defaults fall below 2%, according to a BofA Global Research report.

However, returns could also turn negative if defaults accelerate.

While the broader market firmed on Friday, default candidates remained shunned, with losses mounting for AMC Entertainment Holdings, Inc.’s senior notes.

Michaels Cos, Inc.’s 7 7/8% senior notes due 2029 (Caa2/CCC-) were active although largely unchanged after being driven down 1½ to 2 points earlier in the week.

AMC losses mount

Losses continued to mount for AMC’s senior notes as stock again hit a new all-time low in intraday activity.

The movie theater operator’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) were off another 1½ point.

They were wrapped around 81 1/8 heading into the market close, a source said.

The yield broke above 20%.

There was $6 million in reported volume.

AMC’s 7½% senior secured first-lien notes due 2029 (Caa1/B-) also fell about 1 point with the notes trading in the 65 to 66 context, a source said.

The yield was about 18%.

There was $5 million in reported volume.

AMC has long been speculated as a bankruptcy candidate.

However, the meme stock craze has repeatedly boosted the company’s capital structure.

With AMC stock again hitting an all-time low on Friday, the meme stock craze may be over.

Michaels active

Michaels’ 7 7/8% senior notes due 2029 saw heavy volume on Friday although with little movement in price after being driven lower amid the heavy selling earlier in the week.

The 7 7/8% notes were trading in the 61½ to 62 context, a source said.

The yield was about 19¾%.

There was $12 million in reported volume.

While unchanged on Friday, the notes are closing the week down 1½ to 2 points.

The notes were trading in the 63 to 64 context at the close of 2023, a source said.

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