Rite Aid retreats on Amazon competitive fears, Toys ‘R’ Us off on CDS auctions; energy steady after surge

By Paul Deckelman

New York, Oct. 11 – The high-yield bond market was largely dominated by investor interest in all of the new and recently priced deals on Wednesday, traders said, pushing dealings in the bonds of distressed or underperforming companies largely to the side.

But here and there were notable names in the latter space.

Rite Aid Corp. bonds were on the slide for a second consecutive session, with traders noting drugstore industry jitters over whether retailing giant Amazon.com plans to move into the prescription pharmacy business the way it recently muscled its way into the grocery world with its purchase of the upscale Whole Foods supermarket chain.

Toys ‘R’ Us Inc. bonds fell, as auctions set the final settlement prices for credit default swaps linked to the bankrupt specialty retailer’s bonds and bank loan debt.

Also in the retailing sphere, traders saw a slight pullback in Neiman Marcus Group’s paper, after that department store operator’s notes had firmed smartly in Tuesday’s action.

Energy issues such as California Resources Corp., which had also been on the march on Tuesday, were likewise seen to have taken a step back – or at least sideways – on Wednesday.

Rite Aid retreats

Traders said that Rite Aid’s bonds – some of which were down by as much as two points on Tuesday, – continued to get clobbered on Wednesday, with one trader seeing its 6 1/8% notes due 2023 down another deuce, at 93¾ bid.

A second trader also saw the bonds continuing active and down again today,” ending just below the 94 bid level, as “Amazon competitive pressure is taking its toll.”

He was referring to news reports speculating that giant online retailer Amazon is eyeing a possible entry into the $560 billion per year U.S. prescription drug business. CNBC recently reported that Amazon has been recruiting veteran drugstore industry executives in an effort to develop a pharmacy unit – a report which caused the shares of Rite Aid and larger competitors CVS and Walgreens Boots Alliance Inc. to all slide last week.

A trader Wednesday said that Camp Hill, Pa.-based Number-Three U.S. drugstore operator Rite Aid’s

7.70% notes due 2027 fell some 4¾ points on Wednesday to 81½ bid.

Toys ‘R’ Us tumble continues

Another retailer whose bonds were down on Tuesday – bankrupt Wayne, N.J.-based toy, game and children’s products seller Toys ‘R’ Us – was again down on Wednesday, quoting its 7 3/8% notes due 2018 “in a 26-to-30 zip code, and around 28 bid late in the day.”

He noted that the auctions setting the settlement prices for credit default swaps protecting the holders of the company’s bonds and loan paper were being completed on Wednesday.

Parent Toys “R” Us, Inc.’s credit default swaps will be settled at a price of 26, and its Toys “R” Us Delaware, Inc. unit’s loan CDS will be settled at 30.625.

Neiman Marcus eases

Neiman Marcus Group’s bond – which had firmed smartly in active trading on Tuesday – were seen to have given back some of those gains in Wednesday’s dealings.

A trader saw the Dallas-based luxury department store and catalog retailer’s 8¾% notes due 2021 down by ¼ point, to the 52 bid level, while its 8% notes due 2021 – which had soared by around 4 points on Tuesday to end at 57 bid – falling back around ½ points to 56½ bid.

The bonds had jumped on Tuesday after the company reported that sales during the most recent quarter fell from year-ago levels at a slower pace than they had fallen in recent quarters, indicating that its sales decline is moderating.

And company executives expressed optimism on their conference call that NMG’s online sales operation will continue to outperform the brick-and-mortar stores and constitute an increasing percentage of company revenues.

Energy takes a breather

In the energy space – which had been on fire on Tuesday with world crude oil prices surging – things were quieter Wednesday.

A trader said “a lot of the energy stuff took a breather,” even though crude prices continued to firm on Wednesday, their third consecutive daily rise.

He saw benchmark sector name California Resources Corp.’s 8% notes due 2022 “going sideways,” and staying right around the 64 bid level at which it had finished Tuesday, when it had shot up by more than 1 point in active dealings.

A second trader also saw those bonds unchanged around 64 bid.

World crude prices – which had fallen badly last week, but which firmed on Monday and shot up by around $1 per barrel on Tuesday – were again better Wednesday, with November-delivery West Texas Intermediate crude ending up 38 cents in New York Mercantile Exchange trading at $51.30 per barrel, while December-delivery Brent crude gained 33 cents per barrel in London dealings Wednesday to close at $56.94.

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