Rite Aid bonds plunge after Albertson deal dies; CenturyLink ticks up on earnings beat – Mid-Day Commentary

Rite Aid bonds and stock dove this morning after the retailer announced the termination of its merger agreement with grocery chain Albertsons, said four traders.

“While we believed in the merits of the combination with Albertsons, we have heard the views expressed by our stockholders and are committed to moving forward and executing our strategic plan as a standalone company,” Rite Aid CEO John Standley said in the press release.

The agreement, first announced back in February 2018, marked Rite Aid’s second attempted tie-up with another retailer, the first being with Walgreens last year. The Albertsons deal was expected to create a company that would generate USD 83bn in revenues this year.

“There’s no natural buyer right now for the bonds,” a trader said. “There were guys that bought it when Walgreens was going to acquire it, assuming an upgrade. That didn’t happen, so then a second set of hedge funds came in after the Albertsons deal was announced because they were taking out all the debt except for the legacy bonds. Now, for the second time, they have another merger or an acquisition failing to close.”

Albertsons in June tapped the high yield bond and loan markets for an upsized USD 750m senior secured floating notes offering and a USD 7.4bn ABL term loan to fund a portion of the merger.

Rite Aid’s USD 1.8bn 6.125% senior unsecured notes due 2023 opened at 89 today, down nine points from 98.125 prior to the announcement, and then recovered a bit to change hands at 90.875 yielding 8.553% later this morning, according to MarketAxess. The company’s shares traded at USD 1.55 and a market cap of USD 1.638bn, down 10.78% from yesterday’s close.

Albertson’s USD 750m 6.085% senior secured floating rate bonds due 2024 traded today at par, down a point from before the announcement yesterday, according to MarketAxess.

Tribune Media’s merger with Sinclair also went kerplunk this morning when Tribune terminated the merger and filed a lawsuit in the Delaware Chancery Court against Sinclair alleging breach of contract, according to the company press release. Tribune’s equity has responded positively, while Sinclair’s has dipped. Trading levels in both company’s bonds remain muted as of this morning.

The merger had been hanging on by a thread after the Federal Communications Commission (FCC) questioned Sinclair’s transparency with regulators regarding the transaction. FCC chairman Ajit Pai said in a statement on 16 July that he had “serious concerns” about the deal.

Tribune’s shares traded at USD 34.59 today and a market cap of USD 3.031bn, up 2.84% from yesterday’s close. Sinclair’s shares opened this morning at USD 26.00, a 4% drop from yesterday’s close, but recovered slightly to trade at USD 26.35 and a market cap of USD 2.694bn, a 2.77% decline from yesterday’s close.

Tribune’s USD 1.1bn 5.875% senior unsecured notes due 2022 last traded yesterday (8 August) at 101 to yield 5.321%. Sinclair’s USD 400m 5.125% senior unsecured notes due 2027 last traded yesterday at 93.5 to yield 6.116%, according to MarketAxess.

CenturyLink perked up this morning after the telecom posted an earnings beat for 2Q18 and raised guidance, said a trader and a buysider.

While total revenues sank slightly to USD 5.9bn, down 2.3% year-over-year, adjusted EBITDA clocked in at USD 2.27bn, up 5.4% year-over-year, with the bottom-line growth partly attributed to synergies from its acquisition of Level 3 Communications in November 2017.

Going forward, CenturyLink has raised its full-year 2018 adjusted EBITDA outlook to USD 9bn-USD 9.15bn, from USD 8.75bn-USD 8.95bn prior, driven by continued realization of synergies from Level 3, according to the release.

CenturyLink’s USD 800m 7.6% unsecured notes due 2039 traded this morning at 88.25 for an 8.837% yield, up almost three points from yesterday’s close of 84.532, according to MarketAxess. The company’s stock traded at USD 20.42 today for a market cap of 22.025bn, up 9.8%.

Univision’s bonds rose a point despite a drop in adjusted OIBDA, after the issuer paid down debt and reported a decrease in interest expense.

The Spanish-language focused media company reported it reduced total indebtedness, net of cash and cash equivalents, by USD 256.1m for the six months ended June 30, 2018. Interest expense for the quarter decreased to USD 98m, down 8.8% YOY, according to the press release.

Univision reported USD 304.1m adjusted OIBDA, a 7.5% YoY decrease. Adjusted Core OIBDA, which excludes political and advocacy advertising and content licensing revenue, fell 0.7% to USD 287.5m.

The USD 1.479bn 5.125% senior secured notes due 2025 last traded at 91.625 to yield 6.736%, up about a point from yesterday, according to MarketAxess. The USD 4.47bn TL due 2024 jumped up today to be quoted in the 96.417/97.292 context, up from 96.375/96.844 yesterday (8 August), according to Markit.

Revlon bonds inched up while its stock declined this morning after the cosmetics maker reported 2Q18 earnings featuring a 40% YoY EBITDA drop.

The bonds strengthened in part due to speculation that such a large earnings miss could bring the company one step closer to engaging in liability management transactions, a buysider said.

Revlon reported USD 36.7m of adjusted EBITDA for the quarter, a 40% drop YoY, which management attributed to a continuation from 1Q of the production and product shipment disruptions caused by the implementation of a new software application at its Oxford, North Carolina manufacturing facility. Net sales dropped 6% YoY to USD 606.8m, also attributed to the software application along with losses of certain licenses in the fragrance segment, according to the press release.

The USD 500m 5.75% senior unsecured notes due 2021 gained about a point to trade at 78.75 to yield 16.436%, according to MarketAxess. The USD 450m 6.25% senior unsecured notes due 2024 last traded at 54.75 to yield 19.363%, also up about a point.

The stock dropped about 12% to USD 14.12 this morning, and has since recovered to USD 14.70 and a market cap of USD 777.6m.

Finally, HCA Healthcare bonds popped this morning after the hospital operator announced a USD 2bn dual-tranche drive-by bond deal, with proceeds intended for refinancing.

HCA’s USD 1.5bn 5.5% senior secured notes due 2047 traded today at 98.56 to yield 5.601%, up more than two points from before the announcement, according to MarketAxess.

2018 Debtwire

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