Rite Aid (RAD) currently as many know is in a precarious place. Currently they are looking at a massive turnaround plan to try and climb out of debt which currently stands at 6.2x EBITDA. Normally, a stock that has that level of debt in a mature market is a huge red flag. Many are currently buying based on the hopes of a buyout. While a buyout is the best opportunity for any return for shareholders, for many it is a high level risk. The stock is down 66% in the last 6 months.

So why are the bonds a better risk/reward compared to the stock? Currently the 2027 unsecured bonds are trading for 60 cents on the dollar offering ~17% yield to maturity. At this price, the bonds offer put protection while still offering a compelling reward. In the current environment, Rite Aid will not hit a reckoning point until 2023. This is for 2 reasons. Their credit agreement has to be renegotiated by then. In April, 2023 a $1.7 billion senior bond comes due.

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