Movie Gallery bonds, loans better; Doral notes heavy; InSight Health's debt quiet

By Stephanie N. Rotondo

Portland, Ore., July 9 - Movie Gallery Inc. continued to be the name of the moment during Monday's trading session, as traders reported that both the bonds and bank debt were a little firmer.

But bond traders are noting that there is more of an interest in the company's term loans than in the bonds, given that the bank debt is senior to the bonds and therefore would be first to receive any type of recovery.

Movie Gallery said last week that it had entered into talks with its lenders, as it had failed to meet certain financial obligations under its credit facility. The company also stated that it is looking at all strategic alternatives, including an asset sale.

Separately, Doral Financial Corp.'s bonds were called heavier as an approaching coupon maturity date nears. The market is also awash with concerns that a Bear Stearns-led equity group might pull out of its takeover bid for the company.

Meanwhile, court approval is pending on InSight Health Services Corp.'s pre-packaged bankruptcy plan, as the company went to court on Monday to get the go-ahead on its reorganization plan. As investors waited to hear what the outcome of that hearing was, the bonds remained quiet.

Traders were mixed in their overall evaluation of the day, as some remarked that the day was fairly busy coming out of the holiday week, while others said the market was lackluster.

Movie Gallery bonds, loans better

Movie Gallery continued to be a "pretty topical" name, a trader said, as the bonds edged up just a hair.

The trader pegged the 11% notes due 2012 "with a 24 handle," while another trader said the bonds were "catching a bid" at 24.25.

Elsewhere, a trader called the debt "not much changed" at 23.5 bid, 24.5 offered. Yet another source also saw the notes unchanged at 24 bid, 25 offered.

The first trader commented that the Dothan, Ala.-based movie rental chain's first- and second-lien paper was up a bit, but the slight gain in the bonds was likely due to short covering.

"A lot of participants were out of the market last week," he pointed out, when the news that Movie Gallery had defaulted on certain financial obligations came out.

And, while many believe the first-lien term loan to be covered, the second-lien paper will function as the "fulcrum security," he said, thus the interest in the bank debt.

Given that, he does not think many market players are that interested in the bonds.

"No one is looking at the 11s and thinking there is par recovery," he said.

Meanwhile, Movie Gallery's first-lien term loan B traded stronger, attributed to estimated recovery values.

The first-lien term loan B was quoted at 92 bid, 94 offered by one trader and slightly tighter at 92 bid, 93 offered by a second trader, up from previous levels of 90 bid, 92 offered.

The second-lien term loan was higher on the bidside at 57 bid, 61 offered, compared with previous levels of 56 bid, 61 offered, the first trader remarked.

"There's no real news, just peoples' assumptions of what will happen with the restructuring," the first trader added.

The company is talking to its lenders about a way to remedy the defaults, including possibly seeking a waiver, amendment, forbearance or similar agreement.

Doral bonds heavy

As its coupon maturity date approaches, traders are seeing Doral's floating-rate notes ease downward.

A trader said the Puerto Rico-based bank's bonds were moving around the 97 area. That number was echoed by another trader, who said that there are some worries that the Bear Stearns takeover "may collapse."

The first trader said he believed a shareholders meeting would be held July 17 - just three days ahead of the bonds' maturity date - to vote on the Bear Stearns plan.

"It will be interesting," the trader said of the struggling financial institution's future.

InSight Health quiet

A trader said InSight Health's bonds were quiet as the market waited to hear if a bankruptcy court judge would approve the company's pre-packaged bankruptcy plan.

The trader said the 9 7/8% junior notes due 2011 were quoted at 32 bid, looking for an offer. He said he did not see any markets in the senior debt.

As with all pre-packaged plans, the company's creditors must approve the plan before it is filed with the court. However, the trustee overseeing the case said that the filed plan contains changes that occurred after Insight's creditors approved the deal.

However, a group of hedge funds that stand to receive a majority interest in the company once it exits bankruptcy said they have no problem with the changes and urged the court to approve the plan.

The amended plan states that shareholders will receive 10% of the reorganized company, instead of the originally stated 13%.

Also, holders of $194.5 million worth of senior subordinated debt will get 90% of the company, up from 87% under the first plan.

Bon-Ton slips, Linens firms

A trader deemed Bon-Ton Stores Inc.'s 10¼% notes due 2014 softer, on overall weakness in the retail sector.

The trader pegged the notes around par but added that the company's stock slipped during Monday's session. He wondered if there was something more going on with the company.

Bon-Ton's stock fell $1.97, or 5.23%, to $35.67 during Monday trading.

Meanwhile, Linens n'Things Inc.'s floating-rate notes were up a little, the trader said, at 71 bid, 72 offered.

The bonds had been moving under the 70 mark all last week, so Monday's numbers were "definitely better," he said.

Dura gains

A trader saw Dura Automotive Systems Inc.'s 8 5/8% senior notes due 2012 up about 4 points on the session, trading at 68 bid, 70 offered, as the bankrupt Rochester Hills, Mich.-based automotive components company continued to bask in the warm afterglow of the announcement - made during last week's very thin post-holiday market - that it had agreed to sell its Atwood Mobile Products Inc. division for $160.2 million.

The trader also saw the company's 9% subordinated notes due 2009 unchanged at 11 bid, 13 offered.

Another market source had the 2012s having moved up to around the 68.25 level from prior closing levels last week in the 64 area, to which the bonds had fallen back after an earlier flurry of activity around 68 on the initial news of the Atwood sale. Activity was seen fairly brisk for a relatively quiet market, with several large-block trades around 68 noted.

The '09s, meantime, were fluctuating around the same 12 level at which they had opened.

The sale must be approved by the U.S. Bankruptcy Court in Wilmington, Del., which oversees Dura's restructuring. It is subject to auction should competing bids emerge. Dura said that it expects to complete the bidding process and to secure the regulatory approvals in time to close the sale by the end of August.

The sale of Atwood is seen as a key step in the company's efforts to focus on its core automotive systems business as it restructures in hopes of coming out of Chapter 11 by this year's fourth quarter.

Delphi steady

Elsewhere, the first trader said that he had seen little or no movement in the bonds of Delphi Corp., even on the news that the bankrupt Troy, Mich.-based auto parts company is scrapping its previously announced agreement with investors, who were going to kick in up to $3.4 billion to help it emerge from Chapter 11 bankruptcy protection.

He'd last seen Delphi's 6.55% notes due 2006 trading around the 118 level. Most of the company's other bonds have been trading in a similar band around 115 bid, 120 offered.

Another source saw the 6.55s unchanged around 118, and its 6½% notes due 2013 unchanged in light trading around the 115 level. There was a little movement seen in the 8¼% notes due 2033, normally not a widely traded issue, which firmed a point or so to around 122, again on light trading.

The formal scrapping of the investment deal by Delphi was not unexpected - it has been an open secret for weeks that lead investor Cerberus Capital Management LP would pull out of the deal to concentrate on other transactions, including its pending purchase of Chrysler Group from DaimlerChrysler AG. A spokesman for Delphi said that a revised agreement is expected later this month.

Other participants in the now-scrapped investment deal, such as co-lead investor Appaloosa Management - Delphi's largest shareholder - and Harbinger Capital Partners are expected to stay on board for the re-written deal, which must be submitted to the bankruptcy court overseeing Delphi's restructuring. One possible replacement for Cerberus is Delphi's second-largest shareholder, Highland Capital Management, which recently signed a confidentiality agreement with Delphi, giving it access to Delphi's books so it can do due diligence.

Ironically, Delphi rebuffed a Highland takeover proposal earlier this year.

Delphi's board of directors will meet July 16 - but the company declined comment on whether a new agreement would be voted on at that time.

Broad market mixed

Tembec Inc.'s bonds were seen lower, as a trader quoted the 7¾% notes due 2012 at 49.5 bid, 50 offered.

Another trader saw Tembec's bonds initially lose a point before regaining that lost ground to close about unchanged, with its 8 5/8% notes due 2009 at 60 bid, 62 offered.

The trader also called Trump Entertainment Resorts Inc.'s 8½% notes due 2015 unchanged.

A trader said that Delta Air Lines Inc.'s "stubs" issued to the former holders of its bonds, who hope for additional payments, were a little better, with the stubs given to the former holders of its 8.3% notes due 2029 a quarter point better at 7.25 bid. 7.75 offered. He saw the stubs given to the former holders of Northwest Airlines Corp. 10% notes due 2009 unchanged at 13 bid, 13.5 offered.

Sara Rosenberg and Paul Deckelman contributed to this article.

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