Movie Gallery plateaus as Calpine keeps climbing; Dana is day's disaster

By Paul Deckelman and Sara Rosenberg

New York, Feb. 23 - After many a day on the upward path, Movie Gallery Inc.'s term loan was seen having finally stabilized Thursday, with investors apparently satisfied that current levels reflect fair market value. The Dothan, Ala.-based video rental chain operator's bonds, which had also been climbing over the past several sessions, were seen having come off their recent highs to end about half a point to a point lower.

But there seemed to be no stopping Calpine Corp., whose bonds continued to firm smartly even though traders said they saw no fresh positive news to explain the movement.

Easily the biggest loser on the day was Dana Corp., whose bonds, particularly the shorter-dated issues, were in absolute freefall, in line with a nosedive in the company's shares, which were reeling from the news that the troubled Toledo, Ohio-based automotive systems maker might not pay the regularly scheduled common stock dividend. While that was enough to depress the shares badly, the bonds plummeted as rumors of difficulty in lining up financing or even a possible coming bankruptcy filing roiled the market.

That in turn helped steer other automotive issues lower on the session.

A bank debt trader said that Movie Gallery's term loan closed out the session quoted at 93 bid, 94.5 offered, unchanged from Wednesday's closing levels, as the advance of the past few sessions seemed to have run out of steam.

Early on last week, Movie Gallery's term loan had fallen off to an 89 bid, 91 offered context, after a new movies-on-demand service called MovieBeam Inc. was announced by entertainment giant The Walt Disney Co. and several partners, creating some nervousness over the potential effects on Movie Gallery's bottom line. The company is the second-largest video rental chain operator in the United States, renting movies for at home viewing through its own eponymous Movie Gallery stores and through Hollywood Video, which Movie Gallery acquired last year. Of late its revenues have been declining, along with those of larger rival Blockbuster Inc., the industry leader, hurt by the challenge posed by the popular Netflix video delivery service.

However, once people had time to get comfortable with the news, Movie Gallery's term loan started to rebound and attract more buying interest. The bank debt had been trending higher since late last week, with all-in-all gains from last Thursday until this past Wednesday ranging around four points.

A bond trader meantime said of the company's 11% notes due 2012 that "they had strength yesterday [Wednesday] on some sort of rumors of an LBO, but that pretty much got squashed today [Thursday] as nobody believes that's going to transpire."

He saw those bonds having peaked Wednesday at about 66.5 bid, "or maybe 67 tops, from the retail [i.e. non-institutional investors] putting money into it." In Thursday's dealings, he said, "the bonds went out heavy" at 65 bid, 66 offered, "with more sellers at the end of the day." Even having come off the highs, the bonds are still well up from the recent lows around 57-58 bid they had hit last week as investors panicked over the implications of MovieBeam.

The buyout rumors - plus other scuttlebutt about a possible acquisition of the company by an outside party - have been kicking around in one form or another for some months. However, the fact that the company has $1.1 billion of debt, mostly from the Hollywood acquisition, is likely to be enough to scare any potential buyers away - at least for the moment, market sources said.

Calpine gains continue

While Movie Gallery seemed to have topped out, Calpine's bonds were still powering up, even though traders still could not coherently explain the rise over the past few sessions of the bankrupt San Jose, Calif.-based electricity generating company.

Calpine was "up another couple" of points, said a trader in distressed issues, who saw Calpine's 7¾% notes due 2009 at 49 bid, 51 offered and its 8½% notes due 2008 at 45 bid, 47 offered, each up two points on the day. Calpine's 4¾% convertible notes due 2023 were seen a point better at 34 bid, 35 offered, while its 6% notes were also up a point at 27 bid, 28 offered.

Another trader saw Calpine's 8½% notes due 2008 up a point at 44 bid, 46 offered, while its 9 7/8% notes due 2011 were likewise a point better at 92.5 bid, 93.5 offered.

Separately, Calpine said that its Calpine Construction Finance Co., LP and CCFC Finance Corp. subsidiaries began seeking noteholder consents to waivers of certain existing defaults.

Dana bonds plunge

In the automotive area, Dana's bonds were seen skidding wildly downward along with the Toledo, Ohio-based automotive components maker's shares as the debt and equity markets buzzed with talk - all of it as yet unconfirmed - that the company was having trouble lining up some new financing or that it might even be headed for a bankruptcy filing.

Some of the company's shorter-term bonds were seen down about six points in mid-morning trading; by the close those losses had ballooned even further.

A trader pegged the company's 6½% notes due 2008 as having traded around 85 bid, 87 offered in the morning, and then having nosedived as low as 68 bid, before coming back a little from those depths to still end way down at 72 bid, 74 offered.

He saw its 61/2s due 2009 falling to 70 bid, 72 offered from prior levels at 79 bid, 81 offered.

The carnage was a little less pronounced among the longer-dated issues, with the 5.85% notes due 2015, the 7% notes due 2028 and the 7s of 2029 all trading at 64 bid, 65 offered, down from 68 bid, 70 offered.

The bonds fell in tandem with the company's New York Stock Exchange-traded shares, which swooned 74 cents (19.02%) to $3.15. At one point, the stock fell as low as $2.66 -its lowest level since January 1975. Volume of 20.6 million was 8½ times the norm.

It was widely reported that the shares plummeted after the company's announcement earlier in the week that it would delay payment of its quarterly cash dividend and would make the final decision on the expenditure after it completes its 2005 fourth-quarter and full-year results.

But market observers noted that apart from sending a signal that the company is in trouble, a threat to the dividend - while traumatic for shareholders - would be of little concern to bondholders, who might actually welcome delaying the dividend or even scrapping it all together as a better use of the company's limited resources, rather than enriching the shareholders.

They saw different dynamics at work in the junk bond market. The trader, for instance, cited "a rumor going around, spread by one of the big dealers, that they were supposed to be negotiating a new bank deal, but it was getting held up." However, he said nobody - including the shop that supposedly was working on the deal - seemed to know anything about it. "So it was all just the rumor mill," he said.

Another trader also noted the rumor that a secured bank deal was in jeopardy, as well as other talk that the company might be headed for a bankrupt filing soon, to join such automotive supplier sector peers as Delphi Corp., Collins & Aikman Corp., and Tower Automotive Inc. He saw the 6½% 2008 notes at 71.5 bid, 73.5 offered, after having hit lows earlier around 67 bid, 69 offered.

Dana, another trader opined "got creamed." He said that the shorter bonds were way down "on not much news." He attributed the down turn to talk that "their deal, the new financing, hit a snafu," causing the bonds to fade badly.

"They had hung in there yesterday [Wednesday], but then they opened this morning [Thursday] down 10 [points]. They got mowed."

He saw the 6½% notes due 2009 at 67.5 bid, 68.5 offered, down from prior levels in the high 70s, and the 6½% 2008 notes at 72 bid, 73 offered from prior levels in the 80s, after having dropped as low as 70 bid early on. He saw the longer-dated issues, like the '28s and the '29s down several points, at 63 bid, 64 offered.

Yet another trader noted that "there was a lot of activity in the credit default swaps [CDS] market, and that had to have been a big influence on the bond, I would think."

In that extremely volatile market - which deals in derivative instruments that essentially act as an insurance policy against the possibility of a company defaulting - the cost of protecting Dana debt against a default for five years was quoted as having jumped to 30% up front, or $3 million per $10 million of bonds protected, plus another 500 basis points, or $500,000 per year. That was well up from prior levels of $2.3 million per $10 million of debt protected, or 23% upfront, plus the $500,000 annually.

Sharp upward swings in the CDS market are seen as a barometer of market bearishness about a company's prospects for staying out of bankruptcy or avoiding another event of default.

The trader saw Dana's 5.85s ending down three points at 63 bid, 64 offered, and said that at one point, he had seen those bonds trading as low as 61 bid, 63 offered. He also offered that "they might have been even lower" at some point. He saw the two 7% long bond issues moving in lockstep with the '15s, while the 6½% notes due 2008 tumbled to 72 bid, 73 offered from 81.5 bid, 82.5 offered.

When told that some traders had seen the latter bond trading as low as the upper 60s before bouncing off those lows to end in the lower 70s, he acknowledged that such a scenario "made sense."

Adding to investor angst about Dana's prospects was the fact that company officials offered no comment or other reassurance to the market at any point during the session.

Dana has been under critical scrutiny by investors ever since it reported on Jan. 17 that it suffered a yawning net loss of $1.27 billion ($8.50 per share) for the three months ended Sept. 30 - a sharp deterioration from its year-earlier profit of $42 million (28 cents per share), despite sales having edged higher in the latest period to $2.4 billion from $2.11 billion last year.

Other auto names hurt

Dana was seen towing the other names in the beleaguered automotive sector lower, with General Motors Corp.'s 8 3/8% notes due 2033 seen down ¾ point at 69.5 bid, 70 offered, and its General Motors Acceptance Corp. financial unit's 8% notes due 2031 down a point at 90.75 bid, 91.25 offered.

Arch-rival Ford Motor Co.'s 7.45% notes due 2031 were down ¼ at 71 bid, 71.5 offered, while Ford Motor Credit's 7% notes due 2013 were down half a point at 88.5 bid, 89 offered.

Bankrupt former GM unit Delphi Corp.'s 6.55 % notes due 2006 were seen down ¾ point at 53.25 bid, 54, while its 7 1/8% notes due 2029 were half a point lower at 54.25 bid, 55 offered.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.