Movie Gallery bank debt, bonds ease; GM bank debt up, Delphi bonds firmer

By Paul Deckelman and Sara Rosenberg

New York, March 21- Movie Gallery Inc.'s term loan spent another day watching levels regress as preliminary 2006 financials surfaced and a delay in filing its annual report was announced. The Dothan, Ala.-based video-rental chain operator's junk bonds were also seen heading lower.

General Motors Corp. bank debt was seen firmer - although the company's bonds were little changed - on cautious optimism by investors that the Detroit giant might be closing in on a tripartite agreement with former subsidiary Delphi Corp. and with the United Auto Workers union on how to cut Delphi's burdensome labor costs without sending its unionized workers out on strike - a labor dispute that could prove immensely costly to GM as well, since Delphi is its single biggest parts supplier.

Movie Gallery's term loan closed out Tuesday's session quoted at 91 bid, 92 offered, down about a point from Monday's closing levels of 92 bid, 92.5 to 93 offered, a bank debt trader said.

Tuesday's drop was the second consecutive day that the bank debt saw its bid/offer recede. On Friday, the term loan had been quoted around 93 bid, 94 offered - meaning that levels had given up about a point during Monday's session as well.

Over on the bond side of the aisle, the company's 11% notes due 2012 were seen having retreated to 50 bid, 51 offered on Tuesday from Monday's closing levels around 52.5 bid, 53.5 offered.

On Tuesday morning, Movie Gallery filed an NT 10-K with the Securities and Exchange Commission, explaining that it will be unable to file its annual report for the year ended Jan. 1 on time because of the integration of Hollywood Entertainment Corp., which it acquired during the quarter ended July 3, 2005 and the concurrent negotiation and preparation of the amendment to its senior credit facility.

The 10-K is expected to be filed before March 31.

In addition, Movie Gallery outlined preliminary, unaudited financial results for 2006 that included total revenue of $1.99 billion, an operating loss of $476.4 million and a net loss of $556.3 million ($17.65 per diluted share).

By comparison, in 2004, the company reported revenue of $791.2 million, operating income of $87.6 million and net income of $49.5 million ($1.52 per diluted share).

Movie Gallery's bonds and bank debt had run up last week in anticipation of an announcement - which eventually was forthcoming - that the company's bankers had decided to give the troubled video rental chain a break in the form of easier credit facility financial covenant requirements as it struggles to retain market share and boost revenues amid a general industrywide turndown.

After the bankers agreed to the easier terms, the bank debt and the bonds retreated from their highs amid some profit-taking.

Calpine rises

Elsewhere, a trader in distressed notes said that he had seen Calpine Corp.'s bonds better, with the bankrupt San Jose, Calif.-based power generating company's 8½% notes due 2008 at 46 bid, 48 offered, its 7¾% notes due 2009 at 50 bid, 52 offered, and its 4¾% convertible notes due 2023 at 34 bid, 36 offered, all up a point across the board.

Calpine, which filed for Chapter 11 protection from its junk bond holders and other creditors in December with the U.S. Bankruptcy Court for the Southern District of New York, said Tuesday that it had gotten required consents for covenant and indenture waivers from the holders of its second-priority notes and from its credit agreement lenders (see related story elsewhere in this issue).

Airlines firm

The distressed-note trader also saw some firmness in the bonds of bankrupt air carriers Delta Air Lines Inc. and Northwest Airlines Corp. He saw Atlanta-based Number-Three carrier Delta's bonds a point better, at 27 bid, 28 offered, while those of Eagan, Minn.-based Number-Four carrier Northwest at 45 bid, 47 offered, also up a point.

The two bankrupt air carriers - who sought protection within hours of one another on the same day last fall, driven into insolvency by high jet fuel costs and heavy pension and labor obligations - are each in the process of trying to cut their labor costs so they can restructure effectively. Delta is in the midst of hearings before arbitrators in Washington, who will decide whether the stricken carrier can throw out the existing contract with its 6,000 pilots and impose less generous contract terms on the captains, who have vowed to strike if Delta tries it.

GM loans gain

And efforts to cut labor costs were seen as a catalyst Tuesday as GM's revolving credit loan paper inched its way higher; market sources cited renewed hopes that a labor agreement with Delphi and the UAW may be close to getting done.

A trader saw the GM revolver closing out the session quoted at 83.5 bid, 84.25 offered, up about a quarter from previous levels.

"There's news out there that GM may be able to provide retiree packages for a significant amount of employees going forward. The market took this as a positive step in talks with Delphi and the unions," the trader explained.

An agreement between GM, its biggest parts supplier Delphi and the union is very important since it would help avoid a strike that could shut down Delphi and eventually bring GM assembly lines to a stop.

Delphi has previously given the parties until March 30 to reach an agreement before asking courts to void union contracts.

While GM's bank debt was up, its bonds, and those of its General Motors Acceptance Corp. financial unit, were seen little changed on the session.

A trader quoted GM's benchmark 8 3/8% notes due 2033 staying at 74 bid, 75 offered - after having firmed a little intra-day to 75 bid, but then having come off that peak. He saw the GMAC 8% notes due 2031 likewise unchanged at 93 bid, 94 offered, although these two were as much as a point higher during the day before coming back to the same levels at which they started.

Another trader, likewise seeing GM and GMAC pretty much unchanged, also saw GM rival Ford Motor Co.'s bonds and those of its financial arm, Ford Motor Credit Co., little moved, with Ford's 7.45% notes due 2031 at 74 bid, 74.5 offered, a gain of perhaps ¼ point, and the Ford Credit 7% notes due 2013 steady at 88.25 bid, 88.75 offered.

Delphi rises on deal hopes

The only automotive bonds name seen really going anywhere Tuesday were Delphi's, which a trader called "stronger on speculation that they will get a deal done" with former corporate parent GM and with the UAW on cutting the bankrupt Troy, Mich.-based automotive electronics manufacturer's bloated labor costs.

He saw Delphi's 7 1/8% notes due 2029 as much as three points better at 67.5 bid, 68.5 offered.

Another trader agreed, pegging those bonds at 66.75 bid, 67.75 offered, up 2½ points, while seeing Delphi's 6.55% notes due 2006 better by 1¾ points at 65.5 bid, 66.5 offered.

The feeling that an agreement could be near gained momentum on Tuesday, boosting GM shares about 5%. Reports said the carmaker, former unit Delphi and the union were talking about offering incentives toward early retirement for tens of thousands of workers at the two companies.

Delphi, which has about 34,000 hourly employees, is trying to trim burdensome labor costs it inherited when GM spun it off in 1999. GM, with over 100,000 unionized hourly employees, has set as a goal the elimination of 30,000 positions between now and the end of 2008.

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