Movie Gallery resumes climb; Dana crashes and burns

By Paul Deckelman and Sara Rosenberg

New York, Feb. 24 - Movie Gallery Inc.'s bank debt was being quoted unchanged to somewhat higher Friday, apparently spurred on by talk that the Dothan, Ala.-based video store chain has hired a financial advisor, perhaps as a precursor to trying to sell itself. The company's 11% notes due 2012 - which had stalled out on Thursday after nearly a week of gains, were also moving back up.

Dana Corp.'s bank debt was seen holding steady in the wake of the latest round of market rumors about the struggling Toledo, Ohio-based maker of auto components - but its bonds were swooning badly for a second consecutive session, with investors apparently in a capitulation mood.

The Movie Gallery's term loan closed out the day quoted at 93.75 bid, 94.5 offered, one trader said, up on the bid side and tighter when compared to previous levels of 93 bid, 94.25 offered. However, according to a second trader, the term loan closed out the day unchanged at 93 bid, 94.5 offered.

"There was some article saying that the company hired an investment bank boutique firm to explore options, including the sale of the company," the first trader said, explaining that this news item was the impetus behind Friday's strengthening.

"But the news is [useless] since this company will never be sold," the trader added.

The fact that the company has over $1 billion of debt, a large amount relative to its size, was seen as likely discouraging any potential suitor. Most of the debt was incurred in connection with last year's purchase of Hollywood Video, then the Number-Two video rental chain in the United States, by Movie Gallery, then Number-Three.

Its bonds meantime "were moving up again," a trader said, seeing the 11s going out at 68 bid, up from 66.5 bid, 67.5 offered on Thursday, and up sharply from the levels around 60 bid where the bonds had began the week.

Those bonds had begin tumbling from their prior levels in the 70s into the upper 50s about two weeks ago, on the news that Walt Disney Co. and several partners had banded together to create MovieBeam Inc., intended by its founders to be the next wave in state-of-the-art delivery of movies to customers at home. That was seen as a big potential negative for Movie Gallery and larger rival Blockbuster Inc., already trying to deal with the challenge of the existing Netflix home-delivery system.

But after the initial panic had worn off, investors began to evaluate the situation, and the bonds, as well as the bank debt, began to move back up,

Calpine up again

Elsewhere in the distressed precincts, Calpine Corp. bonds continued to gain, perhaps given a lift by the news that the bankrupt San Jose, Calif.-based power generating company had closed on $2 billion in debtor-in-possession funding.

"Calpine is making good progress toward emerging from Chapter 11 as a profitable and competitive power company," said the company's new chief, Robert May, in a news release. "This new $2 billion credit facility provides Calpine with the needed liquidity to rebuild and strengthen our company, and assure customers that they can continue to rely on Calpine for clean, reliable electricity."

The DIP money, provided by a syndicate led by Deutsche Bank and Credit Suisse, will help fund the company's operations as it works toward restructuring.

Word that the money was coming may have helped to spur the rise in the company's bonds the past several sessions; in Friday's dealings a trader saw its 6% convertible notes a point better at 26 bid, 28 offered, while its various issues of 2006 through 2009 bonds were at 48.5 bid, 50.5 offered, "showing a better tone," a trader said.

Refco jumps

Refco Inc.'s 9% notes due 2012 pushed up to 58.5 bid, 59.5 offered, up at least three or four points from their prior mid-50s levels.

Dana bonds plunge again

But while all of those bonds and that debt was going up, or at least hanging in, Dana Corp.'s bonds were in virtual freefall for a second straight session

However, its revolving credit facility has held pretty steady amidst the rumors of a potential bankruptcy filing, ratings downgrades and reports that the company hired a financial advisor as investors are waiting to see how the story plays out, according to traders.

One trader had the revolver quoted with a 98 bid, saying that this level was unchanged on the day. A second trader had the revolver quoted at 99 bid, par offered, and he too claimed that his levels were unchanged on the day.

"If they file [for bankruptcy] then you will see it go down," the first trader said about the revolver. "People think they may file as soon as this weekend."

"People are waiting to see how things shake out," the second trader added in explanation of why loan levels haven't yet changed even though the company's bonds and stock have been plummeting.

While the bank debt was hanging in there, the bonds were just being hung out to dry.

A trader saw the Toledo, Ohio-based automotive systems maker's 6½% notes due 2008 - which on Thursday had fallen at least 10 to 12 points to the low 70s - continuing to skid Friday to a closing level of 64 bid. He further saw the company's 6½% notes due 2009, which on Thursday had dropped nine points to around 70 bid, were careening downward to 63.

The trader also saw Dana's longer-dated issues - its 7% notes due 2029, its 7% notes due 2028, and its 5.85% notes due 2014 - all fall to levels around 60 bid from a 63 bid, 64 context on Thursday. At one point, he said, the 7s of 28 got as low as 59.75 bid, 60 offered.

Dana, another trader remarked "was the one that went on a wild ride." He said the 2008s dropped to a closing price of 62 bid, 64 offered, down 10 points from Thursday. The '09s were down about four points on the session to 63 bid, 64 offered.

Dana's New York Stock Exchange-traded shares - which had fallen about 20% on Thursday in response to the news that the company will postpone its scheduled dividend - collapsed another $1.64 (52.06%) to finish at $1.51. Volume of 71.1 million shares was 18 times the average turnover.

Dana's bonds were sliding in the face of the latest bad news about the struggling company, which lost over $1 billion last year. On Thursday, bankruptcy rumors had made the rounds in the debt market, as well as talk that the company's efforts to line up new secured financing were in trouble. A company spokesman on Friday would only acknowledge that the company has, in fact, been in talks with potential lenders on a possible refinancing, but had no comment on anything else being talked about in the market (see related article elsewhere in this issue). That included the Wall Street Journal story which said that Dana had hired the restructuring specialist firm Miller Buckfire & Co. as an advisor.

Also helping to sour debt investors on Dana was the news Friday that Standard & Poor's and Moody's Investors Service had each downgraded Dana's already pretty junky debt ratings.

On Friday, Moody's Investors Service lowered Dana's senior unsecured rating to Caa1 from B1 and corporate family rating to B3 from B1.

The downgrades reflect the prospects for continued weakness in the company's operating performance and credit metrics resulting from the ongoing erosion in the automotive supply sector, increasing uncertainty surrounding its liquidity and near-term financial profile based on the need to renegotiate the $400 million revolver and $275 million accounts receivable facility, and challenges being faced in finalizing its fourth quarter and year-end 2005 financial statements, Moody's said.

Moody's also noted the published reports, as yet unconfirmed by Dana, that the company has retained the services of Miller Buckfire.

In addition, on Friday, Standard & Poor's Ratings Services downgraded Dana's corporate credit rating to CCC+ from B+ and senior unsecured debt to CCC- from B-.

S&P cited the reports that the company hired a restructuring firm as the reason for the downgrades.

"Standard & Poor's will evaluate the implications of this reported move, as well as the company's progress in completing a crucial new bank deal," said credit analyst Daniel R. DiSenso, in the ratings announcement. "If it appears that there has been an adverse shift in management's financial strategies, specifically that they entail a financial restructuring, the ratings could be lowered further despite the company's seemingly adequate near-term liquidity.

Other auto names sink

A trader noted that even as Dana was nosediving, "all the other autos got crushed," with bankrupt interior components maker Collins & Aikman Corp.'s 10 3/8% notes due 2011 down about two or three points to 27 bid, 28 offered and bankrupt vehicular frames maker Tower Automotive Inc.'s 12% notes due 2013 also lower at 66 bid, 68 offered. Dura Automotive Systems Inc.'s 8 5/8% notes were around 80 bid, 81 offered, down a couple of points.

"There's a pileup on the turnpike," he declared. "It was definitely an auto day."

Another trader saw interior components supplier Lear Corp.'s 5¾% notes due 2014 down 1¼ points, at 78.25 bid, 79.25 offered, while Visteon Corp.'s 8¼% notes due 2010 were ¾ point lower at 81 bid, 82 offered.

However, he said, not everyone was being towed lower. He saw General Motors Corp's 8 3/8% notes due 2033 at 69.75 bid, 70.75 offered, while its General Motors Acceptance Corp. was at 91 bid, 91.5 offered, both unchanged on the day. Also unchanged were Ford Motor Co.'s 7.45% notes due 2031, at 70.75 bid, 71.75 offered, and Ford Motor Credit's 7% notes due 2013 at 88 bid, 88.5 offered.

And bankrupt Troy, Mich.-based auto electronics maker Delphi Corp. was, "believe it or not, up a point, its 6.55% notes due 2006 and 7 1/8% notes due 2029 each half a point better, at 53.75 bid, 54.75 offered and 54.75 bid, 55.75 offered, respectively.

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