Movie Gallery bank debt up as rights offering eyed; Charter gains

By Paul Deckelman and Sara Rosenberg

New York, April 26 - Movie Gallery Inc.'s term loan B spent another day heading higher - possibly in response to news that a large shareholder is suggesting raising capital through a rights offering and using the proceeds to cut the Dothan, Ala.-based movie rental company's debt.

However, the company's bond debt, after having bounced around crazily at higher levels during the session, was seen settling in pretty much unchanged.

Elsewhere, Charter Communications Inc.'s bonds were seen having moved up - although a trader who marked the bonds better saw no news out about the debt-laden St. Louis-based cable television operator that might explain the rise. Its holding company floating-rate notes due 2014 were seen at 67 bid and its 9.92% notes due 2014 were at 60.5 bid, each up 2½ points.

And a market observer saw the airlines "down a bit, though not that much, perhaps around 2.5%" - which translates to about a one-point fall in the levels of such distressed carriers as Northwest Airlines Corp. and Delta Air Lines Inc.

The carriers' bonds were seen lower despite seemingly good news for the sector, as world crude oil prices continued to recede from the record high levels they hit several days ago.

Even so, bankrupt Eagan, Minn.-based Number-Four U.S. carrier Northwest's 8 7/8% notes due 2006 descended to 41 bid and its 9 7/8% notes due 2007 landed at 42, each down a point.

Meantime, bankrupt Atlanta-based Number-Three carrier Delta's 8.30% notes due 2029 were also a point lower, at 25.25 bid.

The airline bonds eased even as crude futures fell for a third straight session after a government report showed further declines in motor fuel demand. The crude futures are sometimes seen as an indicator of probable future price trends for distillates such as jet fuel, which is consuming an ever-bigger portion of the budget for major airlines and whose escalating prices helped to drive Delta, Northwest, and several other big carriers into Chapter 11.

Better times could be ahead on the fuel front, though, as a barrel of light crude dropped 95 cents Wednesday to settle at $71.93 on the New York Mercantile Exchange.

Movie Gallery loan gains

Apart from the airlines, Movie Gallery's bank debt and bonds were in the spotlight, as its term loan continued to firm, bringing total gains so far this week to about 1½ points, according to a trader in the bank loan market.

The term loan B closed out the session quoted at 91.5 bid, 93 offered, up from Tuesday's closing levels of 91 bid, 92 offered. At the end of last week, the paper was being quoted at of 90 bid, 91.5 offered.

Bank debt market participants were attributing the positive momentum seen in the name lately to recent announcements that the company has reached a management agreement with Hilco Real Estate LLC under which a program will be initiated to restructure leases at more than 1,100 existing Movie Gallery and Hollywood Video stores, and that it expects to be in full compliance with its financial covenants for the reporting period ended April 2.

In addition, Movie Gallery's levels were said to be helped by movie rental company Netflix Inc.'s positive first quarter results that were released early this week. Even though the internet-based Netflix is a rival of Movie Gallery - and its success has helped to dent the latter's bottom line in no small measure - its good news is seen as an indication that there is hope for the whole movie-delivery sector, which had been suffering in part from viewer indifference to many of the films released by the studios in recent months.

And on Wednesday came some new, company-specific news that could give Movie Gallery a boost.

Market players noted the news during the session that 8.6% shareholder Schultz Asset Management LLC has floated the idea of raising capital from existing shareholders via a stockholder rights offering. According to a filing with the Securities and Exchange Commission, such proceeds would be used to reduce debt.

That story caused its junk bonds to be "volatile," a trader said - but even though its 11% notes due 2012 "traded up three points, then came back in," to end at around the same 52 bid, 53 level at which they had started.

Another trader saw the bonds up around half a point - far less than the earlier gains - at 52.25 bid, 53.25 offered.

Tembec up again

Elsewhere, troubled Canadian forest products producer Tembec Industries Inc. - whose bonds rose as much as three points Tuesday helped by the prospect that the United States and Canada may soon settle a long-running trade dispute that has held up hundreds of millions of dollars of payments to Tembec and its sector rivals - continued to firm on Wednesday, traders said.

The Montreal-based company's 8½% notes due 2011, after having risen two points Tuesday on the hopes for a settlement soon between the United States and Canada and on release of its less bad than expected quarterly results, were seen having pushed another 2½ points higher to around 58 bid.

Another trader saw those bonds fall to 55 bid, 56 offered from closing levels Tuesday at 57 bid, 58 offered, only to rebound later on to end at 58 bid, 59 offered, which he called up a point on the session.

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