MagnaChip squeezed; Delphi static; Sea Containers mixed; Movie Gallery gains

By Stephanie N. Rotondo

Portland, Ore., Jan. 26 - It was a "crazy day," according to one trader, as MagnaChip International Ltd. released its fourth-quarter earnings Friday and Delphi Corp. was in danger of losing an investor.

The semiconductor company's earnings conference call caused bond trades to be "volatile," as one trader put it, with MagnaChip's 8% senior notes seeing the most activity. Trading slowed in the afternoon, as the numbers settled to "unchanged."

Separately, as talks with General Motors Corp. and its unions continue, Delphi is faced with the threat that one of its lead investors may back out of the $3.4 billion deal to help the company emerge from bankruptcy. Though the bonds traded heavily, the prices remained virtually static. The auto parts supplier's Pink Sheets traded stock, however, saw yet another drop.

One trader said the Delphi news was "very interesting" and warned of possible trouble with the bankruptcy court handling the company's case.

Sea Containers Ltd. kept its head above water, despite the announcement that a major shareholder sold half of his stock. Made five minutes before the bell, the announcement had more of an effect on the company's stock than its bonds.

A possible short covering could be the explanation for the recent gains Movie Gallery Inc. has seen. The company was cited as one trader's biggest winners for the week, gaining 3 points since the Jan. 19 close. Still, another trader thinks the company may just be making a comeback.

Trading was up overall this week, though many market participants spent the first half of the week in South Florida at the JP Morgan High Yield Conference. Things really got moving on Thursday when most people returned to their desks and made up for lost time.

'Wild' day for MagnaChip

MagnaChip's bonds got a squeeze after the company reported its fourth-quarter earnings in a conference call Friday.

According to one trader, the 8% junior notes "gyrated wildly." Another said it was "one wild ride," though he noted trading died down in the afternoon.

The junior notes went up about 5 points to 70 before the earnings call, the trader said, then landed back down around 65. He said the day's low trade was 63.5. Another trader saw the 6 7/8% notes due 2011 trading, "though not as wildly" as the 8s. He had them peaking at 86 and then falling back to close unchanged at 82.5 bid, 83.5 offered.

The second trader also said the floating-rate notes due 2011 moved as high as 88 before coming off that high to close at 85.5 bid, 86.5 offered.

"They were going to try and make a run [upward], but that petered out," he said.

He also said that the behavior of the notes was "the exact opposite of what we saw last time around," or the last time the company released results. Previously, he said, "they got crushed" initially but came back from the day's lows to end pretty much unchanged.

Though one distressed trader said the fourth-quarter results were "awful," he also said they were in line with expectations.

In its press release, the company reported revenues for the quarter at $162.3 million, compared with $245.2 million in the last quarter of 2005. Net loss was $45.6 million compared with a net loss of $22.9 million in the fourth quarter of 2005.

MagnaChip's chief financial officer also denied that recent amendments made to its bank covenants were a sign of trouble, explaining it was a routine measure.

"We wanted to put in conservative terms that were favorable to the company so that we do not have to go back to our banks each quarter for revisions. It is no indication of what we think our future potential is," said CFO Robert Krakauer during the conference call.

He also noted the company is in full compliance with the covenants of its $100 million revolving line of credit and that the revolver is fully open and available.

Both the CFO and chief executive officer Sang Park said the company is positioned for a turnaround in 2007, though revenue is not expected to pick up in the first quarter.

MagnaChip is a Seoul, South Korea-based designer and developer of mixed-signal and digital multimedia semiconductors.

Delphi bonds gyrate

Delphi's bonds did not react fast enough on news that one of its equity investors was considering backing out, according to one trader, although the 6.55% notes traded heavily. One trader said the bonds due in 2006 were unchanged at 111.25, while another said the notes were down to 109.

"There was huge volume, but no real panic," one trader said.

"I don't think the bonds could react fast enough," he added, noting it was the equity traders who were up in arms. "They thought it [Delphi shares] couldn't get further down than $3." But the Pink Sheets stock did go lower, at least briefly. The stock traded at $2.96 at one point, but climbed back up to close at $3.16, a 7 cent decrease from the previous day.

It was reported Thursday that Delphi's talks with former parent GM and the United Auto Workers union could extend beyond the deadline of Jan. 31. Delphi had until that date to come to terms with the two groups on parts contracts and wage and benefits cuts.

The group, led by Appaloosa Management LP and Cerberus Capital Management, signed an agreement with Delphi Tuesday to invest up to $3.4 billion, taking a controlling share as the company emerges from bankruptcy. The deal is contingent on Delphi coming to terms with GM and its unions.

Now it seems Cerberus is getting cold feet as the talks linger on. Cerberus has said it believes wage and benefits for Delphi's skilled and non-skilled workers are well above the industry average. David Thursfield, who heads Cerberus' automotive unit, set out his proposal to UAW vice president Cal Rapson on Thursday.

Another meeting of the parties is scheduled for Monday.

Troy, Mich.-based Delphi has said that if an agreement cannot be met, it will ask the bankruptcy court to discard the union contracts. If that occurs, the unions have threatened to strike, which would leave GM without some car parts.

One trader said Thursfield has always been a "hard case."

"They're playing hard ball, and they should be playing hard ball," the trader said. Still, Thursfield "should be careful with the court or they might not be taken seriously."

Tepper selling Sea Containers

Sea Container's debt continued to tread water Friday as its 10¾% notes due 2006 came in at 85 bid, 86 offered, but the real news, according to one trader, was on the equity side.

The trader said it was announced just five minutes before closing that major shareholder David A. Tepper - from among the ranks of the hedge fund Appaloosa - had sold half of his holdings in the bankrupt maritime company. Last year before Sea Containers filed bankruptcy Tepper via Appaloosa had amassed an 11.3% stake in the company.

"He was seen as this company's White Knight," the trader said. "Him selling half of his shares is not a good sign."

The trader said the deal was "behind closed doors," and the trader could not explain why Tepper sold.

The company's Pink Sheets stock closed the week at $1.56, a 3 cent drop from Thursday.

Bermuda-based Sea Containers filed for bankruptcy in October.

Movie Gallery draws a crowd

It was a heavy trading day for Movie Gallery's recently well-applauded bonds, which saw a lot of action, though it was unsure why.

"Something's keeping them busy," one trader said. He added he had heard there was a "possibility of shorts being covered today."

Talk that the company might refinance its bank debt was another possible explanation.

But one trader dismissed the story of short covering.

"They use to say that about Winn-Dixie, and [Winn-Dixie] went to par," he said.

Whatever the case may be, the 11% notes due 2012 closed the day at 81.75, an almost 4-point increase from the previous week.

Another trader saw similar results on the notes at 80 bid, 81 offered, though he described this as a "retreat" from the previous day.

The Dothan, Ala.-based movie rental chain recently warned it might default on its credit facility covenants, causing many to believe pressure would be put on the bonds. The company also posted a fiscal third-quarter net loss of $36.1 million, or $1.13 a share, nearly three times worse than the loss of $12.5 million, or 39 cents a share, in the year-ago period, as revenue rose to $583 million from $572.4 million.

Tembec bonds falling back

Another trader said the main distressed name that he saw on Friday was Tembec Inc., whose bonds he described as volatile. He saw the Montreal-based forest products company's 8½% notes due 2011 dropping 2 points to 74 bid, 75 offered on profit-taking off recent gains, while its 8 5/8% notes due 2009 were a point lower at 84.25 bid, 85.25 offered.

One trader noted the bonds traded as low as 83.5 during the day.

Another trader, who saw those bonds at similar levels, opined that there was "a point difference, that's all, with not a lot of activity."

Tembec's bonds had recently been firming on weakness in the Canadian dollar, seen as an aid to export sales, and after the company said earlier in the week that it had come to an agreement with its lenders on an amended and restated working capital facility.

There was no other fresh news out about the company, which had announced on Thursday that it will release results for the 2006 fourth quarter and hold a conference call on Feb. 1.

Delta, Northwest steady-ish

The recently volatile airline bonds seemed to be flying a steadier course Friday, the first trader said, quoting Northwest Airlines' bonds as "stable" around the 92 bid, 93 offered area, while Delta Air Lines Inc.'s 8.30% notes due 2029 were at 61.25 bid, 62.25 offered, "maybe down a point."

Another trader agreed that Northwest "did all of its moving yesterday [Thursday], when it was down about 4 points, and was steady on Friday.

He saw the 10% notes due 2009 at 94.5 bid, 95.5 offered. He also saw Delta unchanged, seeing the 8.30s at 61.5 bid, 62.5 offered.

Quiet on the Asarco front

Asarco has been "ridiculously quiet" over the last week, despite reports that Swiss firm Glencore and others are interested in buying the U.S. copper miners' assets.

One trader told Prospect News earlier in the week that this was not new news: Most market followers heard about the potential purchase in December. Still, as the news became public, expectations were high.

"It's killing me," the trader said. "We were expecting a little activity on this one."

The trader said the last trade was Jan 19.

Tucson, Ariz.-based Asarco, one of the largest copper producers in the world, was acquired by Grupo Mexico in 1999 and filed for bankruptcy in August 2005 in Texas.

Paul Deckelman contributed to this article.

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