Movie Gallery notes weaker, loans better; Tousa structure mixed on rumors, Fed comments; MAAX lower

By Stephanie N. Rotondo

Portland, Ore., Oct. 16 - In an expected move, Movie Gallery Inc. filed for bankruptcy protection Tuesday, which prompted its bonds to fall slightly.

The bonds were deemed only slightly weaker, however, with not a lot of trading. Traders said the bonds were not much moved, as most market players saw the filing coming.

The Dothan, Ala.-based company's loans reacted just the opposite of the bonds. One bond trader went as far as to say that, of the entire structure, the first-lien term loan was the issue to have.

Meanwhile, speculation fueled movement in Technical Olympic USA Inc.'s bonds. Traders reported that the company's bondholders are looking to organize, while one noted that the subordinated debt holders have already formed a group. Whatever the reason, the senior paper closed lower to unchanged on the day as the subordinated issue moved slightly higher.

The homebuilder was also likely suffering from comments made by the Federal Reserve chairman regarding the lagging housing sector. The Fed head predicted more housing troubles on the way - a sentiment supported by new housing data released Tuesday.

Across the border, Canada's MAAX Corp. is continuing to suffer after posting poor quarterly figures last week. A trader said the bonds are drifting lower and speculated that a reorganization was on its way.

Movie Gallery notes weaker, loans better

Movie Gallery filed for Chapter 11, as expected, but the news did not do much to generate activity in the company's bonds. Traders by and large said the 11% notes due 2012 were quoted lower, but activity in the name was relatively quiet.

A trader pegged the bonds a point lower around 28. Another also called the bonds down a point, last trading at 28.75.

Another trader, however, called the bonds down a couple points to 27.

"Totally unexpected news," he quipped.

"Nobody has really been trading them," a trader said of the lack of volume in the Movie Gallery debt.

A market source saw the bonds trading in a 26 bid, 28 offered context for much of the day versus prior levels around 29 bid, 30 offered. However, by day's end, the source saw the bonds having pushed back up to around 29, off maybe a quarter of a point on the session.

Another trader quoted the bonds at 28 bid, 30 offered, which he said was down on the day. He also noted that with the company having filed for bankruptcy, the bonds are now trading flat, or without their accrued interest, with which they had been trading before. Loss of the accrued interest effectively cuts a bond's worth by several additional points beyond the movements in its nominal price.

The bankruptcy filing has been coming for some time now - many market players predicted it would happen when the company acquired the Hollywood Video chain, thereby heaping on more debt to the company's structure.

The plan includes a $50 million capital investment from Sopris Capital Advisors. More than $70 million in second-lien debt will be converted while another $325 million in bonds and other claims will be converted into new equity.

According to the court filing, Movie Gallery has $891.9 million in assets and $1.4 billion in debt.

"I don't know where they get their valuations from," a trader said. "But good luck to them."

Of the various issues in the movie rental chain's capital structure, one trader dismisses the bonds and second-lien paper.

"The first lien, that would be the piece of paper [to have]," he said.

The first- and second-lien term loans rose after the company announced it had filed for bankruptcy, a trader said.

The first-lien term loan was quoted at 90 bid, 92 offered, up about a point on the day, and the second-lien term loan was quoted at 74 bid, 76 offered, up about 3 to 4 points on the day, the trader said.

As part of the restructuring, Movie Gallery will obtain a $150 million debtor-in-possession financing facility.

The DIP facility is oversubscribed by existing first-lien lenders and allocations are expected to go out later this week, a market source said.

The DIP facility consists of a $100 million term loan and a $50 million revolver, with both tranches priced at Libor plus 350 bps and both offered to investors with a 150 bps upfront fee, the source said.

There was no bank meeting to launch the facility into syndication, the source added.

Goldman Sachs is the lead bank on the deal.

Proceeds from the DIP facility will be used to refinance the company's existing revolver at a lower interest rate and provide additional working capital.

Tousa structure mixed on rumors

Rumors are circulating that Technical Olympic's bondholders are looking to organize - and one trader said it has already happened.

According to the trader, the subordinated debt holders have hired Jefferies to represent them.

"They are fighting," the trader said. "And if they are fighting, more people will probably join in."

Noting that, the trader said the 10 3/8% notes due 2012 were "up a little" at 18.5 bid, 19.5 offered.

Another trader said he heard there was a bondholder call held Monday, hosted by Akin Gump Strauss Hauer Feld LLP. The call was purportedly held to discuss whether or not organization was an option.

At another desk, a trader said he also heard that the bondholders were trying to get together, but he had not heard of any call.

"It's possible," he said.

The trader called the homebuilder's bonds inactive on the day, with the 9% senior notes due 2010 unchanged at 66.75. He also called the 10 3/8% notes "unchanged, maybe up a little" at 19 bid, 20 offered.

Another trader, however, called the debt "fairly active," its senior paper "off a little from yesterday's highs" at 66 bid, 67 offered and the subordinated debt at 18 bid, 19.5 offered.

Elsewhere, a trader said the 8¼% notes due 2011 fell 2 points to 65 bid, 67 offered.

Still, the question remains: How are the bondholders going to get the company to file for bankruptcy?

According to the trader, the company has enough liquidity, its covenants are generous and, as long as the company continues to file its required reports on time, there is no default. In short, the company has of yet no reason to file.

"Everybody would love for them to file," the trader said., "everyone except the second-lien holders."

Meanwhile, the Hollywood, Fla.-based homebuilder's bank debt was softer as the loan market was down, the stock market was down and general sentiment toward homebuilders was increasingly negative, traders reported.

One bit of news that put pressure on the homebuilding sector was that the National Association of Home Builders/Wells Fargo index, a housing market index that tracks expectations of home sales, fell to its lowest level ever. The index dropped to 18 in October from 20 in September.

Also having a somewhat negative effect was the statement made by Federal Reserve chairman Ben S. Bernanke on Monday that "further contraction in housing is likely to be a significant drag on growth in the current quarter and through early next year."

By the end of the day Tuesday, Technical Olympic's first-lien term loan was quoted at 95.75 bid, 96.75 offered by one trader and at 95.5 bid, 96.5 offered by a second trader, down about a point on the day.

The second-lien term loan was quoted at 90.5 bid, 91.5 offered by one trader and at 90 bid, 92 offered by a second trader, down about a point or two on the day.

And, the company's revolver was quoted at 96 bid, 97 offered by both traders, down about half a point on the day.

MAAX notes drift lower

MAAX Corp.'s bonds continued to drift lower, a trader said, after the company released poor quarterly numbers last week.

The trader quoted the 9¾% notes due 2012 at 42.5.

"Nobody wants to buy these," The trader said. "The company is going to be reorganizing soon."

For its second quarter of fiscal 2008, MAAX reported net sales decreased by 14.9% to $109.9 million compared to the second quarter of fiscal 2007. Operating income fell 72% to $1.7 million.

Natural Products loan steady

Natural Products Group LLC's term loan was holding strong on Tuesday in the wake of the company's release of positive numbers for August, according to a trader.

The term loan ended the day at 78 bid, 80 offered, unchanged from Monday's closing levels, the trader said. Last Friday morning though, the term loan was quoted at 72 bid, 75 offered.

The August numbers that were announced to lenders on Monday showed that monthly EBITDA was ahead of plans, the trader added.

Natural Products Group, a Harvest Partners portfolio company, is a Chatsworth, Calif., manufacturer and marketer of branded natural and organic personal care products.

Broad market mixed

MagnaChip Semiconductor Inc.'s 8% subordinated notes due 2014 moved up to 75 bid, 77 offered from 72.5 bid, 74.5 offered previously, its 6 7/8% senior secured notes due 2011 rose 1.5 points to end at 87.5 bid, 89.5 offered and its floating-rate notes due 2011 were 2.5 points higher at 91.5 bid, 93.5 offered.

Neff Corp.'s 10% notes due 2013 lost 2 points to 75.5 bid, 76.5 offered.

Spectrum Brands Inc.'s 11¼% notes fell to 90 bid, 92 offered from 92.5 bid, 93.5 offered.

"It's amazing how they've widened," a trader said.

The trader also said the 7 3/8% notes due 2015 dropped nearly 3 points to 74.5 bid, 75.5 offered.

Also lower were Tembec Inc.'s 8 5/8% notes due 2009. The notes lost a point to 46 bid, 47 offered, while its 8½% notes due 2011 were half a point down at 41.5 bid.

Sara Rosenberg and Paul Deckelman contributed to this article.

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