Werner buyout sparks gains; Movie Gallery climbs; Tech Olympic mixed

By Stephanie N. Rotondo

Portland, Ore., Feb. 5 - Buyout news prompted great gains in Werner Holding Co., Inc. notes, despite "tiny" trades Monday.

The ladder-maker said Friday it had agreed to sell most of its assets, to the tune of $255.75 million. As Monday trading took place, traders saw significant spikes upward in the company's debt.

Elsewhere, Movie Gallery Inc. is continuing a run on its notes. The bankrupt movie rental chain has seen better numbers over the last week, but traders cannot explain the sudden popularity in the distressed company.

Market insiders are speculating that value is what is driving homebuilder Technical Olympic USA, Inc.'s bonds. The company's 7½% notes saw significant trades but little price movement. One buysider said the current value of the notes could be the cause of the activity.

Overall, traders noted it was a slow day in the distressed market, one quipping that it was a case of "Super Bowl hangover."

"That's actually a very reasonable theory," said another participant. "Not a lot of people are at their desks."

But the slowness that has plagued the beginning of 2007 could be due to the level at which many distressed bonds are performing.

"Everything is moving up because there is so much money around," he said. As distressed prices are floating around par or better, investors are focusing on new issues.

"Everybody's kind of waiting for stuff to crack," he said.

"Slow is no fun for anybody," he added. "Nobody makes any money when it's slow."

Werner buyout lifts bonds

Amid news of a buyout, Werner Holding, a manufacturer and distributor of ladders, saw a spike of about 4 points in its 10% notes due 2007. One trader pegged the notes at 12.5, while another trader said the notes came in at 11 bid, 13.5 offered. Previous trades were at 7 bid, 9 offered.

The company announced Friday it had entered into an agreement with Black Diamond Capital Management and Brencourt Advisors, LLC to sell substantially all of its assets under section 363 of the Bankruptcy Code. The proposal provides for the purchase of Werner's assets with a combination of cash and contributed first-lien debt at an indicated enterprise value of $255.75 million.

Under the proposal, the sale must close by May 17, subject to receipt of regulatory approvals.

"We are very pleased to have entered into this agreement with Black Diamond and Brencourt, which demonstrates that we are well on our way to completing our restructuring and positioning our business to be well-capitalized and viable long into the future," Werner interim chief executive officer James J. Loughlin Jr. said in the company's news release. "This agreement substantiates the progress Werner has made with its operational restructuring and the underlying value of the Werner franchise. With this agreement, we expect the business to exit Chapter 11 before the end of the second quarter."

Despite the price jump, traders noted the Greenville, Pa.-based company's notes saw light trading.

"The turnover is tiny," one trader said.

The trader also mentioned that insiders are speculating that another buyer "will come in over the top of Black Diamond." The trader did not indicate who other potential buyers might be.

Movie Gallery moving up

Movie Gallery's surprising surge continued Monday, rising just under a point from last week's closing numbers. The Dothan, Ala.-based movie rental retailer saw its 11% notes due 2012 start the day at 83.75, rising to 84.5 by the end of the day, according to one market insider.

Still, there is little indication why this debt has rallied over the last week.

"It's out of the blue," the insider said. "Nobody likes the company that much. A week ago, they were at 80."

Nothing new has been reported on the company, but rumors persist about the possibility of the company refinancing its bank loan. The insider said a possible equity investment could also be spurring trading, though he had heard nothing supporting the speculation.

Tech Olympic mixed

Technical Olympic's 7½% notes due 2015 saw "a decent bit of trading" on an otherwise slow Monday. According to a market insider, the notes traded between 80.5 and 80.75 - "not a big price move," he said - while the 10 3/8% notes dipped slightly to 92 bid, 92.5 offered.

"Frankly, it's trading in the 80s," the insider said of the sudden popularity in the 7½% bonds. "The last thing left to buy is the 7 1/2s. It's the cheapest of all their papers."

The insider speculated that perhaps the buyer of the notes was someone who already held some of the other bonds. "It's just a guess," he said.

The Hollywood, Fla.-based company amended its $800 million revolving credit facility last week, bumping its debt and equity up. Still, a trader said the amendment news was "not interesting," and that the debt had started from a low base.

Technical Olympic is a designer, builder and marketer of single-family residences, town houses and condominiums.

Le-Nature's up

The Le-Nature's Inc.'s story is "becoming a little more interesting," according to one market participant.

The story resembles that of a soap opera, with fraud and debate over assets being the emerging plotlines.

Le-Nature's was forced into Chapter 7 bankruptcy in November 2006 when creditors filed against the company, claiming the company falsified documents, showed discrepancies in financial results, diverted funds and destroyed documents. The case was converted to a Chapter 11 bankruptcy a few days later.

"The bonds went to zero, then they bounced a little," the insider said.

Currently, the manufacturer of flavored bottled water and other beverages is reorganizing under the protection of Chapter 11. The insider said there is reportedly a debate on whether the company's assets and properties should be auctioned off or if the company should be sold intact.

"My guess is they will cut a deal with the people they owe money to," the insider said. The debate, however, could drag on.

"It's better for the community to sell it as one piece," the insider noted, adding that jobs could be kept. But, "they might get more money from an auction."

"It should drag out and be more fun," he said.

The Latrobe, Pa.-based company saw its bonds jump to 29 bid, 31 offered, up from previous levels of 25 bid, 27 offered.

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