Movie Gallery up, up and up; Northwest steady; Delta rises; Calpine mixed

By Stephanie N. Rotondo

Portland, Ore., Feb. 6 - It was a game of "Who said it first?" Tuesday, as Movie Gallery Inc. announced a bank refinancing deal, prompting many traders and insiders to say, "It was me."

As news of the refinancing hit the trading floor, the company's debt climbed as high as 86 by mid-afternoon. The debt dropped a bit on the day but was still higher from the previous day.

"They have gained about a point a day for the last few days," one insider said.

Meanwhile, good fourth-quarter results did little to move Northwest Airlines Corp.'s bonds. The company posted a net loss of $267 million for the final quarter of 2006, a significant improvement over the previous year's loss of $1.3 billion.

In other bankrupt airline paper, Delta Air Lines Inc. posted slight gains as the company prepares for a Wednesday hearing on its disclosure statement. Lawyers for the company said all objections to the statement had been resolved.

Shareholders in Calpine Corp. are protesting the way an investment bank is pursuing a possible rights offering. The company will also make a court appearance Wednesday to discuss the offering, as well as the associated complaints. The news did little for the power company's equity trading, but its debt did see positive gains.

Movie Gallery paper up

Traders are claiming they "knew it," as Movie Gallery announced they had signed an underwriting agreement with Goldman Sachs Credit Partners LP to refinance its existing senior secured credit facility.

News of the transaction prompted the company's 11% notes due 2012 to jump as high as 86, though the debt settled in at 84.5 bid, 85.75 offered. A market insider added there was "not nearly as much trading today" as on Monday.

"Some of [the increase] was probably already built in [from Monday]," he said.

"The only thing to do here is to put good money after bad money," one market participant said of the refinancing news. Rumors have been circulating for weeks on whether the Dothan, Ala.-based movie rental chain would take the refinancing route.

"Didn't I tell you?" one trader quipped.

Funds from the proposed five-year credit facilities will also be used to replace existing letters of credit, provide for working capital and pay fees and expenses associated with the credit facility.

"The new credit facilities will provide Movie Gallery with additional financial flexibility to carry out our business plan for the future," Move Gallery chairman and chief executive officer Joe Malugen said in a prepared statement.

On the equity side, shares of Movie Gallery gained 30 cents, or 7.96%, closing the day at $4.07. One trader indicated the run on the stock was likely due to short covering, as the refinancing fix only buys the company some time.

Movie Gallery saw its term loan B a touch higher as well.

The term loan B ended the day at 99 7/8 bid, par 1/8 offered, up from 99½ bid, par offered, as investors are now awaiting the par paydown, the trader said.

Details on timing and structure of the video rental company's new facility are not yet available, according to a market source.

Closing is expected to take place in the first quarter.

Northwest unchanged

Bankrupt airline Northwest released its 2006 fourth-quarter results as well as its full-year results Tuesday. Despite better-than-expected figures, traders indicated little to no activity in the company's debt.

Eagan, Minn.-based Northwest posted a net loss of $267 million for the final quarter of 2006; the company posted a loss of $1.3 billion for the same quarter in 2005. The company also showed a pre-tax profit of $301 million before reorganization items, compared with a 2005 pre-tax loss of $1.38 billion before reorganization items. Including reorganization items, Northwest reported a full-year 2006 net loss of $2.8 billion versus a $2.56 billion net loss for the full-year 2005.

"Clearly, the work we have done to reposition Northwest for the long term is showing tangible results as we reported the first profitable year since 2000. To report an annual pre-tax profit is another major milestone in Northwest's restructuring efforts," said Doug Steenland, Northwest Airlines president and chief executive officer, in a news release.

The January traffic report was also released Tuesday. The company said January traffic edged up 1.5% on modest growth in its domestic and international capacity.

The airline's capacity increased 3.8% to 7.64 billion available seat miles from 7.37 billion a year earlier, boosted by a 9% jump in capacity on international flights and a 3.3% rise on domestic flights.

Load factor, or occupancy, declined to 77.9% from 79.7%.

Market participants were surprised the onslaught of news did very little to move the company's bonds. The 10% notes due 2009 closed the day unchanged at 96.

"I was amazed at that," said one insider. "I thought it would light them up a little."

Delta up slightly

As Delta prepares for its Wednesday hearing on its disclosure statement, the company's notes are seeing slight gains. One insider placed the 8% notes due 2023 at 61.5 bid, 62.5 offered, while the more active 8.30% bonds due 2029 closed up about a quarter of a point at 62.75.

Papers filed by Delta with the bankruptcy court Tuesday said all objections to the statement had been resolved.

In its brief, company attorney Marshall Huebner wrote, "The debtors believe that they have resolved every single objection - formal or informal, filed or unfiled, represented or pro se - in connection with the disclosure statement and the approval motion."

The air carrier also posted its January traffic report, which showed a 3.3% increase in systemwide traffic to 8.9 billion. Domestic traffic fell 5.2% to 6.1 billion, while international traffic rose 28.6% to 2.8 billion.

Calpine mixed

Power company Calpine saw its debt force its way up several points as equity holders protest a possible stock-rights offering.

Most notably, the San Jose, Calif.-based company saw its 7¾% notes due 2015 up almost 4 points, closing at 86.25. The 4¾% notes due 2023 gained about 2 points, settling in at 88. On the equity side, traders said the stock was "quiet." The stock remained unchanged at $1.36.

Shareholders filed a complaint with the bankruptcy court overseeing the case Tuesday, alleging that the investment bank charged with the rights offering has shut them out of the capital-raising process.

According to an Associated Press report, the shareholders' committee said that Calpine and New York-based Miller Buckfire & Co. have been talking to unnamed "third parties" about an equity deal that could "chill and limit" Calpine from getting maximum value for all parties in its bankruptcy. The identity of the third parties wasn't disclosed.

The equity deal, and the ensuing complaints, will be discussed in a hearing on Wednesday.

"The fact that they're upset doesn't surprise me," said Jon Kyle Cartwright, an analyst at BOSC, Inc.

What did surprise Cartwright was that fact the shareholders thought they would see any recovery. He said in his analysis of the company, the company's assets were worth its total debt, which would leave little to no value for stockholders.

"I've always been baffled by trading in equities of distressed companies," he said.

Cartwright, a former proponent of Calpine debt, does not see much value left there either.

"We made our money and left," he said, noting that, on average, his clients doubled their money in Calpine. Still, "we no longer have a desire to own them anymore.

"We'll leave the crumbs for the seagulls to fight over."

The company began its Chapter 11 reorganization in December 2005, listing $22.5 billion in total debt and $26.6 billion in assets. Calpine is the largest U.S. operator of natural-gas-fired power plants.

Sara Rosenberg contributed to this article.

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