Acquisition moves Movie Gallery bonds up; Pathmark boosted on merger news

By Stephanie N. Rotondo

Portland, Ore., March 7 - The bond du jour during Wednesday trading was Movie Gallery Inc., which announced it would acquire an on-demand movie provider - for a cool price of under $10 million.

The Dothan, Ala.-based movie rental chain saw its entire structure gain, in fact. Along with a rise in its bonds, the company earned points in both its equity and bank debt.

Elsewhere, Pathmark Stores Inc. saw a better day as investors digested the recent merger announcement. Still, a trader thinks the supermarket chain's bonds are "very high."

A surge in activity on Tuesday helped Fedders Corp. see better numbers in its bonds, but those gains were lost Wednesday, as market participants are still looking for the coupon payment. Tuesday's rally was prompted by the news that the company had signed a commitment letter with Goldman Sachs Credit Partners LLC to refinance its debt.

As rumors go, it was not a big surprise when the buzz shifted to Remy International Inc.'s speculated search for debtor-in-possession financing. Traders said it has been expected for some time, but the news cut Remy's bonds in Tuesday trades. Still unconfirmed, the rumor did little to spark movement Wednesday, as traders called the notes unchanged.

Movie Gallery gains

Movie Gallery gained momentum in its bonds during trading as the company announced it would acquire MovieBeam Inc., an on-demand movie service, for less than $10 million.

The bonds, which had finished Tuesday at 88, opened a point better at 89, and then traded in an 89 bid, 90 context for most of the day, though at one point quotes as high as 92.25 were heard.

A trader said the company's 11% notes due 2012 came in at 90 bid, 91 offered, while another pegged the notes at 90.25 bid, 90.5. At another desk, a trader saw the notes at 90 bid, 92 offered.

Meanwhile, Movie Gallery's credit facility broke for trading on Wednesday with the $525 million term loan B (B2/B-) quoted at par ¾ bid, 101¼ offered and the $250 million second-lien PIK toggle term loan (Caa1/CCC) quoted at 101½ bid, 102½ offered, according to traders.

The term loan B is priced at Libor plus 350 bps and the second-lien term loan is priced at Libor plus 650 bps. During syndication, pricing on the term loan B was reverse flexed from original talk of Libor plus 400 bps and pricing on the second-lien was reverse flexed from original talk of Libor plus 700 bps.

Movie Gallery's $900 million five-year credit facility also includes a $25 million synthetic letter-of-credit facility (B2/B-) priced at Libor plus 350 bps and a $100 million revolver (B2/B-). Pricing on the synthetic letter-of-credit facility was also cut from original talk of Libor plus 400 bps during syndication.

Goldman Sachs is the lead arranger on the deal that will be used to refinance the company's existing bank debt and for general corporate purposes. The facility is expected to close in mid-March.

On the equity side, Movie Gallery's stock jumped 5.05%, or 23 cents, to close at $4.78.

A press release issued by the company Wednesday gave few details on the MovieBeam transaction. A media representative for the company said the terms of the transaction would not be disclosed, as MovieBeam is a private company.

Pathmark firms

Pathmark Stores saw its bonds firm following news earlier this week that The Great Atlantic & Pacific Tea Co. is buying out the supermarket chain for $1.3 billion.

A trader placed the 8¾% notes due 2012 at 103.75 bid, 104 offered, although he said this seemed very high. Last week, the notes traded at 102.

The merging of the grocery chains will create a powerhouse of 550 stores across the Northeast. Annual sales are projected at $11 billion.

Fedders falls

Fedders lost its Tuesday gains, as trader said its bonds fell about 6 points during Wednesday trading.

The 9 7/8% notes due 2014 were placed at 55 bid, 57 offered by a trader. Another trader saw the bonds falling back to 54 bid, 56 offered from Tuesday's close at 58.5 bid, 60 offered. The company's bonds are trading flat, or without the accrued interest, on the market's estimation that the company had not made the scheduled March 1 coupon interest payment, instead invoking the 30-day grace period.

A trader attributed Wednesday's drop to the fact that the coupon payment has yet to be paid.

"Once they make that payment, people will move [the bonds] back up in the next six months," he said.

There are still questions on when the new financing deal will close and when the payment will be made. Calls made to the company since last week have gone unreturned.

Remy unchanged

A trader called Remy unchanged from the previous day's levels, while another said the bonds saw "good action."

The trader said the 11% notes due 2009 traded as high as 22.5, with the low trade coming in below 20. The 8 5/8% bonds due 2007 were slotted at 77.75 bid, 78.5 offered.

However, one trader called the bonds lower during trading. He placed the company's 8 5/8% notes down a point at 77 bid, 79 offered, and its 9 3/8% notes due 2012 also a point lower at 18 bid, 20 offered. He saw the 11% notes at 20 bid, 24 offered.

Rumors that the company was searching for debtor-in-possession financing - signaling a pending bankruptcy filing - prompted the notes to fall Tuesday. Calls made to the company to confirm or rebuff the rumor went unreturned.

But a distressed trader said he did not understand why the struggling auto parts supplier would be searching for DIP financing at this point.

"Why not wait until April 15?" he said, adding that was when the next coupon payment came due. "There's no reason to do it now."

Broad market mixed

A trader familiar with Doral Financial Corp. paper said the bank's structure was active during trading - including the relatively inactive floating-rate notes.

"Oh look at that, the floaters finally traded," he said.

He placed the notes at 92.25 bid, 93.25 offered, which he said was "off a couple points from where they were."

Meanwhile, Delta Air Lines Inc. was seen weaker, though traders did not have an explanation as to why. One market player called the 8.30% notes due 2029 at 56.5 bid, 57 offered, down from Tuesday's levels of 58. Another trader placed the notes at trading in the 57.5 level.

Hines Horticulture Inc. has delayed releasing its financial results, which prompted the company to lose a few points in its 10¼% notes due 2011. A trader said the bonds closed at 82.25 bid, 82.5 offered.

Seeing better numbers was Tembec Inc. and Calpine Corp.

A distressed-bond trader saw Tembec Inc.'s bonds up a point across the board, with its 8 5/8% notes due 2009 at 82 bid, 84 offered, its 8½% notes due 2011 at 71 bid and its 7¾% notes due 2012 at 68 bid.

Calpine Corp.'s 8¾% notes due 2007 were up 2 points, at 110 bid, after the bankruptcy court overseeing its restructuring OK'd the $242 million sale of its non-core Power Systems Manufacturing LLC unit, with proceeds slated for debt reduction and liquidity enhancement.

Sara Rosenberg and Paul Deckelman contributed to this article.

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