Movie Gallery debt up on proposed rights offering; Technical Olympic slips; JRCC up

By Stephanie N. Rotondo

Portland, Ore., May 8 - A hedge fund's plan to push Movie Gallery Inc. into a rights offering spurred gains - however slight - in the company's debt and equity Tuesday.

The fund said in a regulatory filing that proceeds from the offering would be used to improve the company's overall financial outlook. First-quarter results are expected later this week.

Meanwhile, a negative report hurt Technical Olympic USA Inc.'s notes, with one trader calling the bonds "down 2 points across the board."

Investors could also be worried about an earnings report scheduled to be released Wednesday. A trader said the concern resulted more from where the company's recently acquired debt from its joint venture would be placed.

A first-quarter net loss did not dampen the coals at James River Coal Co. The coal mining company saw its bonds edge up slightly, as management projected a positive outlook for the company.

A quarterly report is also expected from Fedders Corp. this week. A trader said the company's bonds saw more activity Tuesday than it has of late, but the debt's value is holding steady.

Elsewhere, while the automotive parts sector is seeing a general firmness, a trader called Dana Corp.'s notes up slightly, but it was not clear on what caused the gain.

Movie Gallery edges up

A potential rights offering proposed by a majority shareholder boosted Movie Gallery's bonds and equity during the trading day.

A market source said the Dothan, Ala.-based movie rental chain's 11% notes due 2012 traded around 86 earlier in the day, up from the previous day's levels around 85. At another desk, a buysider said he saw a market of 86.25 bid, 87.25 offered.

On the equity side, the stock rose 33 cents, or 9.82%, to $3.69.

Shareholder Schultze Asset Management, a hedge fund that owns almost 15% of the company's stock, said in a regulatory filing that it wants to urge the company to improve its value. A rights offering would raise funds, which could then be used to pay off its debt.

However the proposal is not new - Schultze's filing Tuesday was a repeat of an earlier document which also included the rights offering proposal but reporting a larger equity stake of 14.4% versus13.4% previously.

A trader called the news "interesting," though he was not sure the plan would fix the struggling company's financial plight.

Calls made to the hedge fund were not returned.

In other Movie Gallery news, the company will post its first-quarter earnings before a conference call scheduled for 11 a.m. ET Friday.

Technical Olympic slips

Technical Olympic's bonds became active as a negative report issued by Goldman Sachs prompted a 2-point loss in the homebuilder's debt.

A trader said the 10 3/8% notes due 2012, which he called the "most active issue," fell about 2.5 points to 78 bid, 79.5 offered. At another desk, a trader saw that issue at 77.25 bid, 78.25 offered. He also saw the 7½% notes due 2015 down 2 points at 68.75 bid, 69.75 offered and the 7½% notes due 2011 also down 2 points at 72 bid, 73 offered.

Both traders cited the Goldman report as the reason for the drop. Prospect News attempted to obtain the report but was unsuccessful. A representative from Goldman said the analysts who published the report were traveling and where therefore unavailable to authorize its release.

The first trader also noted that the Hollywood, Fla.-based company is set to release its financials Wednesday. He said the concern was not so much the actual figures as the company's refinancing efforts, as well as where its Transeastern JV debt would fall.

"Guess we'll find out tomorrow," he said.

James River Coal better

Despite a reported net loss of $7.3 million for the first quarter of 2007, James River Coal remained positive about the company's outlook - a sentiment echoed in its debt, which edged up slightly during trading.

A market source said the 9 3/8% notes due 2012 traded as high as 93.75, but most were moving around 93. Another trader quoted the bonds "up a little" at 93 bid, 94 offered. He said the bonds started the day at 92.

The loss compares to a net income of $1.4 million for the first quarter of 2006, which included a non-recurring deferred income tax benefit of about $1.3 million. However, the company said it did see a decline in cash costs in its Central Appalachian and Illinois Basin regions and showed $15.7 million cash on hand at the end of the period.

"Our cash costs per ton went down in both CAPP and the Illinois Basin," said Peter T. Socha, chairman and chief executive officer, in a press release. "This was despite higher costs in a number of areas including raw materials, workers compensation, government mandated safety costs, and higher than normal medical costs."

Socha said the declining costs were a result of closing some of the company's higher cost operations in 2006 and 2007. He also said it was believed that "coal markets have bottomed out as coal supply has dropped dramatically from CAPP and coal demand is returning to more normal patterns."

"We believe that James River Coal Company is well positioned to benefit as the market adjusts to a new balance between supply and demand," he said.

Fedders more active

A trader said Liberty Corner, N.J.-based Fedders was more active Tuesday but ended essentially unchanged.

The company's 9 7/8% notes due 2014 were pegged at 47.5 bid, 48.5 offered on "decent volume, for the first time in a long time," the trader said.

The trader also said that Thursday is Fedders' deadline to file its quarterly report.

"Everyone expects the numbers to be soft," he said. "It's not exactly the warmest three months of the year."

That said, he noted that the second quarter's results would indicate whether the company has pulled off a turnaround.

Dana firms

Distressed automotive parts manufacturer Dana saw its bonds "pick up a little bit," a trader said.

He quoted the 7% notes due 2029 at 83.5 bid, 84 offered and the 5.85% notes due 2015 at 81.75 bid, 82.75 offered.

The trader said he was not sure what sparked the gain but said it could be due to the company's recent deal with its non-union retired employees.

Dana announced Monday that it had come to terms with the group, agreeing to pay $78.8 million to finance a voluntary benefit trust for the workers. The deal, which still needs court approval, would allow the company to terminate previously agreed upon benefits.

Still, the trader said the increase might also just be a reaction to an overall firmer auto sector.

"Remy had moved up, Dura had moved up, Federal-Mogul is basically at par," he said. "It's probably just a whole consensus. Everything seems to be better."

Federal-Mogul unchanged

Elsewhere in the autosphere, Federal-Mogul Corp.'s bonds were called "basically unchanged" at 98.5 bid, 99 offered, while the company waited for its reorganization plan to be confirmed.

The hearing was scheduled for Tuesday, but, at press time, there was no word on the outcome.

"There's not going to be any surprises," the trader said. He also noted that the case was rather big, so the hearing could drag on a bit.

They've had a nice run," he said.

The Southfield, Mich.-based company filed for Chapter 11 protection in October 2001.

Calpine quiet

A trader said Calpine Corp.'s bonds quieted down Tuesday, as the notes drifted "back to the same levels that we saw earlier last week."

The trader pegged the 8½% notes due 2011 at 119.5, 120.5 offered. He said on a "wide quote," the notes were around 120 bid, 121 offered.

"We've been here before," he said.

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