Dura bonds break down; Blockbuster, Movie Gallery active on news; Tembec unchanged

By Stephanie N. Rotondo

Portland, Ore., June 12 - Tuesday trading saw many market players away from their desks, either attending meetings or out of the office altogether, which made for some interesting trading in distressed debt, traders reported.

However, Dura Automotive Systems Inc. is continuing to be a name thrown around, though this time it is not because the bonds are gaining.

In fact, as the company asked for an amendment to its term loan - a move aimed at relaxing the terms of the loan - the company's bonds began to dip. Tuesday's trading, however, saw the debt lose as much as 5 points on the day.

Still, as Dura declines, the rest of the automotive sector is firming, something that is baffling many market participants.

One trader said he thinks investors could be trying to do to other automotive names what happened with Dura - that is, move in on the notes to run up the value.

Meanwhile, Blockbuster Inc.'s attempts to crush its online rival NetFlix put pressure on its bonds as well as those of Movie Gallery Inc. Activity in both names increased as Blockbuster announced it would lower its online subscription costs.

Tembec Inc.'s bonds held their ground, even as a rumor that the company would hold an informal bondholders meeting on Wednesday surfaced. According to the Canadian company, the rumor is without merit.

Other sources said Tembec's notes gained over the trading day - a notable feat given a broader heavy market.

Dura bonds break down

Dura's bonds "took it on the chin," a trader said, dropping as much as 5 points on the day.

The trader saw the 8 5/8% notes due 2012 at 58.5 bid, 59.5 offered, down from the previous day's levels around 62 bid, 63 offered. The 9% notes due 2009 were quoted at 12.5 bid, 14.5 offered.

"That is what happens when people don't know what to do," he said of the wider spread.

The trader attributed the recent dip in the bonds to the company's quest for relaxed covenants on its debtor-in-possession financing. If the company is looking for covenant relief, he said, that is not a good sign, so investors are getting nervous.

"It is buy the rumor and sell the fact," he said.

The automotive parts maker's second-lien term loan, however, has been firming, the trader said. On the news, the loan has been trading closer to par.

Elsewhere, a trader called Dura's bonds down another 2 points from Monday to 58 bid, 60 offered. Another trader saw them at 58 bid, 59 offered and saw the 9s at 13.5 bid, 14.5 offered, down half a point on the day.

Traders said it was likely that the bonds were off on continued profit-taking after the seniors had zoomed more than 15 points and the juniors almost 5 points last week

Auto sector up

Other names in the distressed automotive sector, however, are picking up.

The trader said Dana Corp.'s 5.85% notes due 2015 were up at 96.5 bid, 97.5 offered, while the 6½% notes due 2008 were moving at 105.5 bid, 107 offered.

Another trader called the 5.85% notes at 96.375 bid, 97.5 offered, up from around 95 bid, 95.5 offered on Monday - "amazing especially in this market."

Another trader saw a more restrained rise, with the 6½% notes due 2008 up perhaps half a point at 105.5 bid, 106.5 offered.

He also saw Federal-Mogul Corp.'s bonds better at 99.5 bid, par ½ offered, adding that all issues of the company's debt trade in line with each other.

At another desk, a trader said Remy International Inc.'s 8 5/8% senior notes due 2007 were "a bit better" at 98.5 bid, 99 offered.

A trader also said that Delphi Corp. "did do something," although he saw no fresh news about the bankrupt Troy, Mich.-based parts producer, which has recently been in talks with former corporate parent General Motors Corp. and the United Auto Workers union aimed at cutting Delphi's bloated labor cost structure, a key factor in its slide into bankruptcy.

He saw the 6.55% notes that were to have come due last year at 117.75 bid, 118.75 offered, up 0.75 point on the day.

When asked why these names were firming, one trader chuckled.

"It baffles many people," he said. "The numbers have not been good and the bonds have doubled.

"The numbers don't justify the bond movement," he added.

He said the typical answer he hears when referring to the auto sector's gains is "short squeeze," but he noted that it did not really seem to be the case.

Movie Gallery, Blockbuster dip

Movie Gallery's bonds saw increased activity on the back of the news that rival Blockbuster was lowering its online subscription fees.

A trader pegged the 11% notes due 2012 at 82 bid, 83 offered, while another trader called the bonds "down a point or so" at 81 bid, 82 offered. At another desk, a trader said he saw the notes at 82 bid, 83 offered.

The last trader also said that he saw more trading in Blockbuster's debt, with the 9% notes due 2012 down a half point from the open at 97.5 bid, 98 offered. The trader added that the notes were down about a point or so day-over-day from Monday's levels of 98.5 bid, 99.5 offered.

However, at another desk a trader said that Movie Gallery's bonds "looked like they were going to go down, but then they firmed back up," as the 11% notes went from 83 bid, 84 offered at the open to as low as 81 bid during the day, before coming off those lows to end at 82 bid, 83 offered.

Another trader who saw the same movements said that "in this market" for a distressed credit like Movie Gallery to lose only a point "is not a big deal for that bond."

Bank refi moves MedQuest

News that it would refinance its bank loan in the second quarter of 2007 helped MedQuest's bonds "bounce around," a trader said.

The trader slated the 11 7/8% notes due 2012 as higher at 84 bid, 86 offered. The 0% notes due 2012 - which trade under the MQ Associates Inc. moniker - were also better at 27 bid, 29 offered.

At another desk, a trader saw MedQuest's 11 7/8% notes up 5 full points on the session to 85 bid, 86 offered, citing the impact of published reports indicating that the Alpharetta, Ga.-based medical imaging company plans to refinance its debt, particularly its $80 million revolving credit facility that is scheduled to mature in August.

Another source said the bonds were up about 3.5 points on the day at 84.5, after touching highs above 85.5 earlier in the session. Trading was described as active.

While those operating company bonds were soaring, the MQ Associates holding company zero-coupon bonds due 2012 were actually seen off a point in light trading at 29 bid.

The first trader said that the published reports "showed the company in a good light."

The reports quoted company chief financial officer Todd Andrews as saying that MedQuest will refinance its bank facility by the end of the second quarter via Wachovia Bank and JP Morgan & Co. Besides the revolver, the facility consists of a $60 million term loan B tranche that matures in 2009.

The medical imaging company is also facing a possible downgrade by Moody's Investors Service, which has expressed concern that reduced revenue and cash flow will not help the company reduce its debt and repay interest.

Tembec bonds hold tight

A new rumor surfaced regarding Tembec, but the buzz did little to help the forest products company's debt.

In fact, a trader said the bonds opened and closed about the same. He said the 8½% notes due 2011 closed at 59.5 bid after trading as high as 60.5.

"[The bid] kept getting hit and kept moving on," he said.

The 7¾% notes due 2012 were seen at 58 bid, 59 offered, while the 8 5/8% notes due 2009 were moving around 67 bid, 67.5 offered.

The rumor, according to the trader, was that the company was holding an informal bondholders meeting on Wednesday, though he said it might just be for holders of the 8 5/8% notes.

However, the trader said he was unable to confirm it. Tracy Dottori, a spokesperson for Tembec, said she was "unaware" of any meeting.

The buzz could have likely held water in the market, as many players have been wondering why the bonds have continued to firm, despite a strengthening Canadian currency. Last week, a market source said he had heard investors were starting to get concerned and some were even planning on addressing the concerns directly with company management.

Elsewhere, a trader saw Tembec's bonds moving higher, with the company's 8 5/8% notes at 66.75 bid, 67.75 offered, up from 64 bid, 66 offered previously, its 8½% notes at 59.25 bid, 60.25 offered, up from 58 bid, 60 offered, and its 7¾% notes at 58.25 bid 59.25 offered, up from 57 bid, 59 offered.

At another desk, a trader said that the Montreal-based forest products company's bonds "were active, racing up in the morning," and characterized them as "up a lot."

He saw the 8 5/8s advance to 66.5 bid, 67.25 offered from 64.5 bid, 66 offered the session before and said that the 81/2s and the 73/4s "followed suit" in posting similar-sized gains.

The Tembec rise, he said, was all the more notable because it came against the somber backdrop of "this bloodbath of a market," which saw U.S. Treasuries tumble on inflationary concerns, dragging stocks down along with them.

For Tembec to "buck the trend" of overall negativity like that, "there must be something going on," although he did not know what it might be. He was skeptical of the thesis, advanced by some market participants, that Tembec was being buoyed by the end of the sharp recent upturn in the Canadian dollar, which had soared in May before stalling out earlier this month. A softer unit works to the sales advantage of Canadian companies - like Tembec - which do sizable export business with customers in the United States and other foreign markets.

In Tuesday's dealings, the Canadian currency fell nearly 0.75 percentage point to 93.64 U.S. cents - its biggest tumble since late January, as declining prices for oil, metals and other Canadian-produced commodities and higher U.S. bond yields reduced its attraction.

The trader said that while the softening of the Canadian currency could not hurt, "it's hard to believe that [foreign exchange fluctuations] are that big a factor on a day like this, with Treasuries getting clobbered" and pulling most high-yield issues down with it.

Yet another trader pegged the 8 5/8% notes up a point at 67 bid, 68 offered and said that he had seen "no news" on the company.

Broad market mixed

Primus Telecommunications Group Inc.'s 3¾% notes due 2010 were seen "holding on" at 70 bid, 72 offered, though on very little trading.

Calpine Corp.'s 6% convertible issue due 2014 was also steady in the 115 bid, 116 offered area, though a trader said he saw retail prints trading even higher.

Another trader saw the 10½% notes due 2006 up 3 points at 124 bid, 125 offered. He cited "better-than-expected" monthly operating results at the bankrupt San Jose, Calif.-based power generation company.

Traders saw Spectrum Brands Inc.'s bonds lower, although they saw no fresh negative news out about the Atlanta-based maker of Rayovac batteries, Remington shavers and other consumer products.

One quoted its 11¾% notes due 2013 off a point at 94 bid, 96 offered and saw its 7 3/8% notes due 2015 likewise down a point at 81 bid, 83 offered.

A trader saw Sea Containers Ltd.'s bonds down anywhere from 1 to 2 points, its 10¾% notes that were due last year at 92 bid, 94 offered and its 7 7/8% notes due 2008 at 88 bid, 90 offered, both down 1.5 points.

The bankrupt Bermuda-based maritime and railroad transportation operator is lining up $176 million of financing to stop a threatened foreclosure action by disgruntled noteholders against its Sea Containers SPC Ltd. subsidiary.

Paul Deckelman contributed to this article.

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