Distressed autos mostly lower; Movie Gallery loans, bonds dip on liquidity concerns

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., Aug. 10 - As has been typical in recent weeks, Friday's distressed market closed with a barely audible groan. Trading was reportedly much lighter than the previous session - which followed a plunging equity market - and investors seemed hesitant to try their hand.

"Everybody is just walking around on pins and needles," a trader said.

"After a day like yesterday, with volatility, I don't think too many people were staking too many positions ahead of the weekend," said another.

Another market source, commenting on the lack of activity, said his screen was almost blank throughout the day.

But, traders did note that many things were lower, though in general only half a point to a point down.

"It was tough to gauge whether or not there was much follow through from yesterday," a trader said.

In the distressed autosphere, that seemed to be the case, as names like Dana Corp, Dura Automotive Systems Inc. and Federal-Mogul Corp. all saw their bonds go down.

Traders didn't mention specific news as the catalyst for the loss, though many market players see general weakness in the sector.

Dana, however, did post its second-quarter results, which showed a wider loss than the year before. Concern and speculation surrounding a recent backstop agreement also continued to swirl around Dura's name.

Meanwhile, Movie Gallery Inc. saw its loan and bonds dip as the company reported its financials Friday. The company said that continued restrictions from its vendors might pose a problem to its liquidity situation.

Autos mostly lower

Distressed names in the automotive realm were deemed heavier, as traders quoted names such as Dana, Dura and Federal-Mogul lower.

A trader said Dana's 7% notes due 2029 "continued to come in," closing at 78.75 bid, 80.75 offered. The trader also saw the 6½% notes due 2008 and 2009 with bids in the 80 to 81 range. "I never saw a right side," he added.

Another trader saw the 7% notes down perhaps a point, on limited activity, at 79 bid, 80 offered. At another desk, a trader saw 6½% notes down 3 points at 79 bid, 80 offered.

While many names in the sector were driven by nothing in particular, Dana did post its second-quarter results, which showed the company had a net loss of $133 million, compared to a $28 million net loss for the same period of 2006.

Elsewhere in the sector, Dura's capital structure was mixed, as a trader saw the junior debt trading better than the senior debt.

The trader said the 8 5/8% notes due 2012 came in to 51 bid, 52 offered, while the 9% subordinated notes due 2009 edged higher at 4.5 bid, 5.25 offered.

At another desk, a trader mentioned a news report that called a recent backstop agreement with Pacificor LLC into question. According to the report, the proposed $160 million deal would tie up 50% to 75% of Pacificor's assets - which leaves some believing the deal with blow up.

And lastly, Federal-Mogul's bonds were called lower, with one trader pegging the bonds - which trade within the same range - down at 86. He said the bonds were closer to 90 earlier in the week.

Movie Gallery loans, notes off

Movie Gallery's first-lien term loan headed lower on Friday after the company came out with financials for the quarter ended July 1, according to a trader.

The first-lien term loan ended that day at 80 bid, 82 offered, down from previous levels of 83 bid, 84 offered, the trader said.

For the quarter, the company reported a net loss of $309.94 million, or $9.69 per share, compared to a loss of $14.90 million, or $0.47 per share, last year.

Total revenue for the quarter was $561.22 million, down from $601.29 million.

For the 26 weeks ended July, the net loss was $324.81 million, or $10.18 per share, compared with net income of $25.45 million last year, or $0.80 per share.

Total revenue for the 26 weeks ended July was about $1.21 billion, down from about $1.30 billion for the comparable period last year.

At July 1, Move Gallery had $45.5 million of cash and cash equivalents and did not have any available borrowings under its credit facility.

Movie Gallery's liquidity is dependent upon cash flows from store operations, access to its existing credit facility and vendor financing.

The Dothan, Ala.-based video rental company said that during the 13 weeks ended July 1, it incurred significant losses from operations as a result of current industry conditions and increased competition in the home video market.

And, during the latter part of fiscal 2006, and continuing into fiscal 2007, the company experienced significant vendor terms contraction, which eroded working capital capacity.

Furthermore, due to the company's previously announced non-compliance with covenants contained in the first-lien credit facility (which is covered by a short-term forbearance agreement from lenders) many of its vendors have discontinued extending trade credit, requiring payment for product before it is shipped.

"If we continue to experience substantial restrictions or tightening of terms with our vendors and continue to generate operating losses similar to those experienced for the twenty-six weeks ended July 1, 2007, we do not believe we will have sufficient liquidity to operate our business through the third quarter of 2007 without gaining access to additional capital," the company said in its Friday 10-Q filing with the Securities and Exchange Commission.

"In response to the challenging market conditions facing our business, we will continue to take actions to conserve cash and improve profitability. These actions include accelerating the closure of unprofitable stores, consolidating stores in certain markets, realigning our cost structure to better reflect our reduced size, and seeking a more competitive capital structure," the company continued.

"We also intend to consider a number of alternatives, including asset divestitures, recapitalizations, restructurings, alliances with strategic partners, and a sale to or merger with a third party, as well as whether a restructuring needs to be completed under Chapter 11 of the Bankruptcy Code," the company added in the filing.

Meanwhile, a trader speculated that a short squeeze in the company's bonds was over, as the debt moved back into its lows.

The trader said the 11% notes due 2012 were offered at 23 toward the close of the day, down from its earlier highs in the upper-20s.

"It seemed like a squeeze to me," he said of the bond's gains toward the beginning of the week.

A market source saw the bonds go as low at 20.5, after closing the previous day near 23.

"Movie was quoted a lot," a trader said, noting that by the end of the session, the bonds were quoted in a wide 15 bid, 20 offered context, down from Thursday's finish around 23 bid.

However, he said there had been "not a whole lot of volume."

Another trader saw the bonds off 5 points on the session at 15 bid, 18 offered.

Foamex loan dips

Foamex International Inc.'s term loan dropped in trading on Friday on the heels of second-quarter numbers getting announced, according to a trader.

The term loan ended the day at 89 bid, 91 offered, down about 1.5 points from previous levels, the trader said.

For the second quarter, the company reported net sales of $320.8 million, 7% below prior-year sales of $344.9 million, and net income of $7.6 million, or $0.32 per diluted share, compared with a net loss of $13.2 million, or $1.44 per diluted share, in the second quarter of 2006.

Net debt at the end of the second quarter was $610 million, down from $621 million at the end of the first quarter. Revolving loan availability was $83 million.

"Despite the soft market demand, Foamex was able to reduce net debt by $11 million. We anticipate continued debt paydown going forward. In addition, we continue to focus on reducing costs while increasing operating efficiencies throughout the company," said John G. Johnson Jr., chief executive officer, in a company news release.

In addition, Foamex plans to deleverage the balance sheet by about $22 million in the third quarter as a result of the sale of its majority interest in Foamex Asia Co., Ltd. to its joint venture partner.

For full-year 2007, the company expects operating income of $85 million to $95 million, including restructuring costs of about $6 million and depreciation and amortization of about $20 million.

Capital expenditures for full-year 2007 are expected at about $13 million to $16 million.

Foamex is a Linwood, Pa.-based producer of polyurethane foam-based solutions and specialty comfort products.

Tousa bonds slip

After a busy day of trading Thursday, prompted by its earnings release, Technical Olympic USA Inc.'s bonds quieted down, as one trader said only small trades occurred in the name.

The trader quoted the 9% senior notes due 2010 at 77 bid, 78 offered, which he said was lower on the day.

Forest products sector weaker

A trader saw Tembec Inc.'s 8 5/8% notes due 2009 down 1.5 points at 46.5.

Out of that same troubled forest products sector, another trader saw Portland, Ore.-based Pope & Talbot Inc.'s 8 3/8% notes due 2013 down 5 points on the day to 55 bid, 58 offered. The company late Thursday announced a net loss of $42.9 million for the second quarter ended June 30 - about double its year-ago red ink of $21.8 million.

Sea Containers quiet

A trader said that while Sea Containers Ltd.'s 10¾% bonds that were to have come due last year "looked like they were down a couple of points;" In truth, "they were quoted lower, but we didn't see much volume in the name. It was a non-event."

At another desk, though, those bonds from the bankrupt Bermuda-based maritime and railroad transportation company were actually seen up several points, though trading was not heavy, having firmed to the 86 area from prior levels just below 82. The company's other bonds were not seen having traded Friday.

Paul Deckelman contributed to this article.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.