Blockbuster debt active on Circuit City bid; Linens unchanged; Trump stable despite downgrade

By Stephanie N. Rotondo

Portland, Ore., April 14 - Blockbuster Inc. dominated trading Monday after the news of the company's more than $1 billion bid to buy Circuit City Stores.

The movie rental chain's bonds reportedly traded heavily, though price movement was next to nothing - a trend seen throughout the distressed bond arena.

"There were very few price movements, but a fair amount of trades," one trader explained.

However, the company's bank debt moved higher, as one trader speculated that the "par recovery prospects" could be better than previously thought.

Linens n'Things Inc.'s debt ended the first session of the week unchanged to slightly better, though volume slowed considerably compared with Friday's action. Traders speculated that investors were waiting to see if the company would in fact file for bankruptcy on Tuesday, as Friday news reports had indicated.

Another trader said "everyone changed hands Friday," accounting for the decrease in activity.

Meanwhile, Trump Entertainment Resorts Inc.'s bonds also closed unchanged, though there was "some action" in the name, a trader said. The casino operator's debt managed to hang in there despite a rating downgrade from Moody's Investors Service.

Blockbuster bids for Circuit City

The name of the day was Blockbuster, as traders reported heavy trading, but nominal price movement.

A trader said the 9% notes due 2012 "stayed in a pretty tight range given what was going on," citing the news that the movie rental chain had made a bid for electronics store chain Circuit City. The trader said the bonds traded between 82 and 83 for most of the day.

Another trader called the debt weaker post-news, with the bonds slipping half a point to 81 bid, 82 offered.

At another desk, a trader called the notes "pretty active following the news" at 81.5 bid, 82 offered, which he deemed "a little bit lower."

Blockbuster's notes were "the only name really doing anything," a trader said. Several different market participants called them down 1 point to 1.5 points in heavy trading at 81.5 bid, 82 offered.

However, Blockbuster's term loan moved higher during the trading session, according to traders.

The term loan was quoted at 92 bid, 93 offered, up a quarter of a point from Friday's levels, traders said.

"Whether by refi in a deal or more collateral under the banks, the par recovery prospects might be seen as improving," one trader added in explanation of the term loan's performance.

On Monday, Blockbuster decided to ask shareholders to approve its more than $1 billion bid for Circuit City. The bid was originally made privately in February, but Blockbuster says that Circuit City has not been cooperative in its efforts.

On its part, Circuit City, which like Blockbuster has been plagued with declining sales, has said it doubts that Blockbuster can come up with the financing for the bid.

Still, Circuit City investor Mark Wattles, who has been attempting to oust the company's top executive for some time, believes it is a good deal and stated in a CNBC interview that billionaire investor Carl Icahn, who owns a majority of Blockbuster's shares, has agreed to put up the money if needed.

But some market players are not as keen on the idea.

One trader said it seemed a little optimistic "in this market to try to do something like this."

"They should worry about getting their core operations in line before you try to merge," he opined.

Blockbuster is a Dallas-based movie rental chain.

Linens notes holding in

With a potential bankruptcy looming on the horizon, one trader was surprised that Linens n'Things bonds were not as actively traded as they were on Friday.

I would have thought there would be more follow through," he said, after reports released Friday that speculated the company would file for Chapter 11 protection on Tuesday.

The trader added that the floating-rate notes due 2014 closed the day at 40 bid, 41 offered.

Another trader said the market was "still waiting for the filing," echoing the previous trader's market.

Another trader also placed the bonds at 40 bid, 41 offered, noting that the debt "continues to creep up."

"But we will see what happens tomorrow," he added.

Another source called the bonds up a point at 39 bid, 42 offered after last week's see-sawing levels.

On Friday, several news outlets broke stories claiming that Linens was contemplating filing for bankruptcy as soon as Tuesday. Earlier in the week, the New York Post had speculated that a filing was imminent, stating that private equity firm Apollo Management had been buying large chunks of the company's debt.

Market players saw some truth in that, as the bonds had been steadily inching upward for several sessions. A potential filing was also not a surprise, as Linens' sales figures have suffered amid the current retail environment.

Still, there remained some doubt as to whether the reports would come to fruition.

"I don't really see them filing tomorrow," said one trader. "I would like to think that Leon Black [of Apollo] can come up with the money to cover it or at the very least get a reprieve from creditors."

Others, however, were not as upbeat in their speculations.

"I don't think they have a choice," said a trader. "I think they have to. There's no smoke without a fire."

Another trader said he did not "see how they can avoid it."

"I would take better than a 50/50 bet on it," he added.

Linens n'Things is a Clifton, N.J.-based retailer specializing in home decor and accessories.

Trump debt stable after downgrade

Trump Entertainment's debt ended the session unchanged, despite a rating downgrade from Moody's Investors Service.

One trader, who said the 8½% notes due 2015 had been "weak for a while now," quoted the bonds at 64 bid, 65 offered, unchanged from Friday's levels. Another trader said there "was some action" in the name, though the bonds were "for the most part unchanged" at "64 and change."

Another trader, however, called the notes off a point at 63 bid, 65 offered.

Moody's cut Trump's probability of default rating to Caa1 from B3, citing continued competition from gaming centers in Pennsylvania. The B3 rating on the company's bonds was affirmed.

Like many Atlantic City casinos, Trump has continued to see poor operating results as new casinos in surrounding states have kept would-be gamblers closer to home. A partial smoking ban put into effect last year has also played a role. In fact, Donald Trump himself has denounced the city's current plan to ban smoking altogether, stating that it would have a negative impact on an already struggling economy.

Among other gaming names, one trader deemed Harrah's Operating's 10¾% notes due 2016 "super active" at around 83. Another trader saw the 5¾% notes due 2017 down 1.5 points at 54.5.

At another desk, a trader saw Herbst Gaming Inc.'s 8 1/8% notes due 2012 gain half a point to end around 20.

Broad market tidbits

Ahern Rental Inc.'s 9¼% notes due 2013 closed at 82.5 bid, 83.5 offered, while sector peer Neff Corp. saw its 10% notes due 2015 end at around 48.

Thornburg Mortgage Corp.'s 8% notes due 2013 gained half a point to 73.5.

A trader said Swift Transportation Co. Inc.'s 12½% notes due 2017 were higher at 45.5 bid, 46.5 offered. He said there was no particular reason for the move; "they have just been pushing higher for a while."

Sara Rosenberg and Paul Deckelman contributed to this article.

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