Blockbuster bonds get a boost; TXU drifts lower; Leap Wireless debt gets help from merger buzz

By Stephanie N. Rotondo

Portland, Ore., Sept. 2 - Blockbuster Inc. was the day's big mover Wednesday, as the company announced it amended certain letters of credit.

The company cut its credit lines with Viacom Inc. by about two-thirds. As a result, traders saw the bonds moving up 4 to 5 points in rather active trading.

Meanwhile, Energy Future Holdings Corp. - another Dallas-based company - saw its bonds drifting lower on the day. But market sources were not sure what caused the move, other than possibly news out earlier in the week.

Leap Wireless International Inc. might soon be getting bought up, according to market buzz. The buzz helped the mobile telecommunications company's notes head higher by 1 to 2 points.

Overall, the market was "not terribly busy," a trader said, but things did seem to be getting done. The broader market ended on a firmer tone than the previous session.

Blockbuster gets a boost

Dallas-based movie rental chain Blockbuster announced it cut its letters of credit with former parent Viacom Inc., resulting in a 4- to 5-point gain in the company's bonds.

One trader said the 9% notes due 2012 were "up a good chunk" at 58 bid, 59 offered. Another quoted the issue at 57 bid, 58 offered, versus levels of 52 bid, 53 offered previously.

Both sources noted that trading was "pretty active."

Blockbuster said it reduced the credit lines to $25 million from $75 million, "paralleling a reduction in Viacom's exposure to Blockbuster lease obligations," according to a press release.

The letters of credit "are maintained by Blockbuster for Viacom's benefit to cover Viacom's potential liability under existing...store leases in place prior to Blockbuster's 1999 initial public offering," the release said. "Since 2004, many of those leases have been renegotiated or renewed without reliance on Viacom's credit, thereby further facilitating the reduction in the face amount of the letters of credit."

The news comes after the company announced last week that it was selling its Ireland unit, Xtra-Vision, for up to $45 million in cash.

"We are pleased to have reached this agreement with Viacom, which delivers on our promise to improve liquidity through a number of initiatives," said Jim Keyes, chairman and chief executive officer, in the statement. "This agreement, combined with strong cash from operations from our core business and proceeds from the sale of our Xtra-vision chain, will allow us to continue development of the multi-channel offering of Blockbuster."

TXU drifts lower

Energy Future Holdings - better known as TXU Corp. - saw its debt "trading down all day," according to one market source.

A trader pegged the 10 7/8% notes due 2017 at 67.75, down from 69 bid, 70 offered. He also saw the 10¼% notes due 2015 around 63, compared with 64 previously.

"So that's down 1 to 2 points, depending on which one," he said.

Another trader said that the bonds continued to deteriorate on Wednesday, keeping the downside momentum seen for about the past week.

He saw the Texas power producer's 10¼% notes fall to 62.5 bid, 63 offered, down from levels around 66 to 67 seen two days earlier, while its Texas Competitive Electric Holdings 10½% notes due 2016 backpedaled to 55 bid, 55.25 offered from 59 bid, 60 offered on Monday.

He also saw the company's 10 7/8% notes retreat to 67 5/8 bid, 68 offered from prior levels at 72 bid, 73 offered, while its 11¼% notes, also due 2017, went home at 58.5 bid, 60 offered, down from Monday's 62 bid, 63 offered.

But it was still unclear what caused the day's losses.

On Monday, Standard & Poor's cut its outlook on the company to negative from stable, citing the likelihood that TXU will use its pay-in-kind option for a third time on its toggle notes through April 2010.

On Aug. 10, the company said in a regulatory filing that it amended its first-lien credit agreement, reducing capacity to $1.25 billion. In exchange for the reduction, TXU is allowed to issue up to $4 billion in debt. However, any new debt proceeds must be used to prepay certain borrowings at par under its existing credit agreement.

Energy Future Holdings is a Dallas-based energy provider.

Leap gets help from merger buzz

Chatter that it could be acquired helped Leap Wireless International's debt - as well as its equity - gain during the midweek session.

A trader said the 9 3/8% notes due 2014 linked to Cricket Communications Inc. "looked up a little" at 96 bid, 96.5 offered. He noted that the bonds traded at 94.5 around noon, then quickly headed higher.

Another trader also placed the debt around the 96.5 mark, calling that up 2 points.

Leap's 4.5% convertible notes due 2014 were meanwhile a point better at 75 bid, 76 offered.

In a Bloomberg report, an analyst said the most likely pairing would be MetroPCS Communications Inc., which made a failed attempt to take over the company in 2007. At that time, the parties could not agree on a price.

MetroPCS offered $77.89 per share in its September 2007 bid. That was a 7.4% premium to Leap's then-trading price, which has since fallen considerably - as has MetroPCS' equity.

But the pay-as-you-go market has changed and competition is fierce, the analyst noted, and merging might help keep them alive.

Ford loan holds it ground

Ford Motor Co.'s term loan was unchanged on the day after moving downward on Tuesday following the release of August sales numbers that were lower than expected, according to a trader.

The Dearborn, Mich.-based automotive company's term loan was quoted at 86 bid, 87 offered, unchanged from Tuesday's levels. On Monday, the loan was seen at 86½ bid, 87½ offered.

For the month of August, total Ford sales (including Volvo) were 182,149, up 17% from 155,690 in August 2008.

Total Ford, Lincoln and Mercury sales for the month were 176,323, up 16.8% from 151,021 last year.

Total car sales for the month were 65,654, up 24.6% from 52,677 in the comparable prior year period.

And, total truck sales were 110,669, up 12.5% from 98,344 in August 2008.

Mashantucket 'feeling better'

A trader said that Mashantucket (Western) Pequot Tribal Nation's 8½% notes due 2015 had moved up into "the low 30s," ending at around 31, up from a 24 to 26 context, while its 5.912% notes due 2021 got as good as 50 bid, "so they seem like they're feeling better."

He said that the '21s had been languishing in the upper 30s to around 40, although he did not have any specific prior levels.

"They have to be up a good bit, being at 50 - I just don't know exactly how much," he said.

A market source noted that the bonds do not show up on the Trace bond-tracking service, making it difficult to get truly accurate levels on the paper.

The trader said both issues of bonds had improved solidly after the troubled tribe, owner of the big Foxwoods casino resort in Connecticut, had made a scheduled Sept. 1 debt payment, thus avoiding a possible default.

Sara Rosenberg and Paul Deckelman contributed to this article.

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