Blockbuster bonds go for a ride; GM debt bolstered by CFO comments; U.S. Concrete holds ground

By Stephanie N. Rotondo

Portland, Ore., March 17 - The bond market was "crazy busy," on Wednesday, according to a trader.

Mostly, the action was attributed to more new issues, which have taken focus away from distressed debt. However, Blockbuster Inc. managed to gain a fair amount of attention during the session.

The movie rental chain's bonds were touted as the busiest credit in distressed territory, as investors reacted to a regulatory filing that came out late Tuesday. In the filing, the company said it was looking to maximize its cash and was therefore considering a debt-for-equity swap. As a result of the news, the bonds gyrated throughout the day, ending toward the intraday lows.

Meanwhile, General Motors Corp.'s debt reacted favorably to comments made by the company's chief financial officer. As the CFO speculated that profitability in 2010 was possible, the automaker's bonds gained another point or more.

But U.S. Concrete Inc.'s notes were unfazed by a regulatory filing made late Tuesday. The company said in the filing that it was unlikely that it would extend or refinance its bonds before the April 1 coupon came due.

Blockbuster bonds take a ride

Blockbuster was the nom du jour, reacting to a 10-K filed late Tuesday in which the Dallas-based company said it was considering a debt-for-equity swap.

A market source said Blockbuster's 9% notes due 2012 were "probably the biggest" distressed trade. He noted that "well over $200 million" of the subordinated notes changed hands.

The source saw the bonds "bounce up and down a little bit" between 19 and 221/2. By the end of business, the notes calmed down to end at 20 bid, 20½ offered.

Another trader placed the issue around the 21 mark, calling that down 3 points.

At another desk, a trader called the 9% notes "very active," seeing the 9% notes "trade down to 19 [and then] settle in at 21." He also deemed that a 3-point loss on the day.

In a filing with the Securities and Exchange Commission, Blockbuster said it was "in the process of developing and initiating certain operational and business strategies to attempt to maximize our cash and cash equivalents over the near term." One such option put forth was to exchange the senior subordinated notes for class A common stock.

As such, the company said that senior secured and subordinated noteholders had formed committees, retained advisors and are doing due diligence.

Blockbuster considers options

"Assuming that we can reach agreement with such holders on the terms of an exchange, we will seek to implement an exchange during the latter part of the second quarter or early part of the third quarter of this year, depending on the timing of SEC clearance of the exchange documentation and when we receive, if necessary, shareholder approval," Blockbuster said in the SEC filing.

The company noted that any exchange or potential refinancing could include some form of a prepackaged bankruptcy filing.

"If we cannot meet our capital needs using cash on hand and cash from operations, in addition to the actions set forth above, we may have to take actions such as modifying our business plan to close additional stores, pursuing additional external liquidity generating events, seeking additional financing to the extent available, further reducing or delaying capital expenditures, further restructuring our existing indebtedness or filing for protection under the U.S. Bankruptcy Code," the company said.

Market players have been speculating for a while about Blockbuster's future. Many have asserted that the "bricks and mortar" business model that it relies on is not working and therefore, it would seem unlikely that the company could survive in a digital world.

Some just simply feel the business is, in a word, useless.

"It's about time," a source said regarding the potential swap news. "I never understood why [the bonds] traded up to 26. I think it's just a useless business."

GM bolstered by CFO comments

General Motors' debt continued to firm during the midweek trading session. The bonds were further pushed higher by positive comments regarding profitability made by the automaker's chief financial officer.

A trader saw about $28 million to $29 million of the benchmark 8 3/8% notes due 2033 traded "up and down" around 34. He added that "all of the other [issues]" were trading "generically" around 33.

"They're grinding higher," said another trader, placing the 8 3/8% notes up 1½ points to 341/4. He said the 8¼% notes due 2023 were half a point stronger at 333/4.

Another trader quoted the 8 3/8% notes at 34¼ bid, 34½ offered.

At an interview held at GM's Detroit headquarters, Christopher P. Liddell, CFO, said that the company has a "reasonable chance" of seeing a profit in 2010. That would be a dramatic shift, as GM lost approximately $88 billion between 2004 to its 2009 Chapter 11 filing.

"Preconditions for success are extremely good," Liddell said.

Also in the automotive arena, Ford Motor Co.'s 7.45% notes due 2031 saw "a little action, but not what you would think," a trader said, after Moody's Investors Service upped its rating.

The trader noted that the longer issues, such as the benchmark 7.45% notes due 2031, were up the most, pegging that issue at 92 bid, 92½ offered. He called that "up a couple points," on $25 million to $30 million traded.

"The short stuff was marginally better, but not earth shattering," he said.

U.S. Concrete holds its ground

U.S. Concrete's bonds were unaffected by the company's 10-K filing late Tuesday, according to traders.

A trader saw the 8 3/8% notes due 2014 holding in around 58, still trading flat of accrued interest. He noted that the bonds recently hit a low around 56 and then a high of 62, but that the bonds were staying within that range.

Another trader also placed the paper around 58.

"That's about unchanged," he said.

Late Tuesday, the concrete manufacturer said there was "substantial uncertainty" that it would be able to extend or refinance the notes ahead of the April 1 coupon. The company has an $11.4 million interest payment due on that date and will get 30 days to cure any default.

U.S. Concrete is based in Houston.

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