GM bank debt firms on Cerberus news; Movie Gallery bonds nosedive

By Paul Deckelman and Sara Rosenberg

New York, March 13 - General Motors Corp.'s revolving credit paper was stronger during Monday's market hours as news reports emerged on a new participant in the Cerberus Capital Management LP bid for General Motors Acceptance Corp., traders said.

However, bond traders saw little real movement on the day in the name; they said the Cerberus news initially gave GM, GMAC and other automotive-themed bonds a bid - but the gains quickly evaporated to leave those names mostly unchanged.

Dana Corp., however, was seen continuing to firm more than a week after its declaration of bankruptcy.

Elsewhere, the bonds of Movie Gallery Inc. - after a modest rebound Friday from their previous lows - were back on the slide on Monday, pushing down to closing levels in the mid-to-upper 40s.

GM's revolver closed out the day quoted at 83.75 bid, 84.75 offered, up by about half a point, a bank debt trader said.

"There was an article this morning in the Journal about a Japanese bank putting in money with Cerberus for GMAC. [The revolver] always reacts to any GMAC news," the trader explained.

GM has been trying to sell a 51% stake in GMAC for months now. The company was originally hoping to sell the stake to an investment-grade financial buyer in hopes that such a sale would restore GMAC's credit rating to above junk and greatly lower its borrowing costs, but as more information surfaces, it seems more and more likely that a hybrid buying group is the way things will end up.

Over on the bond side of fence, a trader saw the sector's bonds firm in early trading after the Journal reported that Cerberus Capital Management may secure some of the funding for its bid for control of GMAC from its portfolio firm, Aozora Bank Ltd. of Japan.

"Basically, all of the auto suppliers were up by about a point from around 8 a.m. (ET) until around 10 o'clock (ET). Then they all gave it back and would all finish the day unchanged.

"So they're raising some capital - but who knows if they're strong-arming them into it," since Cerberus controls Aozora.

"It gave a little bit of push to the sector - and then they gave it all back."

He said the recently robust Dana bonds "opened up strong," with its 6½% notes due 2009 going as high as 77.25 bid, 78.25 offered, up about a point on the day, but then dropping back later on to finish at 76 bid, 77 offered, "virtually unchanged net-net. But intraday they were up a little bit."

The Journal said that the Japanese bank might put up $1 billion of what is expected to be $11 billion that Cerberus is likely to bid for a 51% stake in GMAC.

Another Japanese bank, Norinchukin Bank - one of the country's largest financial institutions - was reported last week to also be considering joining the Cerberus-led effort to buy control of GMAC. Cerberus, a New York-based private equity firm, has already enlisted Citigroup Alternative Investments, a Citigroup Inc. buyout unit, as a partner. The Journal said that other Cerberus-affiliated portfolio companies might become part of the coalition.

The Cerberus-led group is at this juncture the only real contender for control of GMAC, which General Motors is selling in the hopes of raising the financing unit's debt ratings from their current junky levels and generating more than $10 billion in additional liquidity for GM. A number of companies thought to be potential buyers, including Wells Fargo Bank and Bank of America, have said they were not interested, and Wachovia Bank was recently reported to have dropped out of a joint bid with Cerberus rival Kohlberg Kravis Roberts & Co.

That development was greeted with dismay by the financial markets. But news reports said the giant carmaker is pressing on with its effort, hopes to have a preliminary agreement with its buyer - probably the Cerberus group - by the end of the month, to bring the deal before its board for formal approval by June, and to have the transaction closed by the end of the year.

Dana strong

Another trader, though, saw Dana's bonds "well bid-for," with its 5.85% notes due 2015 push as high as 75.75 bid, 76.25 offered, and then come off that peak level to close at 75.25 bid, 75.75 offered - off the peak level but still well up from 73 bid, 74 offered on Friday.

He agreed with the theory that the bankrupt Toledo, Ohio-based automotive components maker's bonds are being propped up by demand for bonds needed for physical delivery in order to satisfy some of the billions of dollars of credit default swap contracts written before Dana filed. Those CDS contracts function like an insurance policy on the company's debt that pays off to the contract holder in the event of a default.

Yet another trader saw those 5.85s pretty much unchanged at 75.25 bid, 76.25 offered, with Dana's 6½% notes due 2008 at 76.5 bid, 77.5 offered, up half a point, while its 7% notes due 2028 were ¾ point better at 76.5 bid, 77.25 offered.

The trader meantime saw GM's benchmark 8 3/8% notes due 2033 at 74 bid, 74.5 offered, down ¼ point on the day, while GMAC's 8% notes due 3031 were unchanged on the day at 93.75 bid, 94.25 offered.

Ford Motor Co.'s 7.45% notes due 2031 were down ¼ point at 72 bid, 72.5 offered, while its 7% notes due 2013 were at 88 bid, 88.5 offered, unchanged.

Yet another trader saw the Dana bonds higher by a point on the bid side, at 76 bid, 77 offered, while former GM unit Delphi Corp. was also a point better, at 60 bid, 62 offered for its 6.55% notes slated to come due later this year.

GM and GMAC, meantime, "were trading a lot, but within a range. I don't think they did anything."

He saw the GMAC 8s at 94 bid, 95, with "a lot of trading, but no price movements."

Tower steady

Among other automotive names, Tower Automotive Inc.'s 12% notes due 2013 were seen little changed, trading in a 65-66 context, traders said.

The bankruptcy judge overseeing Tower's reorganization has put off making a decision on the Novi, Mich.-based vehicular frame maker's request that it be allowed to reject its contracts with the United Auto Workers and its other labor unions, avoiding - at least for the moment - the threat of an immediate strike.

Judge Allen Gropper of the U.S. Bankruptcy Court for the Southern District of New York had been scheduled to rule on Tower's request Monday - but the company said late Friday that he had postponed handing down a ruling for now in order to give the company and the unions more time to work out their issues.

In putting off a decision until some time later this month, Gropper said that the two sides were making continued progress and should be permitted to keep talking

Tower - which petitioned the Manhattan court for Chapter 11 protection from its junk bond holders and other creditors in February 2005 - has said it needs to junk the contracts in order to have more flexibility to restructure. It wants to reduce its labor costs by cutting the wages it pays to its unionized workers - now making $13 to $15 per hour on average - by about $1.50 to $3 per hour. It also wants to make the employees pay about 30% more monthly towards their healthcare plan.

The UAW and two other unions with smaller representation at Tower, the United Steelworkers of America and the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers-Communications Workers of America, warned on Jan. 30 that their members had authorized a strike if Tower were to reject their contracts.

Movie Gallery bonds resume decline

A trader said that not much was going on outside of the auto sector - but one name which was seen bouncing around at lower levels was Movie Gallery.

The Dothan, Ala.-based operator of Hollywood Video, the Number-Two U.S. video rental store chain, got clobbered all of last week but seemed to edge up a couple of points from its oversold condition on Friday to peak levels around 51-52.

But that was old news by Monday when the bonds were seen heading back down in apparent investor reaction to Friday's downgrade by Moody's Investors Service.

A trader saw the bonds fall to 47 bid, 49 offered from Friday's levels at 52 bid, 54 offered. Another saw the bonds at 48 bid, 49 offered, down from 51 bid, 52 offered.

However, the company's term loan term loan was seen trading at stronger levels as good buying interest was apparent in the market, according to a bank debt trader.

The term loan closed out the day quoted at 92 bid, 92.5 offered, up from previous closing levels of 91 bid, 92 offered, the trader said.

"Moody's downgraded it on Friday. I think people saw it as an opportunity to buy into the paper but I don't think it's really panned out. Just seeing better buying, so it's been bid up. Everyone knows there's an amendment [to the company's credit facilities] in the works. They're trying to get in before [the amendment] pushes through," the trader explained.

On Friday, Moody's downgraded Movie Gallery's bank debt to Caa1 from B2 and notes to Caa3 from B3, while leaving the ratings with a negative outlook, explaining that the downgrade reflects the expectation that the company's performance will deteriorate during 2006 resulting in significantly weakened liquidity, further erosion in credit metrics and negative free cash flow.

Some traders had said on Friday that after the downgrade, the term loan was being quoted at 90 bid, 91 offered, up slightly from Thursday's closing levels of 89.75 bid, 90.5 offered, but not nearly as good as the 91 bid, 92.5 offered levels that were seen on Friday morning.

However, other traders said that the term loan was pretty much unaffected by the downgrade with levels remaining in this 91 bid, 92 offered context until the close on Friday.

The company has been in the spotlight since the start of last week as lender calls were held to discuss necessary amendments to loan financial covenants.

Movie Gallery is not currently in default under its covenants but is looking for relief going forward and in return, would likely give lenders an amendment fee and higher pricing on all loan tranches.

Integrated Electrical jumps

Elsewhere, Integrated Electrical Services Inc.'s 9 3/8% notes due 2009 were seen up anywhere from three to five points, after the Houston-based electrical contractor won approval for its disclosure statement from the bankruptcy court overseeing its restructuring.

Under that plan, holders of the company's approximately $173 million of senior subordinated notes will convert those notes into equity in the restructured company, reducing its long-term debt from $236 million to $63 million.

The company's 9 3/8% notes were quoted by one trader at 117 bid, 122 offered, up from 112 bid, 114 offered, while a second saw the bonds three points better on the session, at 116 bid, 118 offered.

Refco Inc.'s 9% notes due 2012 were seen having fallen to 49 bid, 51 offered from prior levels in the low-to-mid 50s. However, traders said they were not aware of any major new developments with the bankrupt New York-based financial services company.

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