Movie Gallery bank debt blips back up; Calpine keeps rising

By Paul Deckelman and Sara Rosenberg

New York, March 28 - Movie Gallery Inc. saw its term loan levels tighten up a bit Tuesday as the bid side headed higher after spending the last few sessions in a downward spiral, bank debt traders said.

However, little was seen going on with the Dothan, Ala.-based home-video sales and rental chain operator's battered bonds, which seem to have settled in around the low-to-mid 40s region.

Elsewhere, Calpine Corp. bonds continued their resurgent rise, although yet another session passed without anybody being able to concretely say what was driving those prices higher.

General Motors Corp. bonds and those of its General Motors Acceptance Corp. financing arm were seen pretty much unchanged to down a bit, with some traders noting some late erosion in their levels after the company warned in a filing with the Securities and Exchange Commission that it was "uncertain" whether it will be able to complete its plan to sell a 51% stake in GMAC to some financially stronger buyer.

A bank debt trader said that Movie Gallery's term loan closed out the session quoted at 89.5 bid, 90.5 offered, up half a point on the bid side on a day-over-day basis, though unchanged on the offered side.

It has been a volatile month for Movie Gallery in the usually sedate and conservative bank debt market. That debt had spent the early part of March weakening on covenant compliance worries, but after the company completed an amendment to its credit facility around the middle of the month that relaxed certain financial covenants, levels had stabilized in a 93 bid, 94 offered type of context.

Just a few days later though, levels started to fall again as the company released full-year earnings estimates that investors found somewhat disconcerting and then, shortly after that, when audited fourth quarter and full-year numbers were released levels dropped off even more to the 90 bid, 91 offered context.

And, as if the saga wasn't complicated enough, this past Friday, the company filed a 10-K in which it disclosed that four material weaknesses in internal controls over financial reporting were identified - and it warned that there is a possibility that the company will fail to comply with some financial covenants for the first quarter of 2007 without further amendments to its credit facility.

Following the filing of the 10-K on Friday, company's term loan had dropped to 89.75 bid, 90.75 offered, and the softening continued into Monday's market as levels widened out to 89 bid, 90.5 offered.

It has also been a volatile month for Movie Gallery's 11% notes due 2012. They began March trading around 65 bid, 66 offered, and since then have cascaded down to their current levels around 44 bid, 45 offered.

Those bonds were seen little changed in Tuesday's session from the levels to which they had fallen late Friday on news of the covenant-compliance warning, though at one point intra-day on Friday, the bonds got as low as the 41 bid level before coming back from those depths to end around 44. The bonds had been little changed from those levels on Monday, and stayed there again on Tuesday.

Calpine gains more

Calpine bonds were again on the rise Tuesday, continuing the strange strengthening trend seen most of last week and even the week before that.

Traders remained at a loss to explain why anyone would want to buy the bonds of the bankrupt San Jose. Calif.-based power generating company, which faces a potentially long, messy and contentious restructuring before anybody even sees as much as a dime or recovery.

Even so, Calpine's bonds "continued to move higher" and were attracting "better buyers," a trader said, quoting its 8½% notes due 2011 at 40 bid, 41 offered, a two-point gain on the session.

"It seems like somebody knows something," he added in trying to explain the rise.

Calpine's 8½% notes due 2008 were at 51 bid, 53 offered, another trader said, also quoting its 7¾% notes due 2009 at 60 bid, 62 offered, with both bonds up two points on the day.

He also saw Calpine's 6% convertible notes likewise up a deuce at 30 bid, 32 offered, while its 4¾% converts due 2023 were also a pair ahead, at 38 bid, 40 offered.

Refco higher

Among other names, the trader saw Refco Inc.'s 9% notes due 2012 at 57 bid, 59 offered, up a point on the day and several points on the week. He saw no fresh news out on the bankrupt New York-based commodities brokerage - now in the process of being liquidated.

Curative Health steady

Traders saw Curative Health Services Inc.'s 10¾% notes due 2011 hovering in the 60-61 context, which they called little changed from levels they held before the announcement of the Hauppauge, N.Y.-based medical products distributor's filing of a Chapter 11 case, through which it will carry out its pre-packaged restructuring agreement agreed to by most of its bondholders and other creditors.

Among the automotive names, bankrupt and asbestos-challenged Southfield, Mich.-based brakes maker Federal-Mogul Corp.'s bonds were seen at 42.5 bid, up perhaps half a point.

Traders saw little or no movement Tuesday in the bonds of bankrupt Toledo, Ohio-based components maker Dana Corp., whose bonds were seen hanging around the upper 70s to low-80s.

There was also no activity seen in bankrupt Troy, Mich.-based auto components maker Delhi Corp., whose bonds are currently in the mid-to-upper 60s. After the market close came word that Delphi's unions had rejected a revised wage-cut proposal that would have gradually brought the $27 per hour average wage level gradually down to about $16 per hour. That union rejection now makes it more likely that former GM unit Delphi - which has been negotiating with GM and its unions for months on how to cut its labor costs - may march into the U.S. Bankruptcy Court for the Southern District of New York on Friday and ask the court for permission to throw out its contracts with the United Auto Workers and two other unions. The unions have threatened a strike should Delphi try it.

Such a strike would not only likely kill Delphi, as its executives have warned, but would badly disrupt production at former parent GM, which still counts Delphi as its largest single supplier.

GM holds ahead of 10-K

GM meanwhile announced the filing of its 2005 10-K report with the SEC; it had recently stunned the financial markets with the revelation that it would have to delay filing its year-end report while it restated some previously reported results due to the discovery of accounting glitches related to GMAC's earnings.

However, the announcement that the troubled Detroit giant had made good on the promise that it made at that time to have the annual report in before the end of the month came pretty much too late in the session to affect trading. Traders saw GM's benchmark 8 3/8% notes due 2033 holding steady to perhaps slightly lower at around the 74-74.5 area, while GMAC's 8% notes due 2031 hung in at around 93 bid, 94 offered.

"GM did nothing on the news," said a trader who saw GM's 8 3/8s half a point lower at 74 bid, 74.5 offered. He saw GMAC's 8% notes likewise half a point lower at 92.5 bid, 93 offered.

"There was nothing cooking there," he said, although he said that "tomorrow [Wednesday] may get some more substantial action."

Since the revisions to its cash flow components had already been announced and were expected, "this may be nothing," another trader said.

The accounting problems - having to do with the way some cash flow items at GMAC's Residential Capital Corp. mortgage unit were recorded from 2003 through 2005 - do not affect the consolidated income statements for GM, GMAC or ResCap, their balance sheets, or their net cash flows for any of the reporting periods in question. Nor do they affect cash flows reported for GM's struggling automotive operations.

News reports quoted analysts as saying the revisions meant little in the grand scheme of things, except for showing that GM is trying to clean up any problems that could conceivably delay or derail its efforts to sell a 51% stake in GMAC in hopes of generating between $11 billion and $13 billion in cash proceeds from such a sale, as well as paving the way for GMAC's currently high junk credit ratings to perhaps get back to investment grade, which would greatly lower its financing costs.

However, GM cautiously broached the possibility that the sale of a controlling interest in GMAC might not even take place, saying in its 10-K that it is "uncertain at this time if any transaction with respect to GMAC or ResCap will occur," or on what terms.

While boilerplate warnings about all of the things that could possibly go wrong at a company are routinely included in the language of 10-Q and 10-K reports filed with the SEC - so that company officers and directors can later tell angry shareholders that warnings of possible future problems were out there in the filings for anyone who wanted to spend the time and effort to read them - GM's admission that the GMAC deal might not take place, or might take place on less favorable terms than investors are hoping for adds new uncertainty to an already uncertain process that has now been dragging on since October.

GM also warned in the 10-K that "even if a third party acquires a controlling interest in GMAC, or if a transaction is completed with respect to ResCap, there is the possibility that these initiatives will not delink GMAC's credit rating from GM's credit rating or maintain ResCap's credit rating at investment grade.

"Failure to execute a GMAC strategic transaction will place further pressure on both GM's and GMAC's credit profiles, potentially resulting in further downgrades with GMAC's credit ratings explicitly re-linked to those of GM. Moreover, any reduction in the automotive finance capacity of GMAC could materially adversely affect GM's business to the extent that third party financing is not available to fund GM's automotive sales," GM warned.

"I don't think we'll get a really good idea" what all of this means "until the morning," when the equity and debt markets will be fully able to react to the GM news, said another trader - the shares were halted before the close and never reopened, for instance.

However, he did see GM's 8 3/8% bonds at 73.75 bid, 74.75 offered after the news, which he called down a point. He saw GMAC's 8s at 92.5 bid, 93.5 offered, post-news, which he called down ¾ point. "They're widening them out a little bit," he said of the late sellers, "just trying to cover their butts."

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