Movie Gallery bank debt bonds, heading back up; asbestos firmer as well

By Paul Deckelman and Sara Rosenberg

New York, Feb. 17 - Movie Gallery Inc.'s term loan was up by about a ½ point to a point Friday, depending on the trader asked, as investors seem to have gotten over the initial panic sparked by the emergence of potential rival MovieBeam Inc. during the early part of the past week.

The term loan was being quoted in the 91 bid, 93 offered context during the session, the trader said. By comparison, on Thursday one trader had the bank debt closing out the day at 90 bid, 91 offered and another saw it finishing more like 90.25 bid, 92.25 offered.

The Dothan, Ala.-based video rental chain operator's 11% notes due 2012, meantime, were also on the comeback trail on Friday, rising as much as three points to finish at bid levels in the 61-62 area.

"Those bonds had gotten beaten needlessly earlier in the week," a trader said, quoting the notes at 61.5 bid, 62.5 offered, a three-point gain over where they were on Thursday. "There were better buyers around."

He said that between last Tuesday and Thursday the bonds had swooned some 10 points, from the upper 60s down to the upper 50s, after entertainment giant The Walt Disney Co., high-tech operators Cisco Systems and Intel Corp., and financial partners Mayfield Fund, Norwest Venture Partners and VantagePoint Venture Partners announced the newly formed Burbank, Calif.-based venture, MovieBeam, which provides movies-on-demand service, some in high definition, in 29 major metropolitan areas across the United States, including New York, Los Angeles and Chicago.

The fall in the bonds "was really unwarranted," he said. "This is a cash flow-positive company, it does $2.5 billion in sales every year. You should see the paper bounce right back to its [previous] levels, but it did get beaten up this [past] week, though it's up off its lows."

Another trader, who pegged the bonds at 61 bid, 62 offered Friday, noted that at their low point, "they were down at least eight, 10, 12 points." He said that before swooning as low as 58 bid on the Disney news, the 11s had begun the week at 68, and had been at 70 bid as recently as Feb. 8.

While the bonds were in a 10-point freefall during the week, in the more conservative bank debt market, Movie Gallery's term loan had dropped by about 2½ points to the 89 bid, 91 offered region this past Tuesday on the MovieBeam news.

With the arrival of this new competitor, market players started to fret over the possibility of seeing a weakening in Movie Gallery's bottom line, which in turn created an environment in which bank debt levels were pushed lower, a trader said.

Even without the news that industry behemoth Disney was backing a potentially serious new rival, investors in Movie Gallery's bank debt, bonds and equity - as well as those of larger rival Blockbuster Inc. - have been feeling a little queasy of late, watching the companies' underperforming financials and fretting about competition from the popular Netflix service, as well as on-demand and pay-per-view movie options offered by cable TV and satellite broadcast operators.

However, the term loan started to rebound on Thursday and the trend continued into Friday, given that people had time to digest the news about the new potential competitor, and put it in perspective, the trader explained.

Armstrong, Owens Corning rebound a little

Elsewhere, a trader saw the bonds of asbestos-challenged names such as the bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc, and the bankrupt Toledo, Ohio-based insulation maker Owens Corning coming off the lows they had hit around mid-week after the U.S. Senate was unexpectedly unable to overcome a parliamentary delaying tactic used by opponents of a controversial bill that would establish a $140 billion industry- and insurance-financed national trust fund to pay the claims of people who say they have developed medical problems as a result of past exposure to asbestos, which was widely used in past decades as an effective fire retardant - before its carcinogenic properties became known.

That 59-40 vote - which fell one vote short of the number needed to end the stall and put the bill out on the Senate floor for a vote - caused a sharp fall in the bonds of Owens Corning and Armstrong, the kinds of firms which had been hoping that as claims mechanism capping their ultimate liability would be put in place.

Supporters of the bill say they will try to bring it back for another vote - but that won't happen before sometime next month at the earliest, since the Senate is first going to take up the thorny - and potentially long-running - question of extending the Patriot Act.

On Friday, however, traders saw the asbestos names come off their lows. One saw Owens Corning's 7½% notes due 2018 at 80 bid, 81 offered, up 1½ points on the session, while Armstrong's bonds were also 1½ points higher at 65 bid, 66 offered, "so it looks like there is a little bit of life" to the sector, he said.

The bonds of both company, while off lows seen Wednesday and Thursday, are still nearly 10 points down from where they had been before Tuesday night's procedural vote in the Senate.

Other big losers on the week, traders said - even though they were little changed on Friday - included Solutia Inc. and Refco Inc.

Solutia, the bankrupt St. Louis-based chemicals maker, fell 10 points over the course of several sessions to around a 72ish bid level, in apparent investor dismay over provisions of its plan of reorganization, which had been filed earlier in the week.

Refco, the bankrupt New York-based financial trading firm brought down by a scandal last summer, fell about eight or nine points on the week, from the high 60s to around 58-59, on the news that an auction for the assets of its foreign exchange unit had been cancelled because of lack of interest, with only one company putting in a bid.

Delphi gains on extended deadline

Bonds of Delphi Corp. were better after the bankrupt Troy, Mich.-based automotive electronics manufacturer said Friday that it would extend through next month its deadline for reaching agreement with its main union and with former parent General Motors Corp. on how the company could cut its burdensome inherited labor costs. Besides pushing Delphi's bonds up a point or so, it lifted GM and other automotive names as well.

Delphi had previously given its major unions and GM until Friday to come to some sort of agreement on reducing wage and benefit provisions. It had threatened to go into bankruptcy court and ask the judge overseeing its case to toss out the contract.

Delphi "was bouncing around all over," a trader said, who saw those bonds - which have been languishing in the lower 50s - get over 55 bid, before coming off that high to close at 54 bid, 55 offered, which he described as "up a point or so."

Another trader saw the Delphis jump as high as 56 bid, from opening levels at 53 bid, 55 offered, but then said that the bonds came off that peak and gave up most of their gains to end at 54 bid, 55 offered.

At another shop, the gains were seen even smaller, with a trader pegging the 6.55% notes due 2006 half a point higher at 54.25 bid, 54.75 offered, and the 7 1/8% notes due 2029 at 55.25 bid, 55.75 offered, which he saw as up ¾ on the day.

Yet another trader, though, pronounced a two-point gain on the session for the 7 1/8s, which he saw ending at 55.5 bid, 56.5 offered.

Delphi's bonds firmed after the embattled company announced that it had extended the deadline by which it wants to have an agreement with GM and the United Auto Workers union to March 30.

It was the second time that Delphi had backed off on a threat to seek to have its labor contracts covering 34,000 hourly workers voided. The company, which filed for Chapter 11 protection in October, had originally said it would seek to throw out those contracts in January, but then pushed that deadline off until Friday. Now it has given the process another six weeks in hopes of coming up with some kind of consensual agreement.

The UAW, which represents about 24,000 Delphi workers, had threatened a strike if Delphi moved to junk the contracts, and several smaller unions, representing the rest of the employees, had gone along with that.

Delphi, which was spun off from GM in 1999 and which inherited high-cost automaker-style contracts far more costly than contracts its peers in the automotive supplier industry have, is hoping for help its former parent, perhaps in the form of an arrangement with giant carmaker not unlike the one that GM's arch-rival Ford Motor Co. reached last year with its former unit, Visteon Corp., which probably thus avoided a likely bankruptcy filing when Ford agreed to take 23 high-cost, unprofitable U.S. factories off the Van Buren Township, Mich.-based parts maker.

Delphi says its U.S. hourly workers made some $75 an hour in wages and benefits in 2005, which puts its costs far above those of other suppliers, even those having contracts with the UAW and other unions. Delphi has asked the UAW to OK cutting the workers' pay and benefits by as much as 60% - a request the union turned down flat when Delphi made it, and which it continues to vehemently reject.

Even as it pushed off the deadline to the end of March, Delphi threatened that if an agreement is not met by the new deadline it will promptly file a motion with the bankruptcy court to reject the collective bargaining agreements and terminate hourly workers' post-retirement health care plans and life insurance.

"While major obstacles and difficult issues remain to be resolved, the discussions to date with GM and our major unions helped frame the concerns and objectives of each organization," said Robert S. "Steve" Miller, Delphi chairman and chief executive officer, in a company news release.

"As we have said before, we remain committed to reaching a consensual agreement. This deadline should provide us sufficient time to deal with the complexities inherent in fashioning practical and workable solutions, and an effective agreement that works for all of us," Miller added in the release.

A strike would have disastrous consequences for Delphi and would also seriously disrupt production at GM - Delphi's single biggest customer, with Delphi, in turn, GM's single biggest parts supplier. How much GM can help Delphi is open to question, though, since GM itself lost over $8 billion last year, and has embarked on its own efforts to scale back its North American operations and reduce its own labor costs.

GM better on Delphi news

But the respite from the prospect of an immediate confrontation between Delphi and the UAW that could end in a strike helped GM's bonds Friday, a trader seeing its benchmark 8 3/8% notes due 2033 half a point better at 73 bid, 73.5 offered, while the 8% notes due 2031 of the carmaker's General Motors Acceptance Corp. financing unit were a quarter-point better at 96.25 bid, 96.75 offered.

In the bank debt market, GM's revolver headed higher on Friday on the Delphi news. A trader in the automaker said the revolver was being quoted at 80.25 bid, 82.25 offered, up about a quarter of a point from previous levels in the 80 bid, 82 offered area, the trader said.

Other auto names gain

Among other automotive names, Ford's flagship 7.45% notes due 2031 were meantime at 73.25 bid, 73.75 offered, ¼ point better, as were its Ford Motor Credit Co. 7% notes due 2013, which edged up to 90.25 bid, 91 offered.

Among other parts suppliers, Visteon's 8 ¼% notes due 2010 were seen up ¾ point at 84 bid, 84.75 offered. The trader saw Dana Corp.'s 5.85% notes due 2014 unchanged at 66.75 bid, 67.75 offered, while Lear Corp.'s 5¾% notes due 2014 were a point better at 80 bid, 81 offered.

Another trader, who saw the bonds of the other non-Delphi suppliers "up modestly," estimated that Visteon's 8 1/4s were a point better, at 84 bid, 85 offered, while ArvinMeritor Inc.'s 8 ¾% notes due 2012 were half a point better, at 98.5 bid, 99.5 offered.

He meantime saw the GM bonds at the same 73 bid 74 offered level as others in the market, but called them 1½ points better on the day.

In the power generating sphere, Calpine Corp. "has been inching up," the trader said, with the bankrupt San Jose, Calif.-based energy company's 8½% notes due 2011 at 32 bid, 33 offered, up a point on the session and up three points on the week.

The trader also saw Mirant Corp.'s 8.30% notes due 2011 up a point at 103.75 bid, 104.75, citing reports that the Atlanta-based power generating company - which recently emerged from bankruptcy - is looking to sell its Philippine operations. Published reports Friday said that it has hired Credit Suisse to help it explore its options.

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