Dana bonds in solid rebound on funding talks; Movie Galley bonds, bank debt diverge

By Paul Deckelman and Sara Rosenberg

New York, Feb. 27 - It was bounceback time Monday for the badly battered bonds of troubled Toledo, Ohio-based automotive components maker Dana Corp. Those bonds were getting killed last week on rumors the company's efforts to line up new secured financing were in trouble, or even that Dana might be headed for Chapter 11 somewhere down the road - but on Monday they were on the upside on the news that Dana was continuing talks with its lenders, and had gotten a covenant waiver in connection with its accounts receivable securitization facility.

Apart from the volatile automotive sector, Movie Gallery Inc.'s term loan was heard to be lower on the day by about ½ to ¾ point. But with no trading activity in the name it was hard to tell if those levels were real, traders in that market said.

At the same time, the Dothan, Ala-based video rental store chain operator's bonds were seen going in the opposite direction, pushing up as they continued their comeback from recent lows.

"I heard 93 bid, 94 offered but no one is trading them. It's all speculation. I don't know why it would be lower today," a bank debt trader said, "since the bonds were up."

On Friday, Movie Gallery's term loan had closed out the day quoted at 93.75 bid, 94.5 offered, up on the bid side and tighter when compared to previous levels of 93 bid, 94.5 offered on rumors that the company had hired an investment bank boutique firm to explore options, including the sale of the company.

"Movie moved up a little," a trader in distressed notes said, pegging the company's 11% notes due 2012 a point better at 69 bid, 70 offered. However, another trader saw them holding steady at 68.25 bid, 69.25 offered.

A third bond trader agreed with the first, however, calling the bonds a point higher at 68.75 bid, 69.75 offered.

Movie Gallery's bank debt and bonds began falling two weeks ago, after a new movies-on-demand service called MovieBeam Inc. was announced by entertainment giant The Walt Disney Co. and several partners, creating some nervousness over the potential affects on Movie Gallery's bottom line. The company is the second-largest video rental chain operator in the United States, renting movies for at-home viewing through its eponymous Movie Gallery stores and through Hollywood Video, which Movie Gallery acquired last year. Of late, its revenues have been declining, along with those of larger rival Blockbuster Inc., the industry leader, hurt by the challenge posed by the popular Netflix video delivery service.

However, once people had time to get used to the news, Movie Gallery's bonds and bank debt started to rebound and attract more buying interest. The bonds are up more than 10 points from the lows they hit about a day or so after the Disney/MovieBeam news hit.

Refco rises further

Elsewhere, a distressed-debt trader saw Refco Inc.'s 9% notes due 2012 "improving a little," at least for a while, moving up to 61 bid on the day before dropping back to end essentially unchanged on the session at 59 bid, 61 offered .

While acknowledging that the bankrupt New York-based financial services company's bonds were up at least eight or nine points from their levels around 51 a week ago, he pointed out that "three weeks ago" the bonds were trading in the 70s.

Asbestos quiet

He also saw "nothing going on" in the bonds of the asbestos-challenged Armstrong World Industries Inc. or Owens Corning, with the former going out at 61 bid, 63 offered and the latter at 77 bid, 79 offered.

Sponsors of a controversial Senate measure to set up a national trust fund to pay asbestos medical claims were circulating a letter on Capitol Hill seeking the signatures of at least 60 senators to ask for a re-vote on a procedural point that's blocking passage of the bill. According to Senate rules, a "supermajority" of sixty votes is needed to overcome the delaying tactic.

The bill's backers say it will set up a mechanism to quickly and fairly process the tens of thousands of asbestos medical lawsuits without clogging up the courts. Opponents say the $140 billion industry- and insurance-financed fund will not be adequate to process all present and future claims, and the taxpayers may get stuck making up the shortfall.

Dana up on financing news

Traders in the junk bond market Monday meantime said that the big gainers were coming out of the distressed automotive area, with Dana leading the way, in response to the company's announcement that it is working with its lenders on new financing, and expects to have everything wrapped up within the next two weeks.

At the same time, another troubled auto parts manufacturer, Tower Automotive Inc., was higher, after reaching agreement with its unions on shutting down a Wisconsin factory as part of the Rochester Hills, Mich.-based company's efforts to trim overhead and reduce capacity.

Market buzz that Dana's efforts to line up new secured credit facilities were in trouble helped beat Dana's bonds down badly last week and caused a sharp widening of the cost of protecting its debt against a possible default in the credit default swaps market.

But on Monday the news was good, with Dana also announcing that it had gotten a waiver of the minimum credit rating requirement for its program securitizing payments due on its accounts receivables.

A trader saw Dana's 5.85% notes due 2015 up 1½ points at 61 bid, 62 offered, while its 7% notes due 2029 were at 62 bid, 63 offered, also up 11/2. He saw the shorter-maturity debt gain even more, with its 6½% notes due 2008 two points better on the day at 65 bid, 66 offered, and its 6½% notes due 2009 at 64.5 bid, 65.25 offered, well up from 62 bid, 63 offered.

Another trader saw Dana as "very volatile" and said that the day-over-day gains only tell half the story; for the 6½ '09 bonds, he said, Friday's closing level at 60.5 bid, 61.5 offered quickly gave way to Monday's opening levels at 65 bid, 66 offered, helped by Dana's announcement. The bonds pushed as high as 66.5 bid by mid-day, though after that, they came off that peak level to end at 63.5 bid, 64.5 offered, "net-net up three points, and up 5½ to 6 points intraday."

Dana's New York Stock Exchange-traded shares - which lost most of their remaining value in volatile downside trading last week - were seen on the comeback trail Monday, jumping 27 cents (17.88%) to $1.78 on volume of 51.8 million, or more than 10 times the average daily turnover.

Tower gains on union pact

"The other volatile name" in that sector was Tower, whose 12% notes due 2013 pushed as high as 68.5 bid, before coming off that peak to finish at 66 bid, 67 offered - still up more than two points from the previous level at 63.5 bid, 64.5 offered.

However, another trader said he had seen the Tower bonds trading in that 66 bid, 68 context Friday and pronounced them unchanged at that level Monday. "The news didn't them much good."

He was referring to the announcement that the bankrupt Novi, Mich.-based vehicular frames maker had reached agreement with the unions representing its workers at the company's plant in Milwaukee resolving issues arising from the planned closure next month of that plant. The agreement must still be approved by the bankruptcy court and the union members.

Tower also said that its board of directors had authorized management to begin negotiating with the union about the planned closing of its Greenville, Mich. plant.

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