Movie Gallery bank debt gives up most gains, but bonds higher despite downgrade; Dana rise continues

By Paul Deckelman and Sara Rosenberg

New York, March 10 - Movie Gallery Inc.'s term loan started Friday's session on a strong note as levels moved up by over a point, but then things took a turn after Moody's Investors Service downgraded the company's debt, traders in that market said.

It was a different story in the junk bond market, where the Dothan, Ala.-based video chain operator's battered bonds were seen rebounding from their oversold condition to end the day several points higher.

Also moving higher were the bonds of Dana Corp. Among the reasons offered by market-watchers for the rise was the need of credit default swaps contract holders to obtain those bonds so they could deliver them and get paid off on their insurance-like contracts, as well as speculation in some quarters that despite its bankrupt status Dana has a lot of good assets that could be sold to give bondholders recovery near - or even at - par.

Movie Gallery's bank debt closed out the day 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, a trader said.

Initially, the term loan was up Friday on the coattails of the company's bonds feeling stronger - but once Moody's came out with a ratings cut, debt levels overall came back in, the trader added.

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.

Volatility in Movie Gallery's bank debt has been apparent since early on in the past week, after it became widely known that the company held lender calls on the afternoon of March 6 to discuss the overall business environment and the amendment of financial covenants.

The company 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.

Movie Gallery's bonds, on the other hand, were up notably on the session, after having gyrated wildly at lower levels on Thursday. They had closed out Thursday's session at around 50 bid, down about five points, after first having been quoted as low as 46-47 in intraday dealings.

On Friday, however, a trader saw those bonds move up two points to 52 bid.

A second trader agreed that the credit "bounced back" on Friday, seeing it up more than two points on the day at 51.5 bid, 52.5 offered.

Even so, he said, "it's been a brutal week" for the Movie bonds, which had been seen as high as around the 65-66 area on Monday, before word spread that the company had been forced to seek covenant relief from the lenders.

Adelphia lower

Elsewhere, a trader saw the bonds of bankrupt Greenwood Village, Colo.-based cable operator Adelphi Communications Corp. lower by about two points across the board, although no fresh news was seen out that might have been the catalyst for such a fall.

The trader pegged Adelphia's 9¼% notes at 63.5 bid, along with its 7¾% notes, while its 9 3/8% notes due 2009 were at 65, all two points lower on the session.

At another desk, a trader saw Adelphia's 10¼% notes due 2011 unchanged on the day, but down two points on the week, along with other cable industry names, distressed and otherwise.

He said bonds in that sector were all seen falling in response to the news early in the week that AT&T Inc. will be acquiring regional phone giant BellSouth Corp., creating a more formidable competitor as the cablers and the telecom providers square off and try to grab each other's traditional customers.

He saw Charter Communications Inc. as "the big loser," its 8 5/8% notes down a point on the day and five points on the week.

Winn-Dixie higher

A trader saw Winn-Dixie Stores Inc.'s 8 7/8% notes due 2008 having "moved up a little," firming to 78 bid, from 76 offered on Thursday. The bankrupt Jacksonville, Fla.-based supermarket operator was given an additional 30 days, until April 19, to have exclusive rights to file a reorganization plan and solicit creditor approvals.

Asbestos names better

Also up a bit, he said, were the bonds of such asbestos-challenged companies as Armstrong World Industries Inc. and Owens Corning. Armstrong's bonds were seen a point higher at 68 bid, 69 offered, while Owens was also a point better, at 76 bid, 77 offered.

Dana keeps gaining

In the automotive arena, Dana Corp., a trader said was "a little weird - it keeps going higher," despite the Toledo, Ohio-based automotive components maker's bankruptcy filing a week earlier.

"They would have been better off filing for bankruptcy years ago," he quipped.

He saw the company's 6½% notes due 2009 get as good as 76.5 bid, 77.5 offered before coming back in off that high to finish at 75 bid, 76 offered, which he said was still up a point on the session. Those bonds had been quoted at that same shop at 66 bid, 67 offered on March 2 - the day before Dana sought Chapter 11 protection from its junk bond holders and other creditors.

Another trader saw Dana's 6½% notes due 2008 2½ points higher at 76.25 bid, 77.25 offered, while its 5.85% notes due 2015 were up two points and its two issues of 7% notes, due 2028 and 2029, were 2½ points better at 75.75 bid, 76.75 offered.

Yet another trader pegged the bonds up two to three points on the session at 76 bid.

The first trader agreed with the suggestion that Dana's bonds were likely being pushed up by demand from holders of credit default swaps contracts - which function like insurance against a company's default. Should a bankruptcy or other event of default occur, investors or speculators who have bought such contracts are paid the par value of the bond, upon its surrender to the contract seller. While most CDS contracts can be settled for cash - the contract holder pays a designated settlement price in lieu of the bond, and receives the difference between that price and par - some of the contracts require the actual delivery of the bonds, which causes a short squeeze as holders of that particular kind of single-name contracts scramble around trying to obtain the bonds.

Other factors may be at play, however; there have been some suggestions that despite its bankruptcy filing and the industry-wide troubles that helped lead to it, Dana's bonds are seen having a good deal of value.

In a research note on Friday, an analyst opined that the bonds have been rising at least in part on investor speculation that they could see a pretty good recovery - maybe even as good as par.

Proponents of such a scenario point out that Dana has a lot of assets, including joint ventures, its overseas operations and its Dana Credit Corp. financial arm that collectively could cover the value of its debt should those assets be liquidated. The non-U.S. operations, in Canada, Europe, Asia and Latin America, are not a part of the domestic Dana bankruptcy filing.

GM higher

Also in that same automotive arena, participants were mostly seeing GM's bonds, and GMAC's continuing to rise, even though it would seem that the auto workers union's statement Thursday that no deal was imminent regarding Delphi had let the air out of that balloon.

A trader pegged GM's benchmark 8 3/8% notes due 2033 at 74.25 bid, 74.75 offered, up a point on the day, while GMAC's 8% notes due 2031 were likewise up a point, at 93.75 bid, 94.25 offered.

A second trader saw GM "up a little," at 74 bid, while the GMAC 8s were also firmer at 93.5 bid, 94.5 offered. However, yet another trader disagreed, seeing the GM bonds at 72.5 bid, 73.5 offered and the GMACs at 92.25 bid, 93.25 offered, both unchanged.

GM's bonds, and Delphi's also, had each moved up several points on Thursday after The Wall Street Journal reported the parties were close to an agreement. Such a deal, should it come about, would have GM investors breathing a sigh of relief, even though it could mean GM might have to take some Delphi operations and their highly-paid workers off Delphi's hands the way GM rival Ford Motor Co. did for its former parts subsidiary, Visteon Corp., last year.

That's because if it can't reach a deal with the union and GM, Delphi has threatened to ask the bankruptcy judge overseeing its case to toss out labor contracts covering 34,000 hourly workers, which could in turn send those workers out on strike, disrupting the flow of parts to GM - easily Delphi's largest single customer - just as the giant carmaker is trying to dig itself out of the hole it found itself in last year, when it lost $8.6 billion.

Even though the UAW made it clear in its statement that "nothing could be further than the truth" regarding media suggestions that a deal on Delphi was near, GM bonds and those of Delphi as well, while coming off their euphoric early-Thursday highs, still ended the day higher, and GM continued to firm Friday, most traders said.

Delphi also up

Delphi's bonds, meantime, were also seen better Friday, with one trader seeing the Troy, Mich.-based automotive electronics manufacturer's 7 1/8% notes due 2029 a point better at 61.25 bid, 62.25 offered.

At another desk, a trader saw Delphi's paper all up about 1½ points on the day, at bid ranges from 60.5 to 62.5.

However, a third trader said that "there was not much going on in Delphi today [Friday]. All of the action was yesterday [Thursday]. The bonds were pretty much where they ended off on Thursday, around 60. "

A trader saw Ford's 7.45% notes due 2031 up ¾ point at 72.5 bid, 73 offered, while its Ford Credit 7% notes due 2013 were half a point better at 88.5.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.