Movie Gallery follows through on big Thursday gains; Owens Corning keeps rising

By Paul Deckelman and Sara Rosenberg

New York, May 12 - Movie Gallery Inc.'s bank debt and bonds ended the week on a high note Friday, as the Dothan, Ala.-based Number-Two U.S. home-video rental chain operator's paper continued to strengthen on follow-through from the big gains notched after its latest earnings results.

Owens Corning's bonds were also on the upside, continuing higher on bullish news earlier in the week, when the bankrupt Toledo, Ohio.-based insulation maker announced that it had reached an agreement with its main creditor groups on a reorganization plan.

General Motors Corp.'s bonds moved around at higher levels for much of the session, before ending essentially little changed, while former GM unit Delphi Corp.'s bonds were a bit better - while its shares were much better on the latest indications that a potentially ruinous strike against the bankrupt Troy, Mich.-based automotive parts supplier might yet be avoided.

A bank loan trader saw Movie Gallery's term loan B closing out the session Friday quoted at 97 bid, 98 offered, up half a point from Thursday's closing levels of 96.5 bid, 97.5 offered.

Over in the junk bond market, the company's 11% notes due 2012 - which jumped 10 points on Thursday on the blowout first-quarter earnings the company announced - were seen continuing to firm Friday, moving as high as 75.5 bid before settling in around 74 bid, 75 offered, still a gain of about two points on the session.

On Thursday morning, Movie Gallery announced first-quarter numbers that showed a nice improvement on a year-over-year basis.

For the quarter, it reported total revenues of $694.4 million, well up from total revenues of $233.8 million in the same period last year.

Net income for the quarter totaled $40.3 million ($1.27 per diluted share) - more than double its year-earlier net of $18.4 million (58 cents per diluted share). Adjusted EBITDA was $116.8 million for the first quarter, far exceeding actual adjusted EBITDA of $39.5 million in the 2005 quarter, and also topping pro-forma EBITDA (figuring in its acquisition last year of larger rival Hollywood Entertainment Corp.) of about $108 million.

Immediately following the earnings news, Movie Gallery's term loan B had spiked to as high as 97.5 bid before settling in by day's end at 96.5 bid, 97.5 offered. By comparison, on Wednesday the bank debt had closed out the session quoted at 94.25 bid, 95.25 offered.

The bank debt, as well as the bonds and company's stock, had all risen solidly in the week leading up to the earnings release as market players believed that Wall Street estimates of likely earnings - around 15 cents per share on average - were way too low.

Owens Corning up again

Elsewhere, a trader saw Owens Corning's 7½% notes due 2018 at 121 bid, 123 offered, which he saw as up a point on the session, while its 7% notes due 2009 were also a point higher, at 120 bid, 122 offered.

Another trader - who with some understatement described Owens Corning's bonds as "up big this week" - saw the 71/2s at 121 bid, 122 offered, which he termed up two points on the session. Yet another trader saw the bonds unchanged at that same level, but saw the 7s half a point better, at 119.5 bid, 120.5 offered.

Both sets of bonds had zoomed to their present level from prior levels around par, set afire by the news that the bankrupt asbestos-challenged company had reached agreement with its various creditors on a reorganization plan that could - finally - bring the company out of Chapter 11 this year. It has been under court protection since 2000, driven there by a deluge of asbestos-related lawsuits.

Other bankrupt asbestos-challenged companies, like the Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc., also rose along with Owens, although less dramatically. They continued to rise on Friday, with Armstrong's 6-coupon bonds at 89 bid, 91 offered and its 9-coupon bonds at 90 bid, 92 offered, both up a point.

GM higher but then eases

In the automotive area, a market source saw GM's benchmark 8 3/8% notes due 2033 trade up most of the day, moving as high as bid levels approaching 78 - before dropping back from such peaks late in the afternoon to finish at 75.75, essentially unchanged on the session.

GM was "up about a quarter-point at the most" at the end of the day, said another trader, who also pegged those bonds at bid levels around 75.75-76.

Yet another trader who saw the 8 3/8s at that same level also saw General Motors Acceptance Corp. financing arm's 8% notes due 2031 unchanged at 93.75 bid, 94.25 offered. And still another trader saw both the GM 8 3/8s and the GMAC 8s actually finishing a point lower, at 75 bid, 76 offered and at 93 bid, 94 offered, respectively.

The GM bonds had pushed upward for most of the day even as the New York Stock Exchange-traded stock also was firmer - although it ended well below its intra-day high of $26.66, going home at $26.05, up 28 cents (1.08%), on slightly higher-than-usual volume of 12.2 million shares.

The shares - and by extension, the bonds - had gotten somewhat of a boost earlier in the session, when KeyBanc Capital Markets boosted its recommendation on the Dow component's shares to buy from hold previously. Analyst Brett Hoselton, in writing his upgrade message, opined that the automaker likely will avoid a devastating strike at Delphi, its bankrupt Troy, Mich.-based former subsidiary, which is still GM's single largest parts supplier.

Delphi is seeking big pay and benefit concessions from its unionized hourly workers, arguing that the contract structure it inherited when it was spun off by GM in 1999 is economically unfeasible. The United Auto Workers and several other unions, representing the 34,000 hourly employees, are resisting Delphi's efforts to lower its workers' pay, and have threatened to strike if the bankruptcy judge overseeing Delphi's reorganization grants the company's request to void its labor contracts before their scheduled 2007 expiration, so it could impose a new, sharply reduced pay structure. A strike could prove devastating not only to Delphi but to GM as well, which counts on its problem child for a steady flow of parts to keep production running.

Hoselton, commenting on the three-way talks between Delphi, GM and the unions, said that even though they currently remain without a finished deal, the hardest part of those talks is over, with GM having recently agreed to fund buyouts for some 13,000 of the 24,000 Delphi workers represented by the UAW, and to let 5,000 more Delphi workers flow back to GM - all told, more than half of Delphi's unionized work force.

He said that the last remaining issue is wage subsidies for workers who don't accept the buyouts - declaring "we do not see this as a significant problem," the analyst predicted that GM, eager to preserve the labor peace and keep its production going unhindered, will in the end agree to supplement Delphi workers' reduced wages.

Also sounding a sunny note was GM chief financial officer Fritz Henderson, who met with automotive analysts earlier in the week, it was revealed Friday, and had told them he expects a deal with Delphi and the UAW to be inked within 30 to 60 days.

It was the second such hopeful pronouncement in recent days by a senior GM official; bonds and shares of both Delphi and GM - particularly Delphi - had moved solidly higher earlier in the week in response to GM chairman and chief executive officer Rick Wagoner's assertions that reaching a deal with Delphi and the UAW to avert a strike is a high priority for GM, and that he feels progress is being made and a strike can probably be avoided.

After several days of climbing sharply, Delphi's bonds have leveled off, with some in the market taking profits off those gains. A trader Friday saw its 6.55% notes due June 15 up ¼ point at 79.75 bid, 80.75 offered, while its 7% notes due 2029 were half a point better at 77.25 bid, 78.25 offered. However, another trader saw the company's bonds down a point, all trading around 78 bid, 80 offered. Delphi's Pink Sheets-traded shares jumped 14 cents (11.97%) to $1.31. Volume was a relatively heavy 11.4 million shares.

Among other struggling car-parts companies, the bankrupt Dana Corp.'s 5.85% notes due 2014 were seen at 79.25 bid, 80.25 offered, down half a point, and its 7% notes due 2028 were also down half a point at 80.5 bid, 81.5 offered.

Delco Remy's 8 5/8% notes due 2008 dipped a point to 92.5 bid, 93.5 offered, while its 11% notes due 2009 were unchanged at 55.5 bid, 56.5 offered; those bonds had risen three points and two points, respectively, on Thursday, a trader said, in response to favorable quarterly results.

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