Residential Capital weaker; Fedders falls; Bally bonds better; Movie Gallery loan firmer

By Stephanie N. Rotondo

Portland, Ore., Aug. 29 - Many market participants were preparing for an upcoming long weekend or dealing with month-end projects Wednesday, which made for yet another quiet day in the distressed markets.

"Month end is near," one trader said. "Accounts are trying to figure out what their positions are worth."

With this being the last week of summer before school starts, many investors and players are taking their last-chance vacations. However, that has made for a very slow week so far.

"We are just waiting to get through the week," another trader said. "Then we'll get into September and rev things up again."

A trader said that despite overall low volume, Residential Capital LLC remains somewhat active. He said the mortgage lender's bonds softened during the session, attributed to more concern in the sector.

While traders expected Fedders Corp. to file for Chapter 11 protection, they apparently did not expect the bonds to react the way they have. Just after the bankruptcy filing, the bonds dipped into the low-teens. Shortly thereafter, the bonds moved their way up to 30.

As the bonds have been falling again recently, traders are wondering what to do with the air quality solutions company.

Meanwhile, Bally Total Fitness Holding Co.'s bonds gained on the day, though at least one trader said there was no real reason for the move. The bonds, which rarely trade, were seen at least 2 points better.

Movie Gallery Inc.'s bank debt continues to move higher, a trend seen since earlier this week when the company announced it had received an extension on its forbearance agreement. However, traders gave mixed reports on the bonds, as one called the debt down and another saw the notes edging higher.

Residential Capital weaker

A trader said Residential Capital's bonds continued to be active amid another quiet trading day.

He said the mortgage lender's debt slipped 1 to 2 points lower, moving as much as 3 points lower at one point during the session. He pegged the 6 3/8% notes due 2010 at around 76 and the 6 1/8% notes due 2008 at 81 bid, 82 offered.

The trader attributed the losses in the name to "more concern in the industry" prompted by several downgrades in financial sector names in the previous session.

"It is some more trickle down from [Tuesday]," he said.

Elsewhere in the sector, Thornburg Mortgage Inc.'s 8% notes due 2013 "just widened, that's all," a trader said, to 81 bid, 83 offered versus 82 bid, 83 offered on Tuesday.

Fremont General Corp.'s 7 7/8% notes due 2009 were slated at 89 bid, 92 offered, "nothing doing in it today," a trader said.

What to do with Fedders

Now that they have filed bankruptcy, market players are trying to figure out what to do with Fedders' debt.

A trader called the 9 7/8% notes due 2014 down half a point at 15.5 bid, 16.5 offered. Another trader, however, said the bonds were "not really down much at all," quoting the notes at 16.25 bid, 17.25 offered.

At another desk, a trader saw the bonds at 16 bid, 17 offered.

"Everyone is trying to figure out where the hell Fedders are," a trader said. "They're trading at 16 5/8, but they're valued in the 30 to 40 range, so nobody knows what to do with that credit."

Bally bonds better

There seemed to be no reason for a slight gain in Bally's rarely traded bonds, at least according to one trader.

The trader said the 10½% senior notes due 2011 were a half point better at 106.5 bid, 107.5 offered.

Another trader called the senior notes up 2 points to 105 bid, 106 offered. Another source saw its 9 5/8% subordinated notes due 2007 at 89.5 bid, up half a point.

The fitness club operator was granted approval earlier this month to amend its reorganization plan. Under the new Harbinger Capital Partners-led plan, senior and subordinated debt holders will receive equal or better recoveries than the original plan. Equity holders will also receive recovery, something the original plan lacked.

The Chicago-based company hopes to emerge from Chapter 11 protection by the end of September.

Movie Gallery loan moves up

Movie Gallery's first-lien term loan was higher in Wednesday's quiet trading session on no credit specific news, according to a trader.

The first-lien term loan closed the day at 84 bid, 85.5 offered, up half a point from Tuesday's levels of 83.5 bid, 85 offered, the trader said.

At the close last Friday, the first-lien term loan was being quoted at 82.5 bid, 83.5 offered, meaning that gains over the course of this week total a point and a half.

With the slow rise all week, some sources have pointed to the company's recent extension of its loan forbearance agreement as the impetus and others said that there's probably just some bargain shopping going on.

On Tuesday morning, Movie Gallery revealed that it once again extended the forbearance agreement it has with its first-lien credit facility lenders.

Under the extension, the lenders will forbear until Sept. 30 from exercising rights and remedies arising from existing defaults.

The original forbearance agreement was set to expire on Aug. 14 and was later pushed off to Aug. 27.

Meanwhile, a trader said Movie Gallery's 11% notes due 2012 moved up 1 point to 25.5 bid, 27.5 offered. Another trader saw the bonds down 3 points on the day to 25 bid, 27 offered.

Autos lower

Among distressed automotive parts supplier names, Dana Corp.'s 6½% notes due 2008 went to 82.5 bid, 84.5 offered from 83 bid 85 offered, "so it gave up what it gained yesterday, that's all," a trader said.

Meanwhile, Delphi Corp.'s debt was also seen lower, as one trader pegged the 6.55% notes due 2006 down 2 points to par bid, 102 offered. Another trader saw those bonds at 99 bid, 101 offered, also called down 2 points on the day.

A trader said Dura Automotive Systems Inc.'s 9% subordinated notes due 2009 were at 3.25 bid, 4 offered, while the 8 5/8% senior notes due 2012 were at 51.5 bid, 53.5 offered.

Another trader said the senior bonds were down 1 point at 51 bid, 53 offered, but yet another trader called the debt down 2 points to 52.5 bid, 53.5 offered.

Sara Rosenberg and Paul Deckelman contributed to this article.

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