Calpine rebounds; Blockbuster bonds active; Delphi rallies; Thornburg, ResCap better

By Stephanie N. Rotondo

Portland, Ore., Sept. 13 - The distressed bond market was overall firmer Thursday, in line with an equity rally brought on by news that Countrywide Financial Corp. had received more financing and by news in the automotive sector that negotiations with auto unions were progressing.

Calpine Corp.'s bonds rebounded slightly, after piling losses on top of losses during most of the week. One trader said the company's debt moved up as much as 5 points on the day.

After spending most of the week relatively quiet, Blockbuster Inc.'s bonds saw a surge of activity. The excitement was seemingly spurred by a stock rally that was in turn prompted by the announcement of a new chief financial officer.

In the autosphere, Delphi Corp. attempted to stage a comeback. Traders reports the automotive parts supplier's bonds were a couple points better - possibly boosted by the progressing union talks - but were still lower from last week's highs.

The Countrywide news was good for the sector, helping struggling lenders such as Thornburg Mortgage Corp. and Residential Capital LLC to recover some of their losses from the week.

But Countrywide's new financing deal - to the tune of $12 billion - meant good things for the overall market. Investors could breathe easier that the largest mortgage lender in the country would not collapse and that financing was even available.

Calpine rebounds

Calpine's bonds, which were seen sliding downward for most of the week on valuation concerns, rebounded in Thursday trading.

A trader quoted the 8½% notes due 2011 up to 101.5 bid, 102.25 offered, while another called the bonds "up a few points" to the 102 area.

The first trader said that the gain could be because the company has explained to creditors why it called off its rights offering talks. Earlier in the week, the company said discussions were halted but gave no reason why. The rights offering was going to be an amendment to the company's current reorganization plan.

As it stands, the San Jose, Calif.-based power producer has said it will pay its creditors in full, including interest. The company has also said that, once it emerges from bankruptcy, there should be funds to pay stockholders as well.

Blockbuster bonds active

A new finance chief prompted a stock rally in Blockbuster's equity, which then in turn spurred activity in the company's debt.

A trader said the movie rental chain's 9% notes due 2012 were "continuing higher" on the news, along with a price target boost from Citigroup. He placed the bonds at 86 bid, 87 offered, up 1 to 1.5 points on the week.

Another source said there was "good volume" in the debt, which traded around 86.75. A trader pegged the bonds at 86.25 bid, 86.75 offered, noting, "If the stock is rallying, it should probably help the bonds."

The stock closed up 23 cents, or 4.53%, to $5.31 as former Deutsche Bank Securities managing director Thomas M. Casey was posited to take over as chief financial officer, replacing Larry Zine, who has resigned.

Zine, who said he would retire at the end of the year, is slated to leave at the end of the month.

The new CFO comes days after the company announced its chief operating officer would leave at the end of the month as well. Earlier this summer, James Keyes, who took over from John Antioco, won the company's chief executive spot. Antioco came under fire for his costly strategies against competitor Netflix as well as his high salary.

Elsewhere in the entertainment sector, Movie Gallery Inc.'s bonds were quiet, a trader said, just one day after the company said it would defer interest payments to some lenders and noteholders.

Still, the trader said it was "continuing to be strong," although he called that a "relative term for a bond in the 30s." He quoted the 11% notes due 2012 at around 31.

"That's a tough one," he said, adding that many market players are trying to figure out if the company will eventually make the payments - its forbearance agreements end Sept. 30 - or go under.

Delphi rallies

After about a week or garnering losses, Delphi's bonds were "a little better," a trader said.

"All the bankruptcy names, like Delphi, Dura [Automotive Systems Inc.], were up," the trader said.

The trader said Delphi's senior paper, such as the 6½% notes due 2009, was up 1 to 1.5 points on the day, near 83.

Another market source called the bonds a point better at 84.75 bid, 85.5 offered.

The source added that the bonds were still down from their highs from last week, but "a little bit at a time."

The first trader pegged Dura's 8 5/8% notes due 2012 better at 45. He said Federal-Mogul Corp.'s debt also gained.

"Federal-Mogul tried to rally," he said, noting that the bonds - which tend to trade close together - moved as high as 77 but came off its highs to close still better at 75.

Distressed automotive names may have also been boosted by a report that United Auto Workers union president Ron Gettelfinger said he might be willing to agree to a union-run trust fund for employee health care costs. That news was credited for helping the equity markets strengthen, as well.

Thornburg, ResCap up on Countrywide deal

Mortgage lender names like Thornburg Mortgage and Residential Capital got a reprieve, as Countrywide Financial announced it had secured $12 billion in funding.

A trader said Thornburg's 8% notes due 2013 were up 2 points to 88.5. Another trader, however, said the bonds were quiet and unchanged.

"Panic is abating," the first trader said.

The second trader did see ResCap's bonds move higher, placing the 6 3/8% notes due 2010 at 82 bid, 82.5 offered, up from the previous session's level of 80.5 bid, 81 offered.

At another desk, a trader quoted the 7% notes due 2011 at 80 bid, 81 offered.

Mortgage bonds were hurt earlier in the week when Countrywide said it was in need of more cash. The new $12 billion financing deal is on top of the $11.5 billion it borrowed in early August.

The new financing is one way Countrywide is attempting to weather the turbulent credit market. Other companies, such as Thornburg, have also taken steps to avoid bankruptcy. Thornburg sold more than $20 billion of its mortgage-backed securities in August and also issued new preferred stock.

Muzak trade confuses market

According to one source, an "off print" earlier this week has "confused everybody in the world."

The source said Muzak LLC's 9 7/8% notes due 2009 traded at the beginning of the week at 52 bid, 54 offered. Until then, he added, the bonds - which rarely trade - had been 93 bid, 94 offered.

"Now buyers are coming out of the woodwork," he said. "Course, no one is selling at that price."

The trader said he is not sure where the print came from, but speculated it was a "CDO seller."

Broad market firmer

A source said Neff Corp.'s senior notes due 2015 were "a little better at 68 bid, 72 offered.

The source also quoted French Lick Resorts & Casino LLC's 10¾% notes due 2014 at 76 bid, 79 offered.

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