Movie Gallery bonds dip, loan up; Autos lower; Retailers weaker; Calpine notes higher

By Stephanie N. Rotondo

Portland, Ore., Sept. 25 - The distressed market was deemed generally lower Tuesday, spurred by a lower-than-expected consumer confidence index reading.

The index fell 6 points to 99.8 from its revised August level of 105.6. Analysts were expecting the reading to come in at 104.5.

Poor housing data also affected the junk market, as home prices saw their biggest drop in 16 years.

Traders mostly called the overall market down, though at least one said afternoon trading was "spunky."

Movie Gallery Inc.'s bonds attempted to move higher in early trading, even as the company announced it would close more than 500 stores. As the day wore on, however, the bonds fell as much as 2 points on the day.

Automotive names were also seen lower, traders said. Both Delphi Corp. and Federal-Mogul Corp. saw their bonds weaker by the close of the market. Late in the day, Delphi announced just how much the current union strike was affecting the parts supplier.

Meanwhile, retailers were pushed down amid consumer concerns, as well as lowered financial forecasts from big names in the sector. Distressed retailers such as Linens n'Things, Bon-Ton Stores Inc. and Burlington Coat Factory Warehouse Corp. were all lower on the day.

On the positive side, Calpine Corp.'s bonds firmed as a court approved its disclosure statement. The third amended plan of reorganization will now be voted on and a confirmation hearing will be held Dec. 20.

Movie Gallery bonds dip, loan higher

Movie Gallery bonds dropped after news came out that the company would close 520 underperforming stores.

"That's been quite a roller coaster," one trader said, quoting the 11% notes due 2011 at 34.5 bid, 37.5 offered.

Another trader said the notes were down to 35.5 bid, 36.5 offered on the session.

Yet another trader said the best quote of the day came in at 35.75 bid, 36 offered.

According to one market source, the bonds firmed in early trading to above 37. However, by the afternoon, the bounce was over, and the bonds were seen back down around 35.

Another trader saw the bonds bouncing around but said that at the end of the day they were a point lower at 34.5 bid, 35.5 offered.

And yet another trader saw them down 2 points on the day at 35 bid, 36 offered.

Movie Gallery's first-lien term loan was higher after the company announced plans to close some stores, a trader said.

The first-lien loan was quoted at 92 bid, 93 offered, up about a half a point from previous levels, the trader said.

The Dothan, Ala.-based company's decision to close some stores is another move aimed at helping the struggling movie rental chain's financial solvency. The company has labored under large amounts of debt since acquiring the Hollywood Video chain in 2005 and has struggled to maintain market share in the face of increasing competition from Netflix and Blockbuster Inc.

"Closing these stores was a difficult, but necessary decision to help protect the future of this company. These stores are being closed after evaluating a number of factors, including store profits and the terms of the leases at each location. This action will allow us to focus our resources on the approximate 4,000 stores that have a stronger operating performance and prospects for future growth," said Joe Malugen, chairman, president and chief executive officer, in the release.

"Movie is down because it is a top heavy piece of crap, but we all knew that," said one trader. He said he had heard that "there is one large bondholder who also owns second-lien paper and is trying to guide the company one direction and there is another large bondholder who is trying to guide the company hoping the other doesn't make the second-lien paper the focus and toast the bonds."

Blockbuster's bonds were holding steady on the news. A trader placed the 9% notes due 2011 near 91.5.

Autos lower

Lower-than-expected numbers from the consumer confidence index, coupled with general weakness in the sector, hurt distressed automotive names, traders reported.

Early in the session, a trader said Delphi's 6½% notes due 2013 were at 87 bid, 89 offered. At market close, the notes edged higher slightly to 88 bid, 89 offered.

Another trader called Delphi's 6.55% notes due 2006 "off a few points" around 89. He also saw Federal-Mogul bonds - which trade close together - down a couple points at 83 bid, 84 offered. The first trader agreed with that market.

At another desk, Metaldyne Inc.'s 11% notes due 2012 were seen better at 87 bid, 88 offered, up from around 84.

A union strike could also be hurting the industry. While several news reports have said that the United Auto Workers strike against General Motors Corp. has not yet affected Delphi, or other parts suppliers, the general feeling is that a prolonged picket could be detrimental. Late in the day, Delphi announced the strike had caused them to lay off thousands of workers.

Retailers weaker

The retail sector was also hurt by a lower consumer confidence reading, as well as lowered forecasts by big-name retailers Target and Lowe's.

A trader said Linens n'Things floating-rate notes were down a point to 69 bid, 70 offered from 70 bid, 71 offered. Another trader called that issue down a couple points to 69 bid, 69.5 offered.

The second trader also saw Bon-Ton Stores' 10¼% notes due 2014 and Burlington Coat Factory's 11 1/8% notes due 2014 at 95 bid, 95.5 offered. Elsewhere, a trader said Bon-Ton's bonds were down 1 point at 95 bid, 96 offered.

At another desk, a trader pegged Linens n'Things debt at 68 bid, 69 offered and Claire's Stores Inc.'s 10½% notes at 78.75 bid, 79.5 offered. He also saw Pier 1 Imports Inc.'s 6 3/8% convertible notes due 2036 at 81 bid, 81.25 offered.

Calpine plan approved, bonds boosted

Calpine gained court approval on its third amended plan, prompting the bonds to gain as much as 2 points on the day.

A trader placed the 8½% notes due 2011 at 109.5 bid, 111 offered, which he called up 2 points. Another called the corporate debt up just a half point at 110.

The first trader said the power producer's other issues were up as well.

"They all move accordingly," he said.

The trader also said "it seems like the big guys are buyers."

Another trader called the company's bonds unchanged at the previous day's level, around 109 bid, 110 offered for its 8½% notes due 2008.

However, another trader saw the bonds up a point at 110 bid, 111 offered.

Under Calpine's reorganization plan, unsecured creditors will receive at least 95 cents per dollar owed them. Allowed claims are expected to range between $20.3 billion to $22 billion.

If the San Jose, Calif.-based company receives enough votes agreeing to the plan, it will be confirmed at a Dec. 20 hearing. Upon its exit from bankruptcy, expected in February 2008, Calpine estimates it will be worth between $19.2 billion and $21.7 billion.

Rental, housing bonds rally

A trader said the construction rental and housing sectors started off soft on the day but came back in afternoon trading to end near the previous session's levels or even higher.

The trader said Neff Corp.'s debt - the "low man on the totem pole," he said - "is the one that got beaten up. The others hung in there."

Neff's 10% notes due 2015 were slotted at 72 bid, 74 offered, down from its recent highs near 80.

Another trader placed the debt at 69 bid, 73 offered. Elsewhere, a trader called the bonds down 1.5 points at 71 bid, 73 offered.

But companies like Ashtead Holdings and RSC Equipment Rental Inc. were unchanged to better on the day. The trader quoted Ashtead's 8 5/8% notes due 2015 at 96.5 bid, 97.5 offered and its 9% notes due 2016 at 97.5 bid, 98.5 offered. RSC's 9½% notes due 2014 traded at 94.5 bid, 95.5 offered.

The trader also said that homebuilders were "hanging in." He said WCI Communities' bonds were "still near their recent highs," its 9 1/8% notes due 2012 at 84 bid, 85 offered and its 7 7/8% notes due 2013 at 77 bid, 78 offered.

But another trader called the 9 1/8% notes down 2.5 points to 83 bid, 85 offered.

Another trader said Technical Olympic USA Inc.'s bonds were weaker, pushed lower by disappointing third-quarter results from Lennar Homes. Lennar is one of the larger homebuilders in the United States and posted a record loss for the quarter.

"Poor results from companies like Lennar will ripple through the industry," the trader said.

The trader saw Technical Olympic's 9% notes due 2010 weaker around 67 and the 10 3/8% notes due 2012 lower at 34.75 bid, 35 offered.

Buffets down on earnings

Restaurant operator Buffets Inc. saw its bonds actively move lower after a conference call related to its fourth-quarter and annual results.

A trader quoted the 12½% notes due 2014 at 74 bid, 74.5 offered. Another trader pegged the debt around 75, while another saw the bonds at 73 bid, 75 offered.

"I've never even heard of those restaurants," the trader said of the company that runs eateries like Hometown Buffet and Country Buffet.

Another trader said the bonds were down 3 points to 74 bid, 75 offered on bad numbers. The trader said another factor was the company's conference call, which he termed "not promising."

Despite a significant increase in total sales for the quarter ended June 27, the company posted a net loss for the fourth quarter of fiscal 2007 of $55.1 million, as compared to a net loss of $2.7 million for the fourth quarter of fiscal 2006. The loss was attributed primarily to a $42 million tax valuation allowance recorded against Buffets Holdings deferred tax assets, an increase in interest expense of about $8.5 million, and several other large ticket items.

According to a press release, "the increase in interest cost of approximately $8.5 million was primarily due to the significant increase in our long-term debt balances resulting from debt incurred in connection with the Ryan's merger on Nov. 1, 2006."

Tembec 'crushed'

A market source saw Tembec Inc.'s 8½% notes due 2011 down 1 point at 41.

However, at another desk, a trader saw the company's 8 5/8% notes due 2009 down a full 4 points at 41 bid, 43 offered.

Another trader quoted the notes due 2011 at 39.5 bid, 40 offered.

Tembec "got crushed," another trader observed, answering "both" when asked whether it was because of the strong Canadian dollar, which makes products of companies like Tembec more costly outside Canada, or just because no one likes the troubled credit.

"It's finally coming to roost that there will be problems, and the spread between all three of them is starting to flatten out. They're all going to end up the same because it's not going to matter - they're going to have to restructure," the trader said.

He saw its 7¾% notes due 2012 at 38.5 bid, its 8½% notes due 2011 at 40, "if not 39.5" and a 43 trade on the 8 5/8s. "They were all trading 10 points higher" just a couple of weeks ago, he said.

"And the Canadian dollar being at parity" with the U.S. unit "doesn't help."

Broad market firmer

A trader called James River Coal Co.'s 9 3/8% notes due 2012 active, though he was not sure why. He placed the debt at 79.5 bid, 80 offered and called the company's assets "interesting."

The trader also saw Transmeridian Exploration Inc.'s 12% notes due 2010 up at 97.25.

"Someone thinks they are getting bought," he speculated. "There's no other way [for the bonds to be near par]."

"That's insane," he added.

A trader saw South Korean computer chip maker MagnaChip Semiconductor Ltd.'s 8% notes due 2014 up 1.5 points at 66.5 bid, 68.5 offered and saw its 6 7/8% notes due 2011 a point better at 79 bid, 81 offered. He had not seen any news on the company to explain the rise.

A trader called Fedders Corp.'s 9 7/8% notes due 2014 "a little higher" at 16 bid, 17 offered.

Sara Rosenberg and Paul Deckelman contributed to this article.

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