Refco bonds fall as forex unit auction scrubbed; Movie Gallery bank debt better

By Paul Deckelman and Sara Rosenberg

New York, Feb. 16 - Refco Inc.'s bonds were seen down sharply Thursday in the wake of the decision by the bankrupt New York-based financial company to cancel the auction - which had been scheduled for Thursday - of the online foreign-exchange assets of its Refco FX Associates LLC unit due to apparent lack of response on the part of would-be buyers.

In the bank debt market, Movie Gallery Inc.'s term loan has started to see some improvement on the bid side, as traders said that investors have had a few days to digest the news of a recently launched rival called MovieBeam Inc.

The term loan closed out Thursday's session quoted at 90 bid, 91 offered, up one point on the bid side, but unchanged on the offer side, a bank loan trader said.

Junk bond traders meantime saw the company's 11% notes due 2012 hanging in around 58 bid, 59 offered - the same level to which those bonds fell over the course of two days' trading earlier in the week, following the disclosure of the MovieBeam news.

On Tuesday morning, Walt Disney Co., Cisco Systems, Intel Corp., and several financial investors - Mayfield Fund, Norwest Venture Partners and VantagePoint Venture Partners - announced a newly formed Burbank, Calif.-based venture, MovieBeam, which will provide movies-on-demand service, some in high definition, in 29 major metropolitan areas across the United States, including New York, Los Angeles and Chicago.

Since Dothan, Ala.-based Movie Gallery - as well as its larger rival, Dallas-based video rental industry leader Blockbuster Inc. - was already been under investor scrutiny due to softness in the video rental industry leading to other sorts of problems - such as expectations of further loan amendments being necessary to avoid non-compliance with covenants - the emergence of the MovieBeam system spurred a new round of investor nervousness.

That caused the bonds to drop down to the 60 level from prior levels in the middle 60s, and then to keep declining to around 58. It also led to an approximately 2½ point drop in bank levels to 89 bid, 91 offered immediately following the news.

Refco lower

Elsewhere Refco's 9% notes due 2012 swooned about six or seven points to around 56 bid, 57 offered, after the company scrubbed the auction of the Refco FX Associates on-line forex assets.

The company said it had done so because it had not received any additional bids for the assets other than the original offer by Forex Capital Markets LLC.

Refco also indicated that it expected the postponement of a hearing - which had been scheduled for Friday - before the bankruptcy court judge overseeing the company's reorganization.

The court was to consider any bids for the sale of the assets, which consist of approximately 17,000 retail client accounts and a 35% stake in Forex Capital Markets. But the creditors' committee in the Refco case and the agent for Refco's bank lenders advised Refco that they intended to object to the approval of the sale to Forex Capital Markets and have requested more time for discovery.

Owens Corning, Armstrong keep falling

Elsewhere, traders saw further erosion in the bonds of asbestos-challenged companies like the bankrupt Toledo, Ohio-based insulation maker Owens Corning and the bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc., whose bonds have been getting soundly whacked around ever since Tuesday, when the Senate failed to overcome procedural objections to the bill setting up a planned $140 billion claims fund mechanism to handle medical asbestos lawsuits.

Owens, whose bonds had been in the lower 90s before that news, has now cascaded down to 78 bid, 79 offered, a trader said, calling those bonds down three points on the day. And he saw Armstrong's bonds - which have tumbled from pre-news levels in the 70s all the way down into the mid-60s - retreat about two points further to 64 bid.

Supporters of the bill - which failed to break the procedural deadlock by just one vote, 59-40 - have talked about perhaps bringing it back for another vote.

Senate majority leader Sen. Bill Frist, a Tennessee Republican, who was a cardiac surgeon before he became a politician, drew on his medical experience in diagnosing the asbestos bill as still having "a faint heartbeat," adding that he won't give up on it as long as that is the case.

However, Frist said that further consideration of the controversial bill would have to wait until the Senate was done considering extensions to the Patriot Act, parts of which are scheduled to expire on March 10.

Solutia volatile

The trader also saw Solutia Inc.'s subordinated junior bonds, like its 6.72% notes due 2037 - which had been soundly thrashed over the past two sessions in apparent bond investor dismay with provisions of the bankrupt St. Louis-based chemical maker's plan of reorganization - bouncing around but ending unchanged.

He saw the bonds open at 72 bid, 74 offered, firm to 74 bid, 76 offered, but then give up those gains to end right where they started from.

GM rises

Elsewhere, traders saw General Motors Corp.'s bonds slightly higher on the session, with one estimating the giant carmaker's benchmark 8 3/8% notes due 2033 at 71.25 bid, 72.25 offered, which he called up half a point on the session. Another had them up half a point at 71.5 bid, 72.5 offered.

The traders said that investors didn't seem too worried about the continued murky labor situation at former GM subsidiary Delphi Corp., even as a Friday deadline that the bankrupt Troy, Mich.-based auto components maker had set for union agreement to contract givebacks the company has demanded was fast approaching.

If the United Auto Workers and its other unions fail to give the company the green light to gut the wage and benefit provisions of the conflict - something Delphi says it must have to remain competitive - Delphi could go into bankruptcy court and ask the judge overseeing its case to toss out the contract - a step which the UAW warns will likely provoke a strike, which would not only affect Delphi but would also badly affect GM, Delphi's former corporate parent and still single largest customer. Delphi, in turn, is GM's largest parts supplier, and a strike could disrupt the carmaker's production.

Despite these gloomy prospects, a trader saw Delphi's bonds actually up half a point at 53.25 bid, 54.25 offered. Another, however, saw Delphi lower, albeit in "pretty quiet trading." He saw the Delphi bonds "up in the morning, but then down later on," closing half a point lower at 52.5 bid, 53.5 offered.

The first trader meantime saw former Ford Motor Co. unit Visteon Corp.'s "slightly weaker," with its 7¼% notes due 2014 off ¼ point at 76.75. Its 8¼% notes due 2010 were unchanged at 83.25.

Bankrupt Novi, Mich.-based vehicular frames maker Tower Automotive Inc.'s 12% notes due 2013 were seen a point better at 68 bid, 69 offered.

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