Calpine bonds seen better; Movie Gallery notes and bonds move up

By Paul Deckelman and Sara Rosenberg

New York, Feb. 22 - Calpine Corp.'s bonds were seen having firmed for a second consecutive session Wednesday, although nobody had seen any positive news out about the bankrupt San Jose, Calif.-based power generating company that might explain that rise.

Elsewhere, automotive names were seen down pretty much across the board, led by General Motors Corp. still feeling the downdraft from a Moody's Investors Service downgrade on Tuesday and from the apparent withdrawal of banking giant Wachovia Corp as a possible co-buyer of a majority stake in GM's financing arm, General Motors Acceptance Corp.

Meanwhile, The Movie Gallery Inc.'s bonds jumped into the mid-60s - up nearly 10 points from their recent lows - and its bank debt also continued to move up, as investors decided that maybe the Dothan, Ala.-based operator of the Hollywood Video movie rental empire and its own eponymous rental chain might be better able to withstand a potential new competitor than they originally thought.

A trader saw Calpine's 8½% notes due 2011 two points better at 34 bid, 35 offered, while its convertibles were up three points. He attributed the rise to just market speculation about "further consolidation in the industry, and it's just giving a bid to some of the distressed stuff."

A second trader admitted that he had "no idea why" the company's bonds were "up a point to 1½ points across the board. Offerings were lifted all day."

A market source quoted Calpine's 8¾% notes due 2007 as having firmed two points on the session to 49 bid - this on top of a 1½ point rise on Tuesday to 47.

A trader specializing in distressed issues said the California power generating company's bonds "looked like they did better," with its 4¾% convertible notes due 2023 up three points at 33 bid, 34 offered and its 6% converts due 2014 at 26 bid, 27 offered, up two points. He quoted Calpine's 7¾% notes due 2009 at 47 bid, 49 offered and its 8½% notes due 2008 at 43 bid, 45 offered, each up a point.

He was unaware of any news that might have moved the bonds.

Calpine filed for Chapter 11 protection shortly before the end of last year after fighting with its bondholders for much of the year over the company's use of proceeds from several asset sales - clashes which derailed its ambitious plans to cut as much as $3 billion of debt off its balance sheet and which ultimately led to the ouster of company founder Peter Cartwright from his position as chairman and chief executive officer.

Movie Gallery keeps rising

Also seen heading upward on Wednesday was Movie Gallery's battered bonds and beleaguered bank debt.

A bond trader saw Movie Gallery's 11% notes due 2012 having moved up to 66 bid, 67 offered, up at least four points off Tuesday's levels, and up almost 10 points from the lows they hit last week.

Another trader saw the bonds push up to 66.5 bid, up several points on the day and well up from the levels in the upper 50s to which those bonds had fallen early last week.

"A lot of people think [the slide] was overdone, and they got caught short."

Those bonds "got thrashed," he said, on the news that The Walt Disney Co. and several partners were starting up a new film delivery service MovieBeam Inc. - this at a time when Movie Gallery's revenues, and those of its larger rival rental chain operator, Blockbuster Inc., have been under pressure due to competition from the popular Netflix home movie delivery service, as well as pay-per view and other on-demand options offered by cable and satellite broadcasters.

However, after getting clobbered for much of last week, the bonds, and the company's bank debt, started moving back up after people took a calmer look at the situation and realized Movie Gallery's strength as a company, observers said.

It was pretty much the same story in the bank debt market, where the company's term loan headed up by another half a point to a point during market hours as market technicals for the paper continued to improve, even though there hasn't been any change to the actual credit, according to a trader.

The term loan closed out the session quoted at 93 bid, 94.25 offered, according to a trader who said that the debt had traded in the low 94s for a good part of the day before coming under a touch of pressure in the later hours, which pushed bids down a little and widened out levels.

However, despite the minor late-day pressure, Movie Gallery's term loan was stronger on a day-over-day basis, as levels had closed out Tuesday's session around the 92.5 bid, 93.5 offered context.

"As people see it moving up, people are more comfortable with it," the trader said about Movie Gallery's term loan. "When it dropped into the 80's people were concerned, but now that it's moving into mid-90's you're starting to see more buyers step in."

Early on last week, Movie Gallery's term loan had fallen off to the 89 bid, 91 offered context after the birth of MovieBeam was announced, creating some nervousness over the potential affects on Movie Gallery's bottom line.

However, once people had time to digest the news, Movie Gallery's term loan started to rebound and has been treading higher on a daily basis since last Thursday.

Auto names soft

On the other hand, the embattled automotive sector was mostly spinning its wheels Wednesday.

"The motors were all weak," a trader said, seeing GMAC's 8% notes due 2031, which had dropped nearly three points on Tuesday to about a 93.5 bid, 94 context, continued free-falling as low as 90.75 bid by mid-day Wednesday, before firming slightly off those lows to end at 91.5 bid, 92.5 offered - still down two points on the day.

Another trader called those bonds down 1¾ points at 91.75 bid, 92.25 offered, while the GM benchmark 8 3/8% notes due 2033 were down ¼ point on the session at 70.5 bid, 71 offered.

At another desk, a market source saw the bonds of both companies down at least a point on the session - on top of a nearly two point loss on Tuesday - with the GM 7 1/8% notes due 2013 at 72.5 bid, and the GMAC 6 7/8% notes due 2012 at 90.

A trader in distressed issues meantime also saw the 6 7/8s a point lower at 90 bid, 91 offered, as were the financing unit's 6¾% notes due 2014, at 89 bid, 90 offered, while the 8% notes were down two points at 91 bid, 92 offered.

GM and GMAC were rocked by bad news on two fronts. First, on Friday, after debt market denizens made their early exit (2 p.m. ET) ahead of the Presidents' Day holiday that also kept the market closed all day Monday, word began to circulate in the equity arena that Wachovia, the fourth-largest U.S. bank, had pulled out of a buying group for the GMAC stake that also included buyout specialist Kohlberg Kravis Roberts & Co. There was no official confirmation from any of the parties involved, but news reports quoted unidentified sources close to the negotiations for GMAC as saying that Wachovia had indeed pulled out, leaving KKR to find another partner if it wanted to remain in the hunt.

Wachovia/KKR and a group consisting of Cerberus Capital Management LLC and Citigroup's buyout unit were the only two serious bidders to have emerged from GM's now four-month effort to unload a majority stake in GMAC, in hopes of boosting the latter's credit ratings back to investment grade - meaning lower borrowing costs - and of getting from $10 billion to $15 billion from the deal for GM. The potential loss of one of the two bidding syndicates - and the only one including an actual bank, as opposed to the Citigroup Alternative Investments, the buyout unit of a banking company - was seen as a blow to GM's plans.

Then during Tuesday's session, Moody's lowered GM's corporate credit rating to B2 from B1 previously, and gave it a negative outlook. The ratings action, the agency said, "reflects increased uncertainty that the company will be able to achieve all of the steps necessary to establish a competitive wage, benefit and supplier cost structure outside of bankruptcy. These steps include a successful resolution of the Delphi [Corp.] reorganization and the negotiation of a considerably more competitive labor contract with the [United Auto Workers] during 2007.

"GM also faces the near-term challenge of completing the sale of GMAC and resolving the current SEC investigations into various accounting matters. Finally, the company's operating profile continues to be pressured by declining U.S. market share, and the ongoing shift in consumer preference away from trucks and SUVs as it introduces its T900 series of SUVs and light trucks," Moody's said.

Other autos weak

That pretty much cast a pall over the whole of the automotive sector Wednesday.

Delphi's 6.55% notes due 2006 eased to 54 bid, 54.75 offered and its 7 1/8% notes due 2029 retreated to 55 bid, 55.75 offered. There seemed to be little market reaction to the news Wednesday that GM - Delphi's corporate parent until its spin off in 1999 and still the bankrupt Troy, Mich.-based automotive electronic manufacturer's biggest single customer - is seeking a spot on Delphi's creditors' committee, saying its interests aren't being represented by the current panel as Delphi restructures under Chapter 11.

Among other bankrupt automotive component suppliers, Collins & Aikman Corp.'s 10¾% notes due 2011 were being quoted three points lower at 27 bid, 29 offered, while Tower Automotive's 12% notes due 2013 were down two points at 66 bid, 68 offered.

Among non-bankrupt suppliers, Dana Corp. was the day's big loser, its 5.85% notes due 2015 falling 1¼ points to 66 bid, 67 offered.

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