Movie Gallery paper dips, comes back; Winn-Dixie bonds higher; GM, autos steady; Charter mixed

By Ronda Fears

Memphis, March 14 - Trading was fairly active in distressed debt Tuesday, traders said, but most of the market ended the day right back where it started, or little changed in one direction or the other.

Winn-Dixie Stores, Inc. was one of the names closing out the session markedly different amid headlines that it is looking to close 35 stores and sell related pharmaceutical assets. The Jacksonville, Fla.-based grocery chain's bonds gained to 78 bid, 80 offered from 76 bid, 78 offered.

Otherwise, several issues showed multiple point changes during the session, with decent volume, but ended the day flat, or unchanged. The auto group was a great example, with General Motors Corp. and General Motors Acceptance Corp. issues dropping 1 point virtually across the board only to end unchanged on the day, some traders said - although others actually saw GM firmer on the session.

Dana Corp., Tower Automotive Inc. and Delphi Corp. were not seen moving much at all, one trader said. Gimme Credit analyst Shelly Lombard warned in a report Tuesday, however, to be wary of the recent bounce in Dana's bonds since its bankruptcy filing.

"Since Dana filed, its bond prices have moved up from the 60s to the mid 70s. Even with a par recovery, we are not sure a 21% return over an 18-month bankruptcy is sufficient for the risk," Lombard said in the report. "And some of the price rise is likely due to technicals so once temporary demand to cover shorts and settle derivatives contracts is filled, prices could drop like a rock."

Movie bonds drop, recoup

Movie Gallery Inc. paper was moving Tuesday but ended the session unchanged ahead of an amendment to its bank covenants that is expected to be wrapped up Wednesday.

"Worst case scenario of bankruptcy is already priced in. Only a few short-term traders will be selling to take their quick profits," said a fixed-income fund manager based in New York. "There were some fresh, new buyers looking for a bargain."

A sellside distressed debt trader noted that intraday the Movie Gallery bonds were seen lower by 2 points, then came back to 47 bid, 49 offered - where they opened Tuesday. Another sellside trader said that indeed buyers showed up in the afternoon to push the bonds back up after a few holders sold out.

The Dothan, Ala.-based owner of Hollywood Video - the No. 2 U.S. video rental store chain - got pounded last week as the company began to discuss amendments to bank covenants.

Movie Gallery is not currently in default but is looking for relief going forward and in return will pay an amendment fee and higher pricing on all loan tranches. Still, Moody's Investors Service cut the credit Friday, citing an expectation that performance will deteriorate in 2006, resulting in significantly weakened liquidity, further erosion in credit metrics and negative free cash flow.

Movie bank paper gyrates

Movie Gallery's term loan bounced around throughout the session, moving from losses of three quarters of a point to gains of a quarter of a point, before finally settling at unchanged levels, according to sources.

The term loan closed the day quoted at 92 bid, 92½ offered (same as Monday), sources said, but bids had fallen as low as 91¼ and as high as 92¼ during various points in trading.

Movie Gallery has been in the spotlight since the start of last week as lender calls were held to discuss necessary amendments to loan financial covenants.

Lender consents on the amendment are due on Wednesday.

Refco bank paper

Refco Inc.'s bank debt dropped during market hours as investors focused on court events that are currently underway, according to traders.

A big block of the bank debt traded at 98¾ bid, 99¼ offered, down about three quarters of a point, one trader said.

"The adequate protection hearing keeps getting pushed out. There's a lot of stuff going on in court. A lot of information came out today," one trader said.

Refco is a New York-based provider of execution and clearing services for exchange-traded derivatives, and brokerage services in the fixed-income and foreign exchange markets.

Charter paper lower

Charter Communications, Inc. paper was all over the map Tuesday, closing mostly lower as traders observed ongoing concern about leverage as competition remains stiff in the telephony cable industry.

Charter's 8 5/8% notes due 2009 were seen closing the day at 64.50 bid, 66.50 offered, unchanged while the 9 5/8% due 2009 issues added ¾ point or so to 65 bid, 67 offered.

"Charter is off a bunch all over the place. The bank loan paper is off about half a point in a market where everything is going straight up. The stock is down below a buck, and not looking too healthy," said one trader.

"It's a little bit of a delayed reaction to that," the AT&T-Bell South merger, he added. "The Bells getting together is bad for the cable companies, especially for Charter. But there may be more to it than that."

Charter's 8% due 2012, the most senior paper in the capital structure, he said was at 99.25 bid, down maybe a quarter of a point.

"That's [the 8% issue] only levered up to about $1,200 per subscriber. It's worth about $3,000 per subscriber, so it's way-covered," he said.

"Stuff getting hit is the older holding company paper."

Another trader said the market is "concerned about the leverage on Charter, and the competition for some of the traditional telephone companies getting into the cable business."

He pegged Charter's 8 3/8% bonds at 99.50 bid, 100 offered and the 11% bonds at 81.75 bid, both up a little from Monday.

"The story is that Verizon is going to get into the television and internet businesses, and the first market they targeted was one of Charter's markets," the trader said. "Charter does not have the resources to increase their capital expenditures because of their high leverage."

Paul A. Harris and Sara Rosenberg contributed to this article.

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