Movie Gallery bank debt, bonds firm; Foamex rise continues on good results

By Paul Deckelman and Sara Rosenberg

New York, April 21 - Movie Gallery Inc.'s term loan B felt firmer during the session Friday, as the company's bonds saw something like a two-point improvement on the day, riding the momentum of news that it announced earlier in the week.

In the junk bond market, Foamex International Inc.'s subordinated bonds continued their amazing rise - which totaled at least 30 points on the week, by most accounts - pushed upward by market expectations, later proven to be justified, that the bankrupt Linwood, Pa.-based foam rubber products manufacturer would report strong operating earnings for March.

Movie Gallery's term loan B closed out Friday's market hours quoted at 90.5 bid, 92.5 offered, up from previous levels of 89.5 bid, 91 offered, a bank debt trader said.

At the same time, a trader in distressed bonds noted, "Movie [Gallery] was moving around," its 11% notes due 2012 gaining two points on the session to close at 50 bid, 51 offered. At another desk, a trader saw the two-point rise bringing those bonds up to 51 bid, 52 offered.

Earlier in the week, the Dothan, Ala.-based movie rental company came out with a couple of positive news items - an agreement aimed at restructuring many of the company's existing store leases as well as anticipation of loan covenant compliance.

Under the management agreement with Hilco Real Estate LLC, a program will be initiated to restructure leases at more than 1,100 existing Movie Gallery and Hollywood Video stores.

The program does not include stores associated with a previously announced program to sub-lease space in nearly half of its stores to other vendors, or a separate previously announced downsizing initiative, which will see some stores reduced in overall size and the excess space handed back to their landlords.

As for the credit facility compliance matter, the company said that based on preliminary results for first quarter it expects to be in full compliance with the financial covenants for the reporting period ended April 2.

Movie Gallery - which last year became the second-largest U.S. home video rental and sales chain, behind Blockbuster Inc., when it swallowed larger rival Hollywood, has lately struggled, along with Blockbuster, hurt by a lack of customer interest in many of the movies churned out by the studios in recent months, as well as the proliferation of alternative platforms for delivering movies to the customers, including internet-based Netflix Inc. and movie pay-per-view options offered by cable television and satellite TV broadcasters.

Foamex up again

Elsewhere, Foamex's subordinated bonds - which soared on Wednesday and continued to firm on Thursday - were once again better bid for in Friday's dealings. Its 9 7/8% senior subordinated notes due 2007 remained on a seemingly unstoppable tear, which caused them to rise more than 30 points during the week.

A trader saw those bonds at 85 bid, 88 offered - well up from levels in the mid-70s previously. And those levels in turn represented a sharp rise from levels around 50 bid at which those bonds had started the week.

Another trader saw the bonds at 85 bid, 87 offered; although he did not estimate the size of Friday's gain, he did note that the notes were "up 30 points-plus on the week." He meantime saw the company's 10¾% senior secured notes due 2009 - which were already trading well above par on the assumption that those bonds will be money-good when the restructuring process runs its course - at 109.5 bid, 110.5 offered, which he called unchanged.

Another trader also pegged those senior bonds in a 109.5 bid context, although he saw them up a point, but saw far bigger gains in the subordinated bonds, which he suggested had firmed to bid levels in the 90-82 area from 73 bid, 75 offered previously. He termed the giant rise the bonds took during the week as "kinda wacky."

"People think the bonds will be worth par" - or at least near it - the first trader said in assessing the suddenly improved state of the 9 7/8s - which just a few months ago had actually been trading at single-digit levels.

Even Foamex's badly battered Pink Sheets-traded shares were getting into the act on Friday, more than doubling in value - actually, up 111.76%, or 76 cents, to $1.44 - on relatively robust volume of 5.787 million.

The driver behind the amazing rise, market participants said, was expectations stoked over the course of several sessions that the company would report strong monthly operating results.

And sure enough, on Friday, the company reported $18.09 million of operating income for March on sales of $142.76 million. That was up from the $11.14 million of operating income on sales of $114.64 million seen in February.

According to Foamex's monthly operating report, filed Thursday with the U.S. Bankruptcy Court in Wilmington, Del., net income for March was $4.21 million, versus $4.48 million in February.

Its cash position as of March 31 was $3.23 million.

Federal-Mogul edges higher

In the automotive realm, bankrupt Southfield, Mich.-based brakes maker Federal-Mogul Corp.'s various series of bonds "moved up a little," a trader said, seeing them at 53.5 bid, 54.5 offered, up from 52 bid, 53 offered earlier.

Among other bankrupt automotive component suppliers, he saw Delphi Corp.'s notes about a point better at 69.5 bid, 70.5 offered, although he saw no movement in Dana Corp., whose short bonds, like its 6½% notes due 2008 and 2009 hovered at 80 bid, 82 offered, while its longer-tern notes, like its 7% bonds due 2029, were steady at 75 bid, 77 offered.

He also saw Tower Automotive Inc.'s 12% notes due 2013 at 72 bid, 74 offered, up two points.

Another trader saw the Delphi bonds as having "broken 70 on the upside," in line with a generally firmer auto-sector bonds, riding the momentum from Thursday's gain by General Motors Corp. after the Detroit giant reported less painful than expected numbers on Thursday.

Ford little moved after earnings

On Friday, it was GM arch-rival Ford Motor Co.'s turn to report first-quarter earnings but unlike the case on Thursday, when GM led a broad sector advance - one market participant likened the company to the legendary "Pied Piper" - Ford's numbers seemed to have little impact on the Number-Two U.S. carmaker's bonds, the results having pretty much come in about where they had been expected to land.

A trader saw Ford's benchmark 7.45% notes due 2031 unchanged at 72.5 bid, 73.5 offered, while another trader had them at 72.75 bid, 73.25 offered, down ¼ point. He also saw the 7% notes due 2031 of the carmaker's financial arm, Ford Motor Credit Co., up ¼ point at 87.75 bid, 88.25 offered. Visteon Corp.'s 8¼% notes due 2010 were up perhaps half a point, at 84.5 bid, 85.5 offered, although the 7% notes due 2014 of the Van Buren Township, Mich.-based automotive parts supplier - a former Ford unit - were unchanged at 77.5 bid, 78 offered.

Ford reported a net loss of $1.19 billion (64 cents per share) - a sharp deterioration from its year-ago first-quarter profit of $1.21 billion (60 cents per share). It was Ford's biggest quarterly loss since the fourth-quarter of 2001, when the carmaker took a $5 billion red-ink bath. In the latest period, the loss was largely due to Ford's having taken $2.5 billion in charges connected with its "way forward" internal restructuring effort, which will see the closing of 14 plants in North America, and the elimination of as many as 30,000 jobs over the next several years.

Friday's session meantime saw GM's bonds, and those of its General Motors Acceptance Corp. financing arm settle down after their solid gains Thursday. Those bonds were seen rangebound, with a trader quoting GM's flagship issue, the 8 3/8% notes due 2033 at 73.75 bid, 74.25 offered, up ¼ point, while GMAC's 8% notes due 2031 were off a quarter-point at 94 bid, 94.5 offered.

In other auto names, Dura Automotive Systems Inc.'s subordinated 9% notes due 2009 were seen by a trader as having firmed as much as two points on the day to 58.5 bid, 59.5 offered, while its 8 5/8% senior bonds due 2012 were up ¾ point at 86.75 bid, 87.75 offered. He saw no fresh news out about the Rochester Hills, Minn.-based automotive components company.

Winn-Dixie adds to gains

Apart from the auto area, Winn-Dixie Stores Inc.'s 8 7/8% notes due 2008 - which had pushed upward on Thursday, helped by the news that the bankruptcy court overseeing the Jacksonville, Fla.-based supermarket operator's restructuring had granted the company a 70-day extension of the time during which it exclusively has the right to file a plan of reorganization and solicit stakeholder support - continued to rise on Friday. A trader quoted those notes at 83.5 bid, 84.5 offered, which he called a two-point rise, although other traders saw a more conservative gain, since they had seen the notes move up to an 83 bid context on Thursday.

Besides the exclusivity news, the trader also noted the continued progress the company has made in closing and selling off unprofitable operations - since its filing last year, Winn Dixie has announced some 326 store closings, envisioning a restructured operation of about 587 units in its core market areas.

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