Distressed debt wavers amid new issues; Blockbuster, Ahern remain strong; Harry & David firms

By Stephanie N. Rotondo

Portland, Ore., Sept 20 - The distressed debt arena was mixed again on Monday, as new issues once more dominated trading.

"They are just cranking out these deals," a trader said. "And they are doing pretty well."

Both Blockbuster Inc. and Ahern Rentals Inc. - two companies deemed to be truly distressed and not trading near par - saw their bonds inching upward. For its part, Blockbuster has been slowly gaining ground over the last week, which is possibly due to billionaire investor Carl Icahn. Icahn is reported to be buying up pieces of the company's debt as it prepares to file for Chapter 11 protections.

Elsewhere, Harry & David Holdings Inc.'s rarely traded debt was seen firming during the first trading session of the week. The company had announced earnings on Thursday.

In bank debt news, Metro-Goldwyn-Mayer Inc.'s term loan improved following news of a possible sale. An India-based company confirmed that it was looking to rescue the struggling movie studio.

Blockbuster, Ahern gain strength

Among issuers truly considered to be distressed, Blockbuster saw its bonds continuing to edge higher.

A trader called the 9% subordinated notes due 2012 "up a little bit" at 8 bid, 9 offered.

Another trader said the 11¾% senior notes due 2014 "bounced earlier [in the session]" to 56 bid, 57 offered. However, he added that by the end of the day the bonds went out at 54 bid, 55 offered.

Ahern Rentals, another company with a high likelihood of filing for bankruptcy, also saw its debt improving.

A trader quoted the 9¼% notes due 2013 at 39 bid, 40 offered.

At another desk, a trader said the paper traded at 401/2.

"Somebody is looking for 500 [bonds]," he said. "Probably short."

Harry & David firms

A trader said Harry & David's 9% notes due 2013 traded around 661/2, calling that "maybe up a half, largely unchanged.

"They just never trade that much," he said.

Another trader agreed that "there was some activity in Harry & David, which trades very infrequently." He placed the notes at 66 bid, 66½ offered.

Last week, the Medford, Ore.-based fine foods retailer reported financial results for the fourth quarter ending June 26 and for the full year.

For fiscal 2010, the company posted net sales of $426.8 million, down from $489.6 million the year before. EBITDA came in at negative $4.5 million, versus positive $7.3 million in fiscal 2009.

Net loss was $39.2 million, a $19 million-wider loss than that seen in 2009.

"Throughout fiscal 2010, we continued to experience a challenging retail environment characterized by a slowly recovering economy and cautious discretionary consumer spending," said Steven Heyer, chairman and chief executive officer, in the earnings release.

"Despite our sales decline we were able to return to positive operating cash flow by improving our management of working capital and reducing controllable operating expenses, both of which were effective in mitigating the cash effect of our lower sales."

For the fourth quarter, sales fell 13% to $47.3 million, while net loss increased to $21.2 million.

As of June 26, the company had $18.7 million in cash and equivalents, including short-term investments.

MGM loan heads higher

Metro-Goldwyn-Mayer's (MGM Studios) term loan revved higher on chatter that the company is in early talks to be acquired by Sahara India Pariwar for more than $2 billion, according to traders.

The term loan was quoted by one trader at 45½ bid, 46¼ offered, up from 43½ bid, 44 offered, and by a second trader at 46 1/8 bid, 46 5/8 offered, up from 43 1/8 bid, 43 7/8 offered.

MGM Studios is a Los Angeles-based motion picture, television, home video and theatrical production and distribution company.

Broad market softens

Elsewhere in the secondary market, Tronox Inc.'s 9½% notes due 2012 were "unchanged around 92," a trader said.

"They have just not moved," lamented another trader.

At another shop, a trader said Harrah's Entertainment Inc.'s 10% notes due 2018 were "kind of active" around 80. He added that the level was down fractionally on the day.

NewPage Corp.'s 11 3/8% notes due 2014 also lost some ground, closing around 91 1/8.

And, Dynegy Inc.'s 7¾% notes due 2019 slipped half a point to finish around 671/2, he said.

Another trader said that Sorenson Communications Inc.'s 10½% senior secured notes due 2015 trading around 57½ bid, 58 offered, calling that a 1-point rise on the day, which followed a similar-sized gain on Friday and further gains earlier last week. A week ago, the bonds had been seen around a 53-54 bid level.

Sara Rosenberg and Paul Deckelman contributed to this article

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