Foamex's bonds slip on profit taking; Winn-Dixie bonds bagged by equity players; Movie paper up

By Ronda Fears and Sara Rosenberg

Memphis, April 24 - In a somewhat muted session Monday, distressed bond traders said the market overall felt a bit firmer, although Foamex International Inc.'s subordinated bonds softened from last week's spike as profit taking kicked in.

The Foamex bonds were seeing some slippage after a collective gain in the neighborhood of some 30 points last week as players anticipated positive earnings from the bankrupt Linwood, Pa.-based foam rubber products manufacturer. The subordinated bonds came down to close at 85 on Monday after ending Friday in the area of 88 bid, 89 offered.

A trader attributed the pull back to profit taking, adding that the consensus still expects nice financial results from the company. Late last week Foamex reported $18.09 million of operating income in March, up from $11.14 million in February.

Winn Dixie adds 1½ points

Winn-Dixie Stores Inc. was getting buyers Monday from equity funds rather than the standard straight fixed income players as the Jacksonville, Fla., grocery chain tracks toward emerging from bankruptcy in September, a trader said.

He pegged the Winn-Dixie 8 7/8% notes due 2008 moving up to go home Monday at 85 bid, 86 offered from going out Friday at 83.5 bid, 84.5 offered.

The bonds were helped late last week by news that the bankruptcy court overseeing the company's restructuring had granted a 70-day extension to its exclusivity period.

Moreover, players in the Winn-Dixie story are pleased with continued progress the company has made in closing and selling off unprofitable stores since its bankruptcy filing last year. The company has announced some 326 store closings and projects that its restructured operations will consist of about 587 units in core market areas.

Movie term loan bid up

Outside of the bankrupt names in trade, Movie Gallery Inc.'s term loan B was stronger on the bid side as some positive sentiment still remained from last week's restructured lease and covenant compliance announcements, according to a trader.

The term loan B closed out the day quoted at 90¾ bid, 91½ offered, up from Friday's wider levels of 90 bid, 91½ offered, the trader said. On Friday, a different trader had the paper closing out the week at 90½ bid, 92½ offered, still making Monday's levels higher on the bid side and tighter overall.

Last week, the Dothan, Ala.-based movie rental company came out with a couple of good news items - a management agreement entered into with Hilco Real Estate LLC and anticipation of loan covenant compliance.

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

As for the credit facility item, 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 bonds extend gains

Movie Gallery bonds also extend last week's gains, adding another 1 to 2 points to the 52 bid, 53 offered area, traders said.

A buyside market source said Movie Gallery was another example of expectations to show a turnaround insofar as financial results, but the threat of bankruptcy is still playing on that screen. But, as he feels a bankruptcy is not likely, he expects to bag a profit in the 11% of 2012 bonds and has already traded into the green with the paper.

"I think Movie Gallery will show good earnings this year, but not enough to scare those who feel it is destined for bankruptcy. I'm not bullish on Movie Gallery, especially in the long term," remarked the Texas-based buysider. "I love Movie Gallery because it's made me money since the whole bankruptcy talk started. Investors are really exaggerating the rental industry."

A sellside market source said Movie Gallery's lease restructuring is material news because there is the possibility that the company can decrease leverage through possible lower interest expense. He also quoted movie rental giant Blockbuster Inc.'s bonds as trading higher and at the end of the day they were seen at 93.75 bid, 94 offered.

Refco bonds add ½ point

On news from late Friday of a $263 million settlement to creditors in the Refco, Inc. bankruptcy case by the defunct commodities and futures broker, the bonds ticked up about a half-point to 64.5 on Monday, a trader said.

Most of the rumored settlement had been priced into the bonds, he said.

In what is being called one of the largest bankruptcy-related settlements in recent history, the sellsider said PlusFunds Group, which runs the Sphinx Managed Futures Fund, has agreed to pay $263 million to creditors of Refco. In December, other Refco creditors took advantage of a provision of the federal bankruptcy law allowing them to sue for money transferred out of a fund - in this case to an offshore Refco fund - within 90 days of filing for bankruptcy.

PlusFunds, a client of the collapsed future broker, had transferred its $312 million account out of Refco a day before the broker filed for bankruptcy last October. Refco froze customer accounts as it discovered it was in trouble, and then filed bankruptcy Oct. 17.

The settlement was announced in the bankruptcy case Friday and the money was to be transferred to the creditors on Monday. It also requires Sphinx to relinquish any claims against Refco's bankruptcy estate.

GM revolver bids drop off

General Motors Corp.'s revolver dropped off on the bid side by about three quarters to a full point from where it was trading on Friday, primarily as a result of market technicals, according to a trader.

The Detroit-based automotive company's revolver closed out the session quoted at 94¼ bid, 95½ offered, the trader said.

For a while there has been speculation that GM might be refinancing its revolver since there is some doubt as to whether lenders would allow any borrowings under the facility due to the restatement of prior financial statements - which pushed trading levels on the revolver into the high 90s.

However, talk has now turned to the possibility that the company may only seek an amendment to correct the problem as opposed to doing an all-out refinancing, leaving lenders less hopeful of a near-term paydown.

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