Movie Gallery bank debt, bonds, gain ahead of earnings; airlines better on oil slide

By Paul Deckelman and Sara Rosenberg

New York, May 8 - Movie Gallery Inc.'s term loan B and its junk bonds were solidly higher Monday, pushed up by investor optimism that first-quarter financial results due out Thursday will show that the Dothan, Ala.-based home video rental and sales chain store operator has begun to turn its situation around after many months of negativity.

Airline issues, particularly those of bankrupt carriers like Northwest Airlines Corp. and Delta Air Lines Inc., were seen continuing to wing their way higher, as world crude oil prices came down further.

Movie Gallery's term loan - which had been firming over several sessions last week - headed up by another point Monday, a bank debt trader said, as investors continue to remain optimistic about what they might hear when the company releases its first-quarter financial results on Thursday.

The trader saw the term loan B closing out the session quoted at 94.5 bid, 96 offered; by comparison, on Friday the bank debt had closed out the session quoted at 93.5 bid, 95 offered, which itself was stronger by about half a point to a point when compared to Thursday's levels.

Over on the bond side of the ledger, a trader in distressed notes said Movie Gallery's 11% notes due 2012 moved up to 61 bid 62 offered up from levels in the high 50s on Friday. "That was the one I saw move the most today [Monday]," he said.

At another desk, a trader saw those bonds as high as 61.5 bid, 62.5 offered, well up from 57.5 bid, 59.5 offered on Friday.

"They were basking in Blockbuster's [reflected] glory," he said in assessing the reasons for the rise.

Some in the market have said that the positive sentiment towards the upcoming financial results is possibly attributable to the recent positive earnings announcement released by both internet movie delivery service Netflix Inc. and Dallas-based Blockbuster, Movie Gallery's larger rival in the video store business.

Although both companies are Movie Gallery competitors, Movie Gallery investors apparently believe that since the same industry dynamics affect all three companies, the success of Movie Gallery's two prime competitors is an indicator that the movie-watching public that does not wish to go to the theaters to see first-run shows likes the films that have been coming out of Hollywood of late, helping the whole sector higher.

Wall Street is looking for a higher profit, with the analysts on average projecting about 15 cents per share of earnings - considerably less than the 58 cents a share seen a year ago, but also much better than the 2 cents per share gain recorded in the fourth quarter.

Movie Gallery's Nasdaq-traded shares rose 19 cents (6.17%) on Monday to $3.27. Volume of 4.5 million shares was nearly double the norm.

Airlines rise as oil sinks

Among the airline operators, a trader said, bankrupt Eagan, Minn.-based Number-Four U.S. carrier operator Northwest's bonds, such as its 8 7/8% notes, were up two points on the session to 48.5 bid, 49.5 offered, while the equally bankrupt Number-Three carrier, Atlanta-based Delta's bonds, such as its 8.30% notes due 2029, were also seen up a deuce, at 29 bid, 309 offered.

He additionally saw the 9% notes due 2012 of AMR Corp. - the non-bankrupt Fort Worth, Tex.-based parent of airline industry leader American Airlines - up by about a point at 98 bid, 99 offered.

American is thought to be the world's largest commercial, non-governmental user of jet fuel - which in recent months has become an increasingly pricey commodity, forcing lesser airlines like Delta and Northwest into bankruptcy and causing financial problems even for the stronger airlines, like American.

The sector's bonds apparently got a boost on the news that world crude oil prices - seen by some in the market as a reliable proxy for the volatile price of jet fuel - continued in retreat on Monday. Light, sweet crude for June delivery - which just recently was well into the $70s - traded as low as 68.25 a barrel on the New York Mercantile Exchange, before finally closing at $69.77 - down 42 cents on the session.

Another trader, however while seeing the Northwest bonds around 48 bid, 50 offered and Delta at 28 bid, which he termed "not out of the ordinary."

The trader saw "not much activity" outside of the jump in Movie Gallery's bonds, although he did see Alpharetta, Ga.-based automobile battery maker Exide Technologies'10½% notes due 2013 a point better at 81 bid, 83 offered, and "a little bit active." However, he saw no news out on the company.

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