Bally default bomb prompts dive; Dana, Delphi better; Movie slides; Adelphia bank paper improved

By Ronda Fears and Sara Rosenberg

Memphis, Sept. 12 - Bally Total Fitness Holding Corp.'s default warning prompted heavy selling in the 9 7/8% bonds due 2007, with the issue trading as low as 78.375 in the afternoon by one account, but the issue rebounded a little after the company's conference call, traders said.

That said, one fixed-income manager in New York commented, after listening in on the call: "I hate to say it, but these guys sounded very evasive, also a little clueless and beaten about dealing with the debt.

"My guess is, the hedge funds loan the company money in return for a big chunk of the equity."

Bally's 9 7/8% bonds due 2007 settled the day at 84 bid, 85 offered, down about 2.25 points from Monday's close but traders noted that the bonds had traded lower Monday in after-hours action after the earnings release hit the tape following the market close. One trader saw the bonds Tuesday as low as 82/83, while another pegged them bottoming out at 78.375. Bally shares fell 47 cents on the day, or 17.47%, to $2.22.

On the bond movement, a sellside trader remarked, "That almost a 30% yield on one-year paper, I'd say that is distressed. But that is IF you get paid."

The Chicago-based fitness chain released weaker-than-expected quarterly numbers late in Monday's session and warned that it could find itself in default on its debt early next year. The company's 10½% notes due 2011 lost about 2 points on Tuesday to 96.5 bid, 97.5 offered.

Bally swung to a loss of $733,000, or 2 cents a share versus a year-ago profit of $1.6 million, or 5 cents a share, as revenue declined to $254.6 million from $259.6 million. The company attributed the declines to weaker membership and discounted prices.

Interim chairman Don Kornstein, who has headed the company since the recent forced resignation of embattled chief Paul Toback, said that Bally is pursuing short-term and long-term financing alternatives.

Movie bonds off 4-5 points

In another blow from on-line competition, Movie Gallery, Inc. bonds lost more ground Tuesday. Adding to the pain from last week, Apple Computer Inc. on Tuesday confirmed its iTunes 7 version will have new features such as TV shows and movies to download.

Movie Gallery's 11% bonds due 2012 dropped another 4 or 5 points to the 60 context, one trader said.

"It's an ongoing story," the trader commented.

"It's going to take a while, but the reality is that this [Apple competition] is going to hurt them. It's going to eat into their business at a time when they can't afford to have that."

The Dothan, Ala.-based No. 2 home video rental chain in the United States has suffered since its acquisition of Hollywood Entertainment Corp. last year, which put a crimp in its financial performance and left the company prey to big competitors like Blockbuster, Inc. and newcomers to the movie rental business like Netflix, Inc. Also, lately there has been significant rumblings of a possible Movie Gallery takeover but nothing has gelled along those lines.

Now, Apple Computer is in the mix with added online competition to traditional movie rentals.

Movie's bank debt weaker

From the bank debt desks, a trader said Movie Gallery's term loan B weakened Tuesday on the Apple iPod news as well.

In response to news, Movie Gallery's dropped about 1 point when compared to previous levels to close out the day at 93.25 bid, 94.25 offered, the trader said.

According to Apple, the iTunes Store now features over 75 Hollywood movies that can be downloaded onto an iPod, with each download taking about 30 minutes.

Dana recoups about 1 point

Recovering from getting "shellacked" last week, traders said Dana Corp. bonds were better by about 1 point on Tuesday.

The Toledo-based auto parts supplier, which filed bankruptcy in March, was denied court approval last week to retain or renew contracts with key management and that had pressured the bonds.

On Tuesday, a bond trader said it appeared the bonds were rebounding from that dive.

Dana's 6½% bonds due 2009 were closed out at 78.75 bid, 79.75 offered, up about a point from Monday.

Delphi better, accord in offing

In the face of news from a United Auto Workers union official that there would be no wage agreement with Delphi Corp. before the continued hearing slated for Monday in the auto parts supplier's bankruptcy case to consider its request to reject union labor contracts, Delphi bonds were better.

Delphi's 6½% bonds due 2013 were quoted up about 1.5 points to 87 bid, 88 offered. But General Motor's Corp.'s 8 3/8% bonds due 2033 were seen down by about 0.25 point to 87.125 bid.

UAW President Ron Gettelfinger was quoted Tuesday from the Reuters Autos Summit in Detroit as saying he expects no deal with Delphi before Monday's scheduled resumption of the labor contract hearing.

Last week, the Delphi bonds strengthened as GM's chief financial officer stated that talks between Delphi and the UAW were a top priority at GM. This, sources said, gives some reassurance to bondholders that a UAW strike against Delphi, which could cripple GM production, is a more remote possibility.

Adelphia bank paper improves

Back in bank debt circles, Adelphia Communications Corp.'s Olympus bank debt was active and stronger during market hours on positive sentiment towards the potential resolution of conflicts over its bankruptcy reorganization plan, according to a trader.

The Olympus paper closed out the day at 97.25 bid, 97.25 offered, up by about 0.5 point from previous levels, the trader said.

"There continues to be more clarity. Bank lenders are confident that at some point there will be a clear exit plan," the trader explained.

The Greenwood Village, Colo.-based cable company had a bankruptcy court hearing in New York on Tuesday regarding unsealing plan records and ruling on inter-creditor disputes, as well as terminating exclusivity.

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