Movie Gallery bonds continue slide, bank debt also off; Delphi up on GM deal report

By Paul Deckelman and Sara Rosenberg

New York, March 9 - Movie Gallery Inc.'s battered bonds continued their slide towards oblivion Thursday, plunging from the mid-50s all the way down to the upper 40s, before coming off those lows to regain some - but by no means all - of their lost ground.

The company's term loan, meantime, dropped by over a point in trading - a sizable drop for the relatively conservative bank loan market - as participants tallied up the losses on the company's bonds and stock this past week and started to think that maybe the bank debt hadn't reacted nearly enough to the amendment news and whispers of possible bankruptcy in the future.

Elsewhere, Delphi Corp.'s bonds firmed about two points on the session on a Wall Street Journal report that Delphi, its former corporate parent General Motors Corp. and the United Auto Workers union were closing in on an agreement that would help the bankrupt Troy, Mich.-based automotive electronics manufacturer shed some of the heavy labor costs it inherited when GM spun it off in 1999.

Movie Gallery's term loan closed out the session quoted at 89.75 bid, 90.5 offered, down from Wednesday's closing levels of 91.25 bid, 92 offered, traders said. On Tuesday, the bank debt had dropped as low as 89.5 bid, 90.5 offered in the wake of the company's request that its lenders amend its credit facilities to give the hard-pressed Movie Gallery some breathing room.

After those lows, the term debt recovered somewhat to the 91 bid, 91.75 offered context before the day was through. Prior to the lender call taking place on Monday, the term loan had been quoted in the 92 bid, 93 offered region.

By comparison, the company's bonds started the week in the mid-60's, had declined into the low-60's on Tuesday, moved into the mid-to-high 50's on Wednesday and then plummeted into the high-49, low-50 type of range on Thursday.

A trader saw those 11% notes due 2012 fall from Wednesday's close at 55 to intraday lows in the 46-47 area, before climbing part of the way out of the grave to end around 50 bid.

As for the company's stock, that closed out at $2.04, down 43 cents (17.41%) on the day, after reaching a new low of $1.68 during market hours. On Monday, the stock had closed out the session at $3.27.

The bonds "got crushed," another said, quoting the bonds going out at 49 bid, 51 going out, from recent levels around 55 bid, 56 offered.

Overall, since Monday's close, the term loan has given up a total of 2¼ to 2½ points while the bonds have given up somewhere around 15 to 16 points and the stock has given up $1.23.

All of the turmoil began after it became widely known that Movie Gallery held lender calls on Monday afternoon - first for public lenders and then for private lenders - to discuss the overall business environment and the amendment of financial covenants.

The Dothan, Ala.-based operator of video retail stores is not currently in default under its covenants but is looking for relief going forward and in return, would likely give lenders an amendment fee and higher pricing on all loan tranches.

It is currently anticipated that if the lenders consent to the amendment the new terms would take effect on March 15.

Movie Gallery has hired the investment banking firm of Peter J. Solomon Co. to advise it in its discussions with lenders.

"The whole thing stinks," one of the bond traders said. How long ago did they take over Hollywood [Entertainment Corp., then the second-largest chain operation behind Blockbuster Inc. and ahead of Movie Gallery]? It was less than a year ago."

He noted that Movie Gallery sharply increased its debt levels to be able to afford the takeover and "now it's all coming home to roost.

"I guess they were just thinking economies of sale, but they should have realized that their business model has been trumped. You can't be competitive running the old video store model.

"They're bearing the brunt of it now."

GM, Delphi better

Elsewhere, GM and Delphi were the major story of the day, firming smartly in the early going on a report in The Wall Street Journal that indicated that GM, Delphi and the UAW were close to an agreement on helping Delphi out. Even though the union later cautioned that things aren't quite that far along yet, investors only took the carmaker's bonds off their early highs for the day - but left them still solidly ahead at day's end, apparently operating on a feeling, a trader said, that "where there's smoke, there's fire."

GM's benchmark 8 3/8% notes due 2033 "raced up" to 73.25 bid from late Wednesday levels at 72.25 bid, 73.25 offered, the trader said. "Then, the UAW came out and warned that people were putting the cart before the horse" in touting an agreement that was by no means a done deal.

The union left no doubt about where it stood; in a statement posted to its website, the UAW said "nothing could be further from the truth" than the idea that some sort of deal was close at hand. "The parties are not close to working out such an agreement.

"There are many, many, significant issues to be resolved," the UAW statement continued. "Overall the situation has changed very little since our last meeting."

That threw some cold water on the campfire and pushed the bonds back to 72.5 bid, 73.5 offered, only slightly above Wednesday's close - but by the end of the session, the GMs had firmed once again, to 73 bid, 74 offered.

"GM rallied early in the day on the Journal story," another trader said, pegging the 8 3/8s up a point on the session at 73 bid, 73.5 offered. He also saw General Motors Acceptance Corp.'s 8% notes due 2031 up perhaps a quarter point at 92 bid, 92.5 offered.

"Then when the UAW said around 10:30 a.m. [ET] that the two sides were not that close, things sold off from their highs."

Yet another trader saw the GM bonds as high as 74.5 bid, 75.5 offered, a 2½ point-gain, before the union's message; after the market heard the UAW's disclaimer, they slipped a little from that high-water mark to close at 73.5 bid, 74.5 offered, still up 1½ points on the day.

"The stock and the bonds did not care about that," he said. "It seemed like they were pleased that they thought they were getting somewhere. They just brushed [the union's warning] off."

He meantime saw Delphi's 2009 bonds at 60 bid, 61 offered, actually down a point.

But at other desks, the parts supplier's bonds were seen having moved up on the initial news - and having stayed up.

Another trader said that Delphi's 6.55% notes due 2006 were at 60 bid, 61 offered, up two points on the day, while its 7 1/8% notes due 2029 were also up a pair, at 61 bid, 62 offered. "They managed to keep a lot of their gains," he said.

Auto sector generally higher

Other automotive names seemed to have caught a bid in response to the GM news - even though it turned out not to be such big news after all.

A trader said that Visteon Corp.'s 8¼% notes due 2010 moved up to 80 bid, 82 offered from 78 bid, 80 offered on Wednesday, while its 7% notes due 2014 were a point better at 75 bid, 77 offered.

Even among the bankrupt parts suppliers there was a firmer tone. The trader saw Delphi's bonds appreciate two points to 59 bid, 61 offered and saw a three-point rise in the newly bankrupt Dana Corp., to 73 bid, 74 offered. The Toledo, Ohio-based parts maker's bonds have been heading northward ever since that Chapter 11 filing a week ago, with many market participants speculating that the rise was linked to expectations that bonds would be needed for delivery to settle credit default swaps contracts on Dana debt some time around the end of the month.

But Tower Automotive was bucking the trend, its 12% notes due 203 seen falling to 63 bid, 65 offered from 66 bid, 67 offered.

A trader said he had seen no news out about the bankrupt Novi, Mich.-vehicular frames maker.

And Exide Technologies 10½% bonds - which had gotten clobbered over the prior two sessions, in response to news that the company expects to not be in covenant compliance this year unless it can get some lender assistance - were seen down a point Thursday to 72.5 bid, 73.5 offered.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.