Movie Gallery bonds off on analyst comment, Amazon news; Owens Corning loan better

By Paul Deckelman and Sara Rosenberg

New York, Sept. 6 - Movie Gallery Inc.'s bonds fell about 2 points on the session Wednesday, even as an analyst from a major house mentioned bankruptcy as a possibility for the Dothan, Ala.-based video rental chain operator, and online retailing giant Amazon was reported getting ready to get into the movie downloading business, which competes with traditional brick-and-mortar video stores like Movie Gallery and its Hollywood Entertainment arm, and rival Blockbuster Inc.

Automotive bonds continued their upside ride Wednesday, this time towed along by General Motors Corp., which firmed solidly as the Detroit giant announced steps to make its cars, light trucks and sport-utility vehicles more attractive to would-be buyers.

Ford Motor Co.'s bonds meantime continued the firming trend seen late Tuesday after the Number-Two domestic carmaker surprised Wall Street with its announcement that a new man, former Boeing Co. executive Alan Mulally, will be sitting in the driver's seat on a day-to-day basis as chief executive officer.

Asbestos loans up, bonds off

In the bank debt market, Owens Corning loan paper inched its way higher during Wednesday's session, with traders citing the bankrupt Toledo, Ohio-based insulation maker's approaching emergence from Chapter 11 after six long years of restructuring.

A trader saw the Owens Corning bank debt close out the day quoted at 160 bid, 160.5 offered, up about ¼ to ½ point.

A junk bond trader - noting the 1½ point rise seen Tuesday in the company's 7½% notes due 2018 to 57.5 bid, 58.5 offered - said that the bonds "gave up all of [Tuesday's] gains" as they fell back to 56 bid, 58 offered, the same level where they had ended trading last week.

The trader said he had seen no fresh news out about the company.

A market source meantime saw a ½ point drop in all of the bonds of the asbestos-challenged Armstrong World Industries Inc. The bankrupt Lancaster, Pa.-based floorcovering maker's bonds - which frequently move in tandem with Owens Corning, also driven bankrupt by asbestos claims - were seen all down ½ point at 67 bid.

Movie Gallery gets bad review

Movie Gallery's 11% notes due 2012 were seen having slipped 2 points on the session to 64 bid, 65 offered.

A trader cited a news report that Amazon as well as Apple Computer Inc. are about to launch their own separate versions of an online movie download service. Neither company confirmed that report.

Wednesday's edition of The Wall Street Journal attributed its information to unidentified sources. It said that both Amazon and Apple are expected to unveil their respective services in the coming days.

The Journal reported that while Amazon has secured the commitment of every major studio except the Walt Disney Co., Apple has only secured a commitment from Disney.

The paper also said that besides selling films for prices ranging from $9.99 to $14.99, with consumers able to purchase a film as soon as the studios releases the DVD version, Amazon will also offer an on-line rental service.

That is one more competitor for Movie Gallery, which also faces competition from larger brick-and-mortar rival Blockbuster, as well as the popular Netflix Inc. on-line movie delivery service.

Writing about Netflix in a research note which appeared Wednesday, JP Morgan analyst Barton Crockett mentioned market fears that Netflix' finances could adversely be affected by its various competitors.

He said that Blockbuster and Movie Gallery "face secular headwinds from a weakening store-based business."

The analyst also mentioned "bankruptcy risk for Movie Gallery" as another challenge. He said that "Blockbuster can be a strong No. 2 with a seat at the DVD delivery-by-mail table, but not likely to lead the category due to less efficient fulfillment, slower delivery and a weaker web site."

Airlines push upward

Airline bonds were seen winging their way upward, most likely in response to improving world oil prices, which could mean lower jet fuel prices in the future.

A trader called Northwest Airlines Corp. bonds, like its 8 7/8% notes due 2008, up at least a point at 50 bid, 52 offered. Delta Air Lines Inc.'s bonds, like its 8.30% notes due 2029, were a point better at 26 bid, 27 offered.

Both bankrupt air carriers were pushed into Chapter 11 at least partly by sharply escalating fuel prices last year. However, crude prices - whose movements are seen by some as a reliable indicator of projected future directions in jet fuel prices - have recently fallen from prior levels above $70 a barrel. Light sweet crude was down $1.10 at $67.50 a barrel on the New York Mercantile Exchange. The oil price retreat has been attributed to factors such as a possible temporary easing of tensions with Iran over its nuclear ambitions, an end to the summer driving season, as well as news that one Gulf of Mexico platform is now producing 20% more than it was before being struck by Hurricane Katrina.

GM's upside ride

A trader said that "autos in general continued to move up," paced by GM and Ford, with "Tenneco Automotive [Inc.] along for the ride." He saw the Lake Forest, Ill.-based parts company's 8 5/8% senior subordinated notes due 2014 "above par, which I haven't seen for a long time."

Leading the way was GM, which moved to make its vehicles more attractive to would-be buyers by boosting its powertrain warranties on all 2007 models to five years or 100,000 miles, whichever comes first.

A trader saw GM's benchmark 8 3/8% notes due 2033 at 86 bid, 87 offered, up from 85 bid, 86 offered previously, and saw the 8% notes due 2031 of its General Motors Acceptance Corp. financing unit up ½ point at 101.5. GMAC's 6 7/8% notes due 2012 were seen up 1¼ points at 98.5.

Another trader saw the parent company's 8 3/8s firm to 86.375 bid, 86.875 offered. He noted that in addition to the better warranty coverage, General Motors chairman and CEO Rick Wagoner on Wednesday also expressed optimism that the "complex" talks the carmaker is involved in with its bankrupt former subsidiary, Delphi Corp., and the latter's labor unions - aimed at reducing the Troy, Mich.-based partsmaker's heavy labor costs without provoking a potentially ruinous strike that could disrupt GM's production - would reach "a reasonable conclusion."

The new five-year/100,000-mile powertrain warranties represent a sharp increase over the current warranty coverage of three years or 36,000 miles. It covers some 900 engine, transmission and driveline components across the GM family of models and is aimed at boosting GM's image as a producer of high-quality cars and trucks in the eyes of consumers - a reputation which the industry bellwether largely lost to Japanese and European carmakers since the 1970s.

Ford driver change still resonates

Ford's 7.45% notes due 2031, meantime, were seen up ½ point at 80,25 bid, 81.25 offered, a trader said, although he added that the carmaker's bonds had really "moved up last night" - that is, Tuesday - on the news that chairman William Clay Ford Jr. will give up his CEO post at the carmaker that he had held for five years, relinquishing day-to-day control of the company founded by his great-grandfather, Henry Ford, to incoming CEO Alan Mulally, up until now a senior executive at aerospace giant Boeing.

The Ford bonds, and those of its Ford Motor Credit Co. finance unit, had shot up more than a point on Tuesday's unexpected announcement, which breaks with the usual auto industry practice of picking top executives from the ranks of the industry rather than elsewhere. This departure was seen by industry analysts as an admission by the troubled carmaker that its problems are serious and that it must think outside the box and move in bold new directions to solve them.

Ford Credit's 7% notes due 2013 were seen up another ¾ point Wednesday at 94.5 bid.

Metaldyne steady

A trader saw Metaldyne Corp.'s 11% senior subordinated notes due 2012 "settle in nicely" around the 93.5 area, and the 99.5-par range on its 10% senior notes due 2013.

Another trader said that there was "nothing" doing in Metaldyne on Wednesday, quoting the 11s at 92.75 bid, 93.75 offered. While the bonds were "very active," he said, they "remained range-bound" in that area and finished essentially unchanged.

Yet another trader pegged the 11s at 93 bid, 95 offered, "up a little," and saw the 10s a point better at 99 bid, 101 offered.

The 11% notes have recently gyrated around between the upper 80s and the mid 90s, in the wake of the announcement last week that Japanese partsmaker Asahi Tec Corp. will acquire Plymouth, Mich.-based Metaldyne, a maker of metal automotive parts, in a $1.2 billion deal that includes the repurchase or refinancing of the latter's nearly $900 million of debt. The 11% bonds initially zoomed into the mid-90s from the upper 70s on reports that the deal was coming, but then fell back a few points after the company said that it would tender for them - but at the sharply lower "pre-announcement" levels. Traders said they have stayed in that general area on investor belief that the company might be forced to allow them to put the bonds back to the company at or near par levels on the change of control.

The 10% notes, which moved up to around par from the mid-90s on the announcement of the Asahi deal, will not be part of the tender offer.

Among bankrupt auto suppliers, Collins & Aikman Corp.'s 10¾% notes due 2011 were seen at 7 bid, 8 offered, up ½ point. Tower Automotive's 12% notes due 2013 fell a point to 37 bid, 29 offered. Delphi's bonds were up perhaps ½ point at 90.5 bid, 91.5 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.