Movie Gallery bank debt and bonds fall on prospective new rival; Tembec bonds better

By Paul Deckelman and Sara Rosenberg

New York, Feb. 14 - Movie Gallery Inc. saw its term loan and its junk bonds come under some pressure on Tuesday as investors worried over potential bottom line weakening due to a newly launched competitor called MovieBeam Inc.

Elsewhere, the lately badly oversold bonds of Canadian forest products producer Tembec Inc. continued to rebound from their recent lows, although traders saw no fresh news out Tuesday about the company.

Foamex International LLC's senior bonds were seen a little easier in the wake of the news of a postponed hearing in the Linwood, Pa.-based foam rubber producer's bankruptcy case.

Movie Gallery's term loan closed out the session down about 2½ points at 89 bid, 91 offered, a bank debt trader said.

Its bonds, meantime, "really got hit today [Tuesday]," a trader said, seeing its 11% notes due 2012 fall to 59 bid from prior levels at 66.75. He also saw the 9½% notes due 2012 of Movie Gallery's main competitor, Blockbuster Inc, down three points in sympathy to 83.5.

Another trader saw the Movie Gallery bonds finish at 60 bid, down from 66 bid, 68 offered, although at another desk, a trader only saw those bonds down three points on the day at 59 bid, 60 offered. He saw Blockbuster's 91/2s "off a couple of points" at 83 bid, 84 offered.

On Tuesday morning, The Walt Disney Co., Cisco Systems, Intel Corp. and several financial investors - Mayfield Fund, Norwest Venture Partners and VantagePoint Venture Partners - announced a newly formed Burbank, Calif.-based venture, MovieBeam, which will provide movies-on-demand service, some in high definition, in 29 major metropolitan areas across the United States, including New York, Los Angeles and Chicago.

Such a service could further hurt revenues at The Movie Gallery and its Hollywood Entertainment subsidiary, the second-largest U.S. home video rental chain, as well as those of rental industry leader Blockbuster. Each company's sales have already been reduced by competition from the popular Netflix service and various pay-per view movie options offered by cable television and satellite broadcast providers.

With Dothan, Ala.-based Movie Gallery already under investor scrutiny due to the softness in the video rental industry leading to other sorts of problems - such as expectations of further loan amendments being necessary to avoid non-compliance with covenants - the emergence of the MovieBeam system was enough to jump-start a new round of nervous behavior in the market, leading to lower bank and bond levels.

Interestingly, however, Dallas-based Blockbuster's bank debt held its ground, with term loan levels remaining unchanged at 96 bid, 97 offered despite some seller interest being seen in the market, the trader added.

In the equity market, Movie Gallery's Nasdaq-traded shares were off 19 cents (5.83%) to $3.07. Volume of 3.8 million shares was more than twice the norm.

Tembec back on upward path

Elsewhere, a trader said that Tembec "bounced a little," with the Montreal-based paper and pulp producer's 8 5/8% notes due 2009 rising to 51.75 bid from prior levels at 51, and its 8½% notes due 2011 moving up to 50 bid from 48.75. He also saw Tembec's 7¾% notes due 2012 at 49.25 bid, up from 47.

Another trader saw the 81/2s up two points "on no news," as the bonds finished at 50 bid, 51 offered.

Last month Tembec's bonds were all languishing in the lower 40s, with the whole Canadian forest products sector in a funk due to sagging demand for newsprint, higher energy costs and the strong Canadian dollar, which depresses exports, particularly those to the United States.

The bonds rebounded earlier this month on suggestions that the sector might be ripe for some consolidation, but that proved to be premature and the bonds headed back down before coming off their lows on Tuesday to close higher.

Foamex delay hits notes

Monday's news that Foamex had put off yet another scheduled bankruptcy hearing, ostensibly so that it can continue talks with creditor constituencies on its proposed reorganization plan, pushed the company's 10¾% senior notes due 2009 down 1¾ points to 91.5 bid, a trader said. He saw its junior bonds - the 9 7/8% notes due 2007 and the 13½% notes that were to have matured last summer - unchanged at 18 bid.

Auto names weaker, quiet

In the automotive sphere, activity in the bonds of distressed parts suppliers was seen as pretty lackluster, although the bonds generally were on the easier side.

A trader saw the 10¾% notes due 2011 of bankrupt Troy, Mich.-based interior components provider Collins & Aikman Corp. a point lower at 29 bid, 31 offered. He saw the bonds of Collins' equally bankrupt Troy neighbor, Delphi Corp., at 50 bid, 52 offered, two points easier, while the bonds of bankrupt Novi, Mich.-based vehicular frames manufacturer Tower Automotive Inc.'s 12% notes due 2013 were a point down at 70 bid, 72 offered.

At another desk, a trader saw the Collins & Aikman bonds only down 1/8 point at 29.875 bid, while Delphi's 6.55% notes due this year were half a point lower at 51. However, he quoted Delphi's 7 1/8% notes due 2029 up 5/8 point at 53. He saw Tower's 12s unchanged at 70.875 bid - although he saw those bonds as having fallen 1¼ points on Monday.

Among non-bankrupt names - so far - that are clearly struggling, the second trader saw Toledo, Ohio-based auto systems maker Dana Corp.'s 6½% notes due 2009 and 5.85% notes due 2015 each down a point, at 76 bid and 66.5 bid, respectively. Dana's 9% notes due 2011 were down ¼ point at 75.75.

He also saw Rochester Hills, Mich.-based vehicle systems manufacturer Dura Automotive Systems Inc.'s 9% notes due 2009 at 52.5, down 1½ points, while its 8 5/8% notes due 2012 lost half a point at 81.5 bid.

Van Buren Township, Mich.-based components manufacturer Visteon Corp.'s 7% notes due 2014 were unchanged at 76 bid, while the former Ford Motor Co. parts division's 8¼% notes due 2010 were ¼ point off at 81.125.

The component makers seemed to be taking their cue from General Motors Corp., whose much ballyhooed announcement of plans to spend $545 million to upgrade five of its Michigan assembly plants, as generally expected, had not much impact on the troubled carmaker's bonds. A trader saw its benchmark 8 3/8% notes due 2033 unchanged at 69.75 bid, 70.25 offered, while another saw those bonds up ¼ point at 70.25, but said that most of the Detroit giant's other bonds, which are not as widely traded, were unchanged.

In its announcement, GM said it was creating about 300 jobs at those factories. Those positions are expected to be filled by GM workers laid off from other facilities through the "jobs bank" the carmaker and the United Auto Workers union maintain.

A trader meantime saw General Motors Acceptance Corp.'s 8% notes due 2031 better by ¼ point at 94.25 bid, 94.75 offered, while GM rival Ford Motor Co.'s 7.45% notes, also due in 2031, were half a point better at 71 bid, 71.5 offered. Ford Motor Credit Co.'s 7% notes due 2013 were also up half a point at 90 bid, 90.5 offered.

Armstrong slips

Outside of the autosphere, a trader in distressed notes saw bankrupt Lancaster Pa.-based floorcovering maker Armstrong World Industries Inc.'s 9¾% notes off a point at 75 bid, 77 offered, while the asbestos-challenged company's 6-handle coupon bonds were also down a 1 point at 73 bid, 75 offered.

Word from Washington Tuesday was that the bill that would set up a $140 billion trust fund mechanism to take asbestos-related medical claims out of the courts and pay them is currently roadblocked on procedural technicalities in the Senate.

Bankrupt asbestos-challenged Toledo, Ohio-based insulation maker Owens Corning's bonds were meantime unchanged at 88 bid, 90 offered.

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