Movie Gallery debt, bonds firmer; asbestos off as Frist warns on bill

By Paul Deckelman and Sara Rosenberg

New York, Feb. 21 - Movie Gallery Inc.'s term loan was stronger during Tuesday's session as more buyers for the paper emerged in what was otherwise deemed as a relatively quiet trading day. The Dothan, Ala.-based Number-Two U.S. video chain operator's bonds were also seen having firmed off recent lows.

Bonds of asbestos-challenged companies were seen unchanged to easier following a warning by Senate Majority leader Bill Frist that he might not make another try to have the Senate vote on the controversial national asbestos trust fund bill unless he gets assurances from at least 60 senators that they will vote to overcome procedural objections that have stalled the measure.

In the automotive arena, General Motors Corp.'s bank debt and bonds, and the bonds of its General Motors Acceptance Corp. financial arm were seen easier on the news of a ratings downgrade Tuesday by Moody's Investors Service. That followed news reports Friday indicating that Wachovia Corp. was pulling out as a possible co-buyer of a 51% stake in GMAC.

Movie Gallery's term loan closed out the day quoted at 92.5 bid, 93.5 offered, according to some bank debt market players, and at 92.25 bid, 93.25 offered, according to others.

By comparison, last Friday, the term loan closed out the week with quotes of 91 bid, 93 offered.

Last Tuesday, Movie Gallery's term loan had fallen off to the 89 bid, 91 offered context, after news surfaced that there was a new movies-on-demand service being launched called MovieBeam Inc. - leaving some to worry about how this rival would affect Movie Gallery's bottom line, already hurt by a downturn in video rental revenues.

However, the term loan started to rebound last Thursday as people digested the competition news and put it in perspective, traders previously explained, and the trend has apparently continued into this week.

The company's 11% notes due 2012, meantime, had fallen to levels as low as 58 bid last week on the MovieBeam from prior levels almost 10 points higher. But during Friday's abbreviated pre-holiday session ahead of Monday's Presidents' Day market close, those bonds had rebounded somewhat and had pushed back above the 60 mark.

In Tuesday's dealings, a trader in distressed notes saw them up a point at 61 bid, 63 offered, while a second saw those bonds "bouncing back a little on no news." He quoted them at 62 bid, 63 offered, up two points.

Owens Corning, Armstrong lower

On the downside, a trader saw the bonds of bankrupt Toledo, Ohio.-based insulation maker Owens Corning down a point at 79 bid, 80 offered, and said that bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc.'s bonds were ¼ point lower at 63.5 bid, 64.5 offered.

Another trader saw the Owens Corning 7½% notes due 2018 "pretty much flat" at 78.5 bid, 79.5 offered, while Armstrong's 6½% notes that were to have come due last year were half a point lower at 63.5 bid, 64.5 offered.

A third trader saw those Armstrong bonds unchanged on the day at 64, while Owens' bonds hovered at 78.75; he opined that "the damage may have already been done to them."

On the other hand, yet another trader actually pegged Owens up a point at 79 bid, 80 offered, while Armstrong was unchanged at 64.

Sector investors were busy digesting the latest discouraging word out of Washington, where the bill that would set up a $140 billion industry- and insurance-financed national fund mechanism to pay asbestos medical claims - and get them out of the courts - is currently treading water, after failing to get the 60 votes necessary to overcome a budget-themed procedural objection brought by a Republican critic of the bill, Sen. John Ensign of Nevada.

While the bill's primary sponsor, Pennsylvania Republican Sen. Arlen Specter, insists that he has the votes to overcome Ensign's procedural motion - Specter said the lone senator who missed the vote due to an illness in his family, Hawaii Democrat Daniel Inouye, is a bill supporter who will vote to overcome the objection next time around - Senate Majority Leader Frist, a Tennessee Republican, isn't so sure, and wants definite assurances that 60 votes are there before he brings the bill up for another vote.

Supporters of the bill include many of the more than 80 companies like Owens Corning and Armstrong that were driven into bankruptcy earlier this decade under a veritable flood of lawsuits brought by people claiming medical problems as a result of their exposure to asbestos when the mineral was a widely used fire retardant in past decades. They say a claims fund mechanism is needed to get the suits out of the courts, assure quick payment on claims with only minimal payment to tort lawyers, and set a definite limit on the companies' liabilities so they can get on with their reorganizations. Critics say the bill caution that the trust fund will likely run out of money down the road, and warn that this may shortchange future claimants or leave the taxpayers holding the bag in terms of making up for the shortfall.

Refco down again

Also on the downside, Refco Inc.'s 9% notes due 2012 continued to fall Tuesday, although a trader said he saw no additional news about the bankrupt New York-based financial company that might explain the bonds' renewed slide.

One trader saw those bonds drop to 51 bid, 53 offered from 56 bid, 58 offered, while another saw them down "four or five points" on the day at 51 bid, 52 offered, "on no fresh news."

Refco slid into bankruptcy last year after disclosure of hundreds of millions of bad loans on the company's books, which led to the ouster of its CEO. Customers also complained that their accounts were secretly transferred to unregulated, unprotected subsidiaries without their knowledge or consent. In the latest setback, the planned sale of the assets of the company's foreign exchange unit was abruptly scrubbed, sending the bonds down still further.

GM loans, bonds weak

General Motors Corp.'s revolver softened and widened out as the company was hit with another ratings downgrade and reports coming out that Wachovia dropped out of the running for the purchase of control of GMAC, according to bank loan traders.

On Tuesday, Moody's Investors Service lowered the corporate family rating and senior unsecured rating of GM to B2 with a negative outlook from B1.

"The downgrade reflects increased uncertainty that the company will be able to achieve all of the steps necessary to establish a competitive wage, benefit and supplier cost structure outside of bankruptcy," the rating agency said.

These steps include a successful resolution of the Delphi reorganization and the negotiation of a considerably more competitive labor contract with the UAW during 2007, completing the sale of GMAC, resolving the current SEC investigations into various accounting matters, and dealing with continued pressure on its operating profile by declining US market share and the ongoing shift in consumer preference away from trucks and SUVs, Moody's explained.

GM is currently in negotiations with Delphi Corp. and the United Auto Workers regarding wage reductions and benefit provisions.

These negotiations were supposed to end this past Friday as bankrupt Troy, Mich.-based auto components maker Delphi had threatened to go into bankruptcy court and ask the judge overseeing its case toss out the contract - which in turn resulted in the union threatening to strike.

However, on Friday, Delphi announced that, based upon progress in discussions with its major unions and GM, it will continue talks in an effort to achieve a comprehensive agreement no later than March 30.

Once again, Delphi threatened that if an agreement is not met by the new deadline, it will promptly file a motion with the bankruptcy court to reject the collective bargaining agreements and terminate hourly post-retirement health care plans and life insurance.

Also affecting GM's revolver during Tuesday's market hours was the rumor that Wachovia is no longer looking to purchase GMAC.

GM has been trying to sell a 51% stake in GMAC for months now. The company was hoping to sell the stake to an investment-grade financial buyer in hopes that such a sale would restore GMAC's credit rating to investment grade and greatly lower its borrowing costs, but it seemed like a hybrid buying group was the way things were leaning, as two potential buyers emerged - a buying group consisting of Cerberus Capital Management LLC and Citigroup's buyout unit, and a group consisting of Wachovia Bank and The Blackstone Group. However, with Wachovia out of the running, the successful completion of a GMAC sale is looking slimmer and slimmer.

In reaction to all this news, GM's revolver closed out the session quoted around 79 bid, 84 offered, compared to Friday's closing levels of 80¼ bid, 82¼ offered, one trader said. Another trader said that the had seen levels in the 80 bid, 82 offered context and even in the 83 bid, 85 offered context but being that the paper didn't really trade it was hard to tell if any of these levels "were real."

On the bond side of the ledger, the carmaker's bonds, and GMAC's, were bouncing around at mostly lower levels.

A trader saw GM's benchmark 8 3/8% notes due 2033 at 70.75 bid, 71.75 offered well down from Friday's levels at 73 bid, 74 offered.

"The rumors [that Wachovia was going to back out] apparently came to fruition," the trader said, although it should again be noted that nobody is saying anything officially, since the talks are private. "So GM fell off today [Tuesday] on that news and the news of the [Moody's] downgrade."

A trader at another shop saw the flagship GM bonds down 2¼ points at 70.75 bid, 71.25 offered, while GMAC's 8% notes due 2031 slid to 93.5 bid, 94, down 2¾ points.

Yet another trader saw the GMAC bonds at 94 bid, 95 offered, down two points, while the GM bonds were 1½ points lower at 71 bid, 72 offered.

Among the less widely traded issues, a trader saw GMAC's 6¾% notes due 2014 at 90 bid, 91 offered, and its 6 7/8% notes due 2011 at 91 bid, 92 offered, both down two points.

Ford also lower

The ripple effect from GM's downturn was most keenly felt in the bonds of arch-rival Ford Motor Co., whose benchmark 7.45% notes due 2031 were seen by a trader down 1¼ point at 72.5 bid, 72.75 offered, while its Ford Motor Credit Co., 7% notes due 2013 lost ¾ point to end at 89.5 bid, 90 offered.

But among other automotive names, the impact was limited, with a trader seeing Delphi's 6.55% notes coming due later this year down half a point at 55.75 bid, 54.75 offered, while its 7 1/8% notes due 2029 were up half a point at 55.25 bid, 56.25 offered.

Visteon Corp.'s 8¼% notes due 2010 were ¼ point lower at 83.25 bid, 84.25 offered, while Dana Corp.'s 5.85% notes due 2014 were half a point better at 67.5 bid, 68.5 offered.

Bankrupt Novi, Mich.-based vehicular frames maker Tower Automotive's 12% notes due 2013 were down a point at 67 bid, 68 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.