Movie Gallery bonds move; GM bank debt lower on profit-taking

By Paul Deckelman and Sara Rosenberg

New York, March 30 - Movie Gallery Inc.'s bonds were sharply higher in Thursday's dealings, traders said, despite the lack of any real news about the company. However, that rise occurred in tandem with a jump in the Dothan, Ala.-based home video rental and sales chain operator's stock, probably spurred by short covering.

In the automotive sphere, General Motors Corp.'s revolving credit facility took a step back after a nearly 10-point run-up during the previous session as people were probably just engaging in some profit taking, according to traders.

But while GM's bank debt was easing, its bonds and those of its General Motors Acceptance Corp. financial arm were seen up anywhere from half a point to a full point, given some traction by a Wall Street Journal story suggesting GM might be nearing its goal of selling a 51% stake in GMAC.

Those GM and GMAC issues firmed despite the looming possibility that former subsidiary Delphi Corp. may make good on its oft-repeated threat to go to court and attempt to have its burdensome union contracts thrown out - a step which could send 34,000 hourly Delphi workers out on strike and thus badly disrupt the flow of parts to GM from its largest supplier.

Delphi's bonds were meantime lower as its labor situation worsened and its self-appointed deadline for reaching a deal with its unions and GM cut its labor costs approached.

Movie Gallery jumps higher

Traders saw Movie Gallery's 11% notes due 2012 shoot up by about four points on the session to 48 bid, 50 offered, from prior levels around 44. One trader even saw the bonds get better than that, going home at around 49.5 bid.

Movie Gallery was really moving around," one quipped.

The sharp rise in the company's bonds went hand-in-hand with an equally impressive jump in its Nasdaq-traded shares, which shot up 43 cents (18.35%) to end at $2.77 on volume of about 3.3 million, 1½ times the usual turnover. Movie Galleries shares had held steady around the previous session's $2.34 close for the first two hours of trading - but then climbed sharply, on increased volume, starting about 11:30 a.m. ET, and they stayed up there for the remainder of the day, bringing the bonds along with them.

There was no firm news seen out about the company, and a lot of speculation on investment-oriented internet bulletin boards that a short squeeze that could last four or five sessions was on. It was noted that going into Thursday's session short interest in Movie Gallery stock amounted to 18.6 million shares, or fully 72.5% of the company's outstanding float.

Movie Gallery last week released its latest quarterly and year-end numbers and although the company swung to a quarterly loss from a year earlier its executives noted on their conference call that on a pro-forma basis, figuring in the revenues derived from its acquisition last year of rival movie rental chain Hollywood Entertainment, Movie Galleries revenues and earnings would be quite respectable. They also noted that the company now has some breathing room on its financial covenants that will let it build up some momentum before those waivers expire at the beginning of 2007. It did warn, however, that at that point it might not be in covenant compliance, and might have to go back to its lenders to seek more relief.

GM revolver down, bonds up

GM's revolver was quoted at 90 bid, 92 offered Thursday, down from Wednesday's levels of 92.5 bid, 94 offered, traders said.

On Wednesday, the giant carmaker's bank debt rallied from an 83 bid, 84 offered context, as talk began circulating that a refinancing of the company's $5.6 billion unsecured line of credit could be in the works, based on some remarks in GM's 10-K annual filing with the Securities and Exchange Commission.

GM had said in the filing that it is currently exploring the possibility of amending or replacing its existing revolver, since it is unsure as to whether lenders would allow any borrowings under the facility due to the recent restatement of prior financial results.

The company needed to restate financial results for GMAC from 2003 through the third quarter of 2005 as a result of improper classification and presentation of cash flows for certain mortgage loans.

While the revolver was easing off from the highs which it hit on Wednesday, GM's bonds and GMAC's were headed in the opposite direction, propelled forward by investor reaction to the Wall Street Journal story.

A trader said that GM's benchmark 8 3/8% notes due 2033 were half a point better at 73.5 bid, 74 offered, while GMAC's 8% notes due 2031 were also up half a point at 92.5 bid, 92.75 offered.

Another trader called the bonds up a point across the board, with the 8 3/8s at 74 bid, 75 offered, the 8s at 92.5 bid, 93 offered, and GMAC's 6 7/8% notes due 2011 at 92 bid, 93 offered, and its 6¾% notes due 2014 at 89 bid, 90 offered.

The Journal reported Thursday that GM is close to its goal of selling a 51% stake in GMAC to an investor group led by private equity company Cerberus Capital Management for $11 billion. The story said that a lot of technical details remain to be worked out, but the framework for a deal is in place. GM said back in October that it wanted to sell control of GMAC, envisioning a sale to a strong financial company as a means of raising GMAC's debt ratings back to investment grade from junkbondland, which would cut its borrowing costs substantially.

But several major banks mentioned as potential buyers publicly shunned the idea, leaving the Cerberus-led group and a second led by buyout specialist Kohlberg Kravis Roberts & Co. as the only two publicly identified buyers. The major ratings agencies have expressed skepticism about whether GMAC's bonds would merit a return to high grade status if control of the company is not bought by an established bank, but is instead acquired by a hybrid investor group led by a private equity player like Cerberus or KKR.

Even so, GM bondholders would still want to see such a deal, which would give GM proceeds estimated at $11 billion, should Cerberus be the buyer, or as much as $13 billion, if the KKR group is selected.

While they were cheered by Thursday's Journal report, the bondholders were still nervously watching what was going on with GM, Delphi and the UAW.

Delphi lower on strike worries

Delphi's bonds were seen down about two points on the session after the UAW warned that Delphi was likely to go to court on Friday, as promised, seeking to junk its labor contracts with 34,000 hourly workers represented by the UAW and two other unions.

A trader saw Delphi's 6.55% notes due 2006 down 2¾ points on the day at 60.25 bid, 61.25 offered, and saw the bankrupt Troy, Mich.-based automotive electronics manufacturer's 7 1/8% notes due 2029 down 1¾ points at 60.5 bid, 61.5 offered.

Delphi's former corporate parent, GM, is also vitally interested in what happens with Delphi and its unions, since the unions have threatened to go on strike if Delphi tries to void their contracts and unilaterally impose a lower wage and benefits structure on them. That strike, if it occurs, could in turn massively disrupt production at GM, which relies heavily on its former subsidiary for a steady flow of component parts. GM, the UAW and Delphi have been talking for months about how to relieve Delphi of some of its heavy labor cost burdens, and last week unveiled a plan for the auto giant to pay for buyouts to 13,000 Delphi UAW members and to accept the transfer back to GM of 5,000 more.

Delphi set a deadline of Thursday for having the framework of a labor cost agreement worked out, and had said that it would go to court Friday if it didn't have such an agreement by then - although it should be noted that Delphi had extended that deadline several times over the past few months.

Last week, Delphi - which contends that its current burdensome labor structure inherited from GM when it was spun off in 1999 puts it at a severe competitive disadvantage and threatens the company's long-term survival- floated a proposal to cut the cash wage component that it pays its hourly employees to around $16 per hour from $27 and hour, on average, currently. Those cuts would be accomplished gradually. However, the UAW termed the wage-cut proposal unacceptable, leaving things back at Square One.

Delphi, GM and the union were reported still in talks as of Thursday afternoon, and as of press time on Thursday evening there had been no official word from any quarter as to the status of those talks.

Tower lower

Among other automotive names, a trader saw bankrupt Novi, Mich.-based vehicle frame maker Tower Automotive Inc.'s 9% notes due 2012 down two points at 65 bid, 67 offered.

He also saw little change in the bonds of bankrupt Toledo, Ohio-based components maker Dana Corp., quoting its 7% notes due 2028 and 2029 at 75 bid, 77 offered, unchanged, although he did see its 6½% notes due 2008 at 77 bid, 79 offered, a point easier.

Another trader saw the company's 5.85% notes due 2015 steady at 74.25 bid, 75.25 offered. He also saw parts maker Visteon Corp.'s 8¼% notes unchanged at 82 bid, 83 offered.

Winn-Dixie gains

Outside of the automotive sphere, Winn-Dixie Stores Inc.'s 8 7/8% notes due 2008 were a point better at 78 bid, 80 offered, helped by the news that the bankrupt Jacksonville, Fla.-based supermarket chain operator will sell its operations in the Bahamas in order to concentrate on its core business in the Southwestern United States.

Calpine rise goes on

And traders saw Calpine Corp.'s bonds continuing to power up - though still, nobody can figure out why. A trader saw the bankrupt San Jose, Calif., electric generating company's 8½% notes due 2008 a point better at 53 bid, 55 offered and its 8½% secured notes due 2010 better by ¼ point at 91.25 bid, 92.25 offered.

Another trader saw Calpine's 10½% notes due 2006 up a point at 60.5 bid, 61.5 offered, and a market source at another desk said its 8¾% notes due 2007 were yet another point higher at 61 bid.

There has been no fresh positive news lately that might explain the hike the bonds have taken over the past two weeks or so, and Calpine - which filed for protection in December - is expected to be mired in bankruptcy for a very long time.

Yet another trader, though, went against the conventional wisdom Thursday. He opined that although "it's been moving steadily upward - there was nothing today."

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