Movie Gallery bank debt, bonds jump on M&A buzz; auto rise looks over

By Paul Deckelman and Sara Rosenberg

New York, June 5 - Movie Gallery Inc.'s bank debt as well as its junk bonds felt stronger during Monday's session, as a number of rumors swirled through the market, ranging from the company potentially being an acquisition target to new non-bank debt financing being worked on that would result in a pay down of the current loans, according to traders.

Elsewhere, traders generally saw the automotive sector heavier - the apparent end to the booming rise that had such bonds as General Motors Corp., Delphi Corp. and Dana Corp. firming smartly last week.

However, Calpine Corp.'s bonds continued to strengthen, carrying forward the positive momentum seen around the end of last week.

Movie Gallery's term loan B closed out the day quoted at 97.5 bid, 98.5 offered by one trader, and a little tighter at 97.5 bid, 98 offered by a second trader. By comparison, on Friday the term loan had been quoted at 97 bid, 97.5 offered, the second trader added.

"I heard they might be doing real estate financing that could potentially pay down the banks," a trader remarked.

Others, heard the acquisition buzz, but said that it was all speculation and chatter at this point.

The Dothan, Ala.-based movie rental company's 11% notes due 2012 were described by a bond trader as "very volatile." He saw the bonds push as high as 79 bid around mid-morning before dropping back to 77.5 bid, 78 offered, still up 1½ points. He cited rumors that the company might be ripe for acquisition.

Meantime the stock took quite a jump, closing out the day up by $1.01 (17.27%) at $6.86 - this on a day when the NYSE closed down 159.72 points and the Dow Jones Industrial Average closed down 199.15 points.

M&A developments were meantime seen still supporting bonds of electric power generators such as the bankrupt Calpine Corp., as well as Reliant Energy Inc. Calpine's bonds had firmed smartly on Friday, helped at least in part by the unsolicited $8 billion takeover offer for Calpine sector peer NRG Energy Corp. from rival power generator Mirant Corp.

A trader on Monday pegged the San Jose, Calif.-based power generating company's 8½% notes due 2011 at 52.5 bid, 53.5 offered, which he called half a point off their intra-day highs but up another point over Friday's levels. He attributed the continued firmness to momentum from last week's upward move in the company's bank debt, the good vibe coming from Calpine's payment last week of $645 million of 9 5/8% first-priority senior secured notes due 2014 - a move which will reduce annual interest costs by $25 million - and the continued impact of the Mirant/NRG news.

"There's a bid out there for electric utilities," he observed, quoting the Calpine Canada Energy Finance II ULC 8½% notes due 2008 at 68 bid, up from 66 previously.

Another trader saw those '08s up two points on the session at 69 bid, 70 offered, while the 11s were up 1½ points at 52.5 bid, 53.5 offered. However, he saw Calpine's secured 8½% notes due 2010 actually down a point at 97 bid, 98 offered.

And while a market source saw Calpine's 8¾% notes due 2007 finishing up three points on the day at 75, after having been as high as 76 earlier in the day, another source said that he had seen no additional firmness in the company's notes, other than a "leveling out" at higher levels for its 6% convertible notes.

Another trader, while seeing Calpine "tack on" another point to its previous levels, also saw Reliant Energy Inc.'s bonds also better in the aftermath of the Mirant proposition to NRG, which he said caused Houston-based Reliant to "catch a little wind in the sails as well." He saw its 6¾% notes due 2014 up two points at 92.5 bid, 93.5 offered.

Auto sector lower

Elsewhere, traders saw the automotive names mostly weaker - a sharp reversal from where things sat last week, when bonds of GM and the supplier companies were better - even in the wake of sagging sales figures for the domestic manufacturers.

In Monday's dealings, a trader saw bankrupt Toledo, Ohio-based auto parts maker Dana's 6½% notes due 2008 fall back to 87 bid, 89 offered, down two points, while its 7% notes due 2028 and 2029 were a point lower at 81 bid, 83 offered.

He saw bankrupt Tory, Mich.-based former GM subsidiary Delphi's shorter paper unchanged, but its intermediate to longer notes, like the 61/2s due 2013, two points lower.

Another trader saw all of the Delphis and Danas down at least a point, and in some cases more. He also saw Delphi's former parent, GM, unchanged, with its 8 3/8% notes due 2033 at 75.75 bid, 76.25 offered.

The bonds had all risen last week on the hopes that GM, Delphi and the latter company's unions could come to an agreement on helping Delphi cut its labor costs. The parties have been negotiating for months in an effort to reach a consensual agreement that would allow Delphi - saddled with costly labor contracts when it was spun off by GM in 1999 - to lower its employee costs without provoking a union strike. Delphi's unionized hourly workers make an average of $27 per hour. The company wants to cut that to $16.50 with the help of a GM subsidy, but says that if GM won't pony up that money, it will cut wages to $12.50 per hour.

Revlon recovers

Outside of the automotive area, Revlon Consumer Products Corp.'s bonds "seemed to bounce back" after having gotten mowed down last week, the trader said, seeing its 8 5/8% notes due 2008 up a point at 94 bid, 95 offered, while its 9½% notes due 2011 were also a point higher, at 92.5 bid, 93.5 offered.

Those bonds fell Friday after the New York-based cosmetics manufacturer - controlled by billionaire financier Ronald O. Perelman - warned that a planned equity offering would be delayed, and projected lower guidance than before for fiscal 2006.

Another trader said that Revlon "recouped a little," with the 8 5/8s up perhaps half a point from Friday at 93.5 bid, 94.5 offered, and the 91/2s at 91.5 bid, 92.5 offered. The latter bonds, he said, "had been a little bit higher earlier," around 93 bid. "Then there was a sell-off, a little bit," to drop the bonds back, but still leave them better on the session.

"People were anticipating the short-term stuff would hang in," he said, "though maybe not the longer-dated paper." He cited the structure of the planned equity transaction and noted the "backstop provision" under which the Perelman-controlled McAndrews & Forbes will guarantee that all of the planned stock gets sold - by agreeing to buy up any that isn't. He also cited Standard & Poor's announcement Friday maintaining the company's ratings will stay where they area, at least for the moment.

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