Movie Gallery bank debt, bonds slide after bad numbers; Calpine keeps rising - but why?

By Paul Deckelman and Sara Rosenberg

New York, March 23 - Movie Gallery Inc.'s term loan fell off in trading on the heels of Thursday morning's release of fourth quarter and full year financials - and the Dothan, Ala.-based Number-Two U.S. video-rental chain's battered bonds were likewise on the downside despite company efforts to paint a better picture on its conference call.

Elsewhere, junk market players saw Calpine Corp.'s bonds continuing to power up - but nobody could put their finger on why the bankrupt San Jose, Calif.-based electric generating company's notes are suddenly being bought.

In the automotive arena, bonds of such bankrupt supplier names as Dana Corp. and Delphi Corp. - which have recently led a strong firming move in the sector - were lower Thursday, although this was chalked up to profit-taking. Meanwhile General Motors' bonds and those of its General Motors Acceptance Corp. financial unit failed to rise on the news that GM had sold control of most of GMAC's commercial mortgage holding company division to a Kohlberg Kravis Roberts & Co.-led investor group. In fact, those bonds were seen lower on the day, even though the deal brings almost $9 billion to GMAC as GM is trying to do a similar deal and sell a majority stake in the subsidiary.

Movie Gallery's term loan closed out the day quoted at 90 bid, 91 offered, down about a point from previous levels of 91 bid, 92 offered, a bank loan trader said.

Over in the junk bond market, a trader in distressed notes saw Movie Gallery's 11% notes due 2012 fall as low as 45 bid, 46 offered from prior levels around 48 bid, 50 offered. Late in the day, those bonds firmed a touch from their lows to close at 46 bid, 48 offered, still down two points on the day.

"The whole junk market had a heavy tone, led by Movie Gallery." another trader said. He also saw the bonds having fallen to around 45 bid, 45.5 offered in the early going and then improving a little "after their conference call" to 46 bid, 47 offered.

Even so, he said, "they've been bouncing around, up and down" - though mostly down - "like crazy. Just yesterday [Wednesday], they were 50 bid, 51 offered," he observed.

For the fourth quarter of 2005, the company reported total revenues of $676.4 million compared to $208.4 million last year - but that gain was mostly due to the inclusion of revenues from nearly 2,100 Hollywood Entertainment stores, which Movie Gallery bought last year in a deal that closed at the end of April.

It had a net loss for the quarter of $546.5 million ($17.25 per share) versus a year-earlier gain of $11.4 million (36 cents per share).

On a full-year basis, Movie Gallery's 2005 revenues totaled $2 billion, reflecting the inclusion for 35 weeks of 2005 of Hollywood, compared to $791 million for 2004, but it had a net loss of $552.7 million ($17.53 per share) compared to a gain of $49.5 million ( $1.52 per share) in 2004.

Movie Gallery blamed the losses in part on a weak slate of new big-name movies and the growth of alternative delivery channels, such as on-line movie services, which cut into the traditional rental stores' revenues over the past several years.

But company officials told analysts on their conference call following the release of the earnings data that the company - which is continuing to integrate last year's big purchase of larger rival Hollywood - was trying to turn things around, by recently obtaining easier terms on key financial performance covenants in its credit facility, as well as by measures such as reducing salaried and administrative headcount, closing redundant stores and exploring the disposition of non-core assets.

They said that help could be on the way soon from Hollywood with the coming release on DVD of such popular theatrical movies from last year as Oscar nominee "Walk The Line," "Harry Potter and the Goblet of Fire," "King Kong," "Chicken Little," "The Chronicles of Narnia" and "Fun With Dick and Jane."

Meanwhile, with Movie Gallery having successfully recently negotiated some breathing room on its bank credit covenants, CFO Timothy R. Price said that the cash flow available from operations and availability under the $75 million revolving credit component of its senior credit facility "will be sufficient to operate the business, satisfy our working capital and capex requirements and meet our foreseeable liquidity requirements, including debt service, throughout 2006" (see related story elsewhere in this issue).

Calpine up more

Calpine, a trader said, "moved up," although he added that he could see no reason why. He quoted its 8½% notes due 2008 at 48 bid, 50 offered, and said that all of the company's debt was up about two points across the board, including its 4¾% convertible notes due 2023, which were up a pair to 36 bid,38 offered.

Calpine, another trader mused "is on a roll. Nobody knows why. Every day they're stronger."

"There was a lot of trading in them," yet another trader said in noting the 8½% notes due 2011 two points better at 58 bid, 59 offered, "and I'd be curious as to why."

A market source at another desk saw Calpine's 8¾% notes due 2007 soar to lunchtime levels around 56 bid, from the lower 50s earlier in the session. And he saw those bonds continue up to close within spitting distance of 60.

Calpine filed for Chapter 11 reorganization in late December.

GM down

In the auto sector, a trader saw GM's benchmark 8 3/8% notes due 2033 "actually a point lower" on the news of the asset sale involving control of GMAC's commercial mortgage unit, with the bonds retreating to 73 bid, 74 offered.

He meantime saw GMAC's most widely traded issue, the 8% notes due 2031, dip a point to 92 bid, 93 offered.

"All of the GMACs were about a point lower," he said, noting that the financing arm's 6¾% notes due 2014 retreated to 88 bid, 89 offered, and its 6 7/8% notes due 2011 stepped back to 90 bid, 91 offered.

Another trader confirmed that GM and GMAC were easier, seeing the former down a point at 73.25 bid, 73.75 offered and the latter at 92.25 bid, 93 offered, which he called down a quarter point.

The GM/GMAC bonds headed south despite the news of the nearly $9 billion planned sale of most of GMAC Commercial Holding Corp. Under the complex transaction, GMAC will get about $1.5 billion from the KKR-led investment group, and GMAC Commercial Holding repaid $7.3 billion in intra-company loans from GMAC. GM will continue to hold the remaining 22% of the mortgage company, which changed its name to Capmark Financial Group Inc.

Back in August, GM said it had agreed to sell a 60% stake in the commercial mortgage holding business to a buyer group consisting of KKR, plus Five Mile Capital Partners and Goldman Sachs Capital Partners. That buyer group recently decided to increase its equity to 78%, producing the transaction announced on Thursday.

The sale of most of the commercial mortgage unit comes at a time when GM is trying to do a similar deal and sell control of GMAC itself, in hopes putting some cash - estimated anywhere from $10 billion to $13 billion - into its own coffers and getting GMAC's debt ratings back up to investment grade by selling the majority stake to a better -rated financial company.

So far, things have not unfolded quite that way. Several major banks said they were not interested in buying control of GMAC, and the only two bids that have been reported to have emerged so far have come from hybrid groups dominated by private equity companies - a Cerberus Capital Management-led consortium that includes Citigroup's buyout unit, but not the main giant bank itself, and a KKR-led group reportedly including and several large financial players in subsidiary roles. The ratings agencies have indicated that they probably won't up GMAC's ratings back to high-grade - so it could enjoy lower borrowing costs - as long as the private equity players are in the driver's seat.

However, the infusion of nearly $9 billion into GMAC's till can only make the auto finance group a more attractive acquisition target, which could - in theory, anyway - flush out other potential buyers.

The announcement of the mortgage group sale follows by a day GM's announcement that it, its bankrupt former subsidiary Delphi Corp. and the United Auto Workers union had agreed on a plan to offer buyouts to tens of thousands of GM and Delphi hourly employees represented by the UAW.

GM - which spun Delphi off in 1999 but left it with costly car-maker style labor agreements, Delphi charges - will pay the costs of buying out some 13,000 Delphi UAW members for lump sums of up to $35,000 apiece, and will accept as many as 5,000 more Delphi workers into its own ranks. GM is at the same time offering lump-sum buyouts ranging from $35,000 up to $140,000 for all of its own UAW-represented workers, although it is certain that most will not want to take that offer.

GM's bonds initially rose on Wednesday on news of the deal, but ended unchanged to lower, according to most traders. Delphi's bonds gave up most of their early gains, and generally were up only modestly on the day Wednesday.

In Thursday's dealings, the bankrupt Troy, Mich.-based automotive electronics maker's 6.55% notes due 2006 and 7 1/8% notes due 2029 were each seen down 1½ points at 65 bid, 66 offered, and 65.75 bid, 66.75 offered, a trader said.

Dana eases

He also saw bankrupt Toledo, Ohio-based automotive components maker Dana Corp.'s bonds - which had shot up about three points on Wednesday, as the company firmed up the details of its more than $1.3 billion of debtor-in-possession financing - as having fallen back Thursday by about 1½ points, with Dana's 5.85% notes due 2015 dipping back to 77 bid, 78 offered and its 6½% notes due 2008 ending down 1½ points at 81 bid, 82 offered.

A trader noted that the auto-parts sector area has recently been strong, as Dana's bonds have jumped sharply from the levels they held when the company went into Chapter 11 on March 3, and as Delphi investors were waxing optimistic about the chances that former parent GM and the union would offer Delphi concrete help as it tries to cut its burdensome labor costs and restructure itself.

He chalked Thursday's pullback up to routine profit-taking off the sector's recent gains.

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