Movie Gallery bank debt firms; GM little hurt by downgrade possibility

By Paul Deckelman and Sara Rosenberg

New York, May 5 - Movie Gallery Inc.'s term loan B was noticeably stronger on Friday, bank loan traders said, although no particular news was seen sparking the movement, other than possible optimism over the company's upcoming first-quarter financial results.

Elsewhere, General Motors Corp. bonds were seen slightly lower - but traders said the market seemed largely blasé about the possibility that Moody's Investors' Service might further cut the company's ratings in connection with new financing it expects to line up.

Other troubled automotive names such as Delphi Corp. and Dana Corp. were meantime seen firmer, in line with a generally firmer junk bond market.

Movie Gallery's term loan B closed out the day quoted at 93.5 bid, 95 offered, up by about a half a point to a full point, a bank debt trader said.

The company's 11% notes due 2012 were meantime quoted at 56 bid, 59 offered, "up a little" on the day, a trader said.

The Dothan, Ala.-based movie rental company is scheduled to announce its first quarter numbers on Thursday.

Some market players are feeling good about the results they might hear, especially given the recent positive earnings announcement released by both Netflix Inc. and Blockbuster Inc., which in turn is creating a better feel to the loan paper.

Although both companies are Movie Gallery competitors - Dallas-based Blockbuster runs a larger chain of home video rental and sales stores, while Netflix is a popular internet-based movie delivery service - investors apparently believe that since the same industry dynamics affect all three companies, the success of Movie Gallery's two prime competitors is an indicator that home viewers of movies like the films that have been coming out of Hollywood of late, helping the whole sector higher - a modern-day illustration of the Chinese proverb that "a rising tide lifts all boats."

GM notes ease

In the automotive realm, a trader saw General Motors' benchmark 8 3/8% notes due 2033 down 3/8 point at 73.375 bid, 73.875 offered, while its General Motors Acceptance Corp. financing unit's 8% notes due 2031 were half a point lower at 93 bid, 93.5 offered.

A trader in distressed notes meantime saw both company's bonds off a point on the session, but said that there was a "lack of interest" and volume was restrained.

There seemed to be little real reaction to a Moody's statement that the ratings agency had placed GM's B3 senior unsecured rating under review for a possible downgrade in response to the company's disclosure earlier in the week that it is pursuing various options to replace or amend its existing $5.6 billion bank credit facility, and that these options could result in providing its bank lenders with a security interest in certain GM assets. Moody's said that granting security to bank lenders will likely be necessary to ensure GM's access to a credit facility. However the provision of security to bank lenders could erode the expected recovery in the event of default for unsecured creditors.

GM anticipates that any credit facility replacement or amendment will be completed by the end of the second quarter or early in the third quarter.

However, Moody's tempered the impact of the warning by noting that it currently anticipates that if GM were to grant security to a bank facility around the size of its existing $5.6 billion line of credit, "any down-notching of the unsecured rating, if determined to be necessary, would likely be no more than one notch below the Corporate Family Rating," currently also at B3.

Auto sector rises

Apart from GM, traders said that most troubled automotive names seemed to be better, not on any news, but in line with a general junk bond rise, which one trader said was, in turn, based on better equities.

He saw bankrupt Toledo, Ohio-based-components maker Dana Corp.'s 6½% notes due 2008 at 85.5 bid, 86.5 offered, up ¾ point, while its 5.85% notes due 2014 were at 78 bid, 79 offered, up a point. Dana's 7% notes due 2028 firmed to 79.5 bid, 80.5 offered.

Traders Friday were not able to offer any color or insight to the solid rise in the Dana bonds seen over the last hour of trading or so on Thursday, when its issues rose two points.

And the trader saw bankrupt Troy, Mich.-based parts supplier - and former GM unit - Delphi's 6.55% notes due 2006 a point better at 73.25 bid, 74.25 offered, while its 7 1/8% notes due 2029 were up ¾ point at 72 bid, 73 offered - also on no news.

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