Winn-Dixie up on earnings; MedQuest down on numbers; Tembec softens; Fedders firms

By Stephanie N. Rotondo

Portland, Ore., May 15 - Earnings, both good and bad, was the driving force behind Tuesday's big movers in the distressed bond market.

Winn-Dixie Stores Inc. reported positive earnings, which prompted both its debt, in the form of stubs, and equity to catch fire. Traders saw the stubs gain as much as 4 points on the day.

Meanwhile, MedQuest Inc./MQ Associates Inc. did not fare as well, posting an over $10 million loss. The news saw the medical imaging company's bonds spike down 10 points.

After seeing several days of gains, Tembec Inc.'s bonds were beginning to soften. A trader attributed the move to the overall feel in the stock market, which slipped after investors got a glimpse at the housing index numbers.

Meanwhile, Fedders Corp.'s debt was called firmer on the day, just days ahead of an upcoming bondholder conference call.

The cracks might be beginning to show in Movie Gallery Inc.'s bonds, as the notes have been slipping ever since the Dothan, Ala.-based company released its first-quarter results. Traders said the bonds continued to weaken Tuesday, losing as much as 5 points.

Winn-Dixie up on earnings

Positive earnings boosted Winn-Dixie's stubs 4 points, making it the "very big mover" of the day, according to one trader.

"They actually made a profit," said another trader.

The first trader said the notes were "up significantly" at 11 bid, 12 offered, while the second trader quoted the stubs at 11.5 bid, 12.5 offered.

"They were very good numbers," the first trader said. "Their margins were very good and that's what folks were looking for."

"Four points on an $8 bond is a lot," he added.

The second trader also noted that Winn-Dixie's stock was "on fire" during trading. At market close, the stock was up almost 7.5 cents, or 37.18%, to $27.45.

The Jacksonville, Fla.-based grocery chain posted a net income of $17.8 million and $280.0 million for the 12 and 40 weeks of the fiscal year ended April 4, respectively. According to a press release, the 40-week results "were impacted significantly" by non-cash items, including a $188.2 million gain resulting from a discharge of liabilities associated with the company's bankruptcy exit in November 2006.

In the release, the company attributed the better figures to its turnaround plan, which includes a remodel program. Currently, the chain has 7 stores undergoing remodel, with a total of 20 to be completed by the end of the fiscal year in June. The company said it also plans to remodel 75 stores annually in future fiscal years.

MedQuest down on numbers

On the flip side, negative quarterly numbers hit MedQuest's bonds hard, dropping the notes as much as 10 points.

One trader saw the medical imaging company's 11 7/8% notes due 2012 start the day at 86 bid, 87 offered, and then drop down to close at 77 bid, 79 offered. At another desk, a trader quoted the bonds at 77 bid, 80 offered, which he said was down 9 to 10 points.

The second trader also saw the "zeros" due 2012, which trade under the name MQ Associates Inc., down at 22 bid, 25 offered.

"The numbers were out and they were not good," he said.

Another trader echoed that sentiment, stating the results were "very bad." He saw the 11 7/8% notes down 10 points.

Another source quoted the bonds at 78.25, also calling them 10-point losers.

According to a 10-Q filed with the Securities and Exchange Commission, the company showed a net loss of $10.58 million for the period ended March 31, compared with a net loss of $5.84 million for the same period the previous year. The company attributed the loss to new Medicare regulations, among other things.

A trader said a bondholder conference call is scheduled for next week.

"I bet people will be asking a lot of questions," he said.

Tembec softens

A trader said he saw Tembec's bonds active in the morning, but they softened with the overall market by the close of the day.

The trader said he did not trade the forest products company's debt, but another trader pegged the 8 5/8% notes due 2009 at 62 bid, 64 offered. He also saw the 8½% notes due 2011 at 54 bid, 56 offered, while the 7¾% notes due 2012 closed at 53.5 bid, 55.5 offered.

The Canadian company announced Monday that it would shut down its Kirkland Lake, Ont., mill for two months, a move aimed at cutting inventory due to the U.S. housing slump.

"Demand for lumber is down sharply, driven primarily by the dramatic decline in the level of housing starts in the United States," said Dennis Rounsville, president of Tembec's forest products group. "This decline in demand has resulted in both lower prices for lumber and reduced operating rates in sawmills across Eastern Canada."

The National Association of Homebuilders said Tuesday that its housing index dropped to 30 from 33 in April, giving further evidence to a deteriorating housing market.

Fedders firms

Fedders' bonds were seen firming, despite ending the day "basically unchanged," a trader said. He quoted the 9 7/8% notes due 2014 at 41 bid, 43 offered, wide.

Another trader said the notes rose about a point, coming in at 42 bid. Elsewhere, a trader placed the bonds as "pretty much unchanged" at 42 bid, 43 offered.

The second trader also saw the preferred issue get better, closing at $3, compared with the previous day's level of $2.60.

The first trader said a bondholder conference call is scheduled for 10 a.m. ET on Friday.

Movie Gallery weaker

It has been a slippery slope for Movie Gallery ever since it posted its quarterly numbers last week. The movie rental chain's bonds were seen growing weaker during the trading day, a trend that has been repeated since the numbers came out,

A trader said the 11% notes due 2012 lost 2 points during trading to close at 79.5 offered. Another trader quoted the notes "down again" at 77 bid, 78 offered.

"We finally might be seeing the cracks in the walls," he said.

Another trader saw the notes down 4 points to 77 bid, 79 offered, while another pegged the bonds at 76.75 bid, 77.75 offered, which he called a more than 5-point drop.

A trader chalked the slide up to "bad numbers" that the company reported on Friday and said that company executives had also made a bad presentation Monday at a Credit Suisse investment conference.

Movie Gallery's Nasdaq-traded shares fell 40 cents, or 13.16%, to end at $2.64 on volume of 2.8 million shares, nearly triple the usual activity.

Broad market falls

A trader said that Le-Nature Inc.'s 9% notes due 2013 slid to 31 bid, 33 offered from prior levels at 37 bid, 39 offered. He had no explanation for the plunge in the bankrupt Latobe, Pa.-based bottler of non-carbonated soft drinks.

The trader also saw the stubs issued to holders of Delta Air Lines Inc.'s former 8.3% notes due 2029 down half a point to 6.5 bid, 7 offered and saw Northwest Airlines Corp.'s 10% notes due 2009 a point lower at 72 bid, 73 offered.

Paul Deckelman contributed to this article.

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