DS Waters rising, Movie Gallery bank debt, bonds receding

By Paul Deckelman and Sara Rosenberg

New York, March 7 - DS Waters of America LP saw its bank debt rise Tuesday, after the Flowery Branch, Ga.-based home and office water delivery business was heard to have delivered some optimistic guidance to the financial markets.

On the downside, the bank debt and the bonds of Movie Gallery Inc. were seen both retreating in apparent investor dismay over the outcome of a pair of conference calls with the company's lenders on Monday afternoon.

A bank debt trader said that DS Waters' paper was up about a half a point to a point after the company was heard to have released financial forecasts that seemed to have put investors in a good mood.

Its term loan closed out the day quoted around 99 and the company's revolver went home quoted around 97, the trader added.

While DS Waters was rising, Movie Gallery Inc.'s term loan took a downwards turn during the session, as investors were seemingly displeased with what they heard during the Dothan, Ala.-based video rental chain operator's two lender calls that took place on Monday, according to buy-side and sell-side sources.

"There were two calls [Monday] afternoon. The first was for public lenders. The second was a continuation of the first call - but for private lenders only," the buy-side source told Prospect News.

"[They] talked about business environment and financial covenants amendment request. [They're] not currently in default, but looking forward they need relief. There was talk of an amendment fee and an increase in pricing on all tranches.

"No specific details were given on the public portion of the call though," the source continued.

"As for why [the term loan] dropped, I'd say it's a result of what was discussed in the amendment calls," the source added.

The term loan closed out the day quoted at 91 bid, 91.75 offered, down about 1 to 1½ points from previous levels that were in the 92 bid, 93 offered type of range, according to the various sources.

However, at some point during the day the fall was even greater, as term loan levels had reached a low of 89.5 bid, 90.5 offered before rebounding slightly, the sources added.

Over on the bond side of the fence, the story was no better. On Monday the company's bonds had finished at bid levels around 64-65 - and one trader had even seen them moving higher to as good as 66.5 - with no news seen. The latter trader cited market scuttlebutt that there was a bank meeting going on and suggested that the outcome would probably be good, since the bonds were firm and the company's shares were higher while the bank loan paper was heard to be firm that day.

Fast forward to Tuesday morning - and it was quite another tale. The company's 11% notes due 2012 were seen having dropped from Monday's close down to the 62.5 bid area by mid-morning, and had slid another point by noon.

By the end of the day, some traders were quoting the bonds as low as 60 bid, 61 offered, or perhaps in the 61 bid area, and were characterizing the bonds down anywhere from three to five points, depending on where they were seen starting out at any particular shop.

"One day, they decide to buy 'em, and one day, they decide to sell 'em," a trader in distressed issues philosophized, as he saw the bonds fall to 60 bid, 62 offered from 62 bid, 64 offered on Monday. "That's the nature of the crap we trade." Noting the fall, he shrugged, tongue partly in cheek, "what's a few points among friends?"

While the apparently bearish lender conference calls were seen as the proximate cause for the retreat in Movie Gallery, another bond trader also noted that the low-60s level to which the bonds had retreated during the early afternoon was "about where they started out" last week, before a flurry of merger and acquisition and leveraged buyout buzz about the company began making the rounds of the financial markets - takeover talk that proved to be unfounded.

Exide keeps dropping

Elsewhere, Exide Technologies' 10½% notes due 2013 - which swooned a good three points on Monday to around the 74.5-75 bid area from prior levels around 78 after the Alpharetta, Ga.-based auto battery maker warned that its quarterly EBITDA would come in below expectations and place it in violation of earnings covenants in its credit facility, absent a waiver from its lenders - continued to skid lower on Tuesday to around 73.5 bid, 74.5 offered. Its Nasdaq-trades shares - which collapsed some 27% on Monday - nosedived another 10% Tuesday to $2.52.

GM rise goes on

Also in the automotive area, traders saw General Motors Corp.'s benchmark 8 3/8% notes due 2033 about a point better, in the 72 bid, 73 offered area, although one saw the bonds up 1½ points at 72.5 bid, 73.5 offered.

GM's bonds had already been firming, having pushed up a point or two on Monday in response to the news that the carmaker - which is trying to turn itself around financially after having lost a massive $8.6 billion in 2005, had agreed to sell most of its stake in the Japanese car and motorcycle maker Suzuki back to that company for about $2 billion. On Tuesday, it said that it would institute new pension procedures for its 42,000 salaried employees in hopes of garnering as much as $1.6 billion in sayings by year-end.

GM is immediately freezing the salaried employees' accrued pension benefits as of Jan. 1. Those hired after Jan. 1, 2001 - about 10% of the non-union managerial and professional workforce - will move exclusively to a defined-contribution plan rather than the current traditional defined benefit plan. Those employees will continue to earn annual interest on the cash balance in their plans and will also get a monthly contribution of 4% of their salary to their 401(k) program.

Those salaried employees hired before Jan. 1, 2001 will stay in their current defined benefit plan - but will get reduced benefits under a new formula. A separate plan for company executives will also be frozen and brought in line with the new plans.

The changes do not affect current retirees or hourly workers.

The pension changes are GM's latest efforts to come to grips with its bloated cost structure in the hopes of bringing it more into line with reduced revenues arising from GM's loss of market share in its core North American operations. Last fall, it announced that it had reached agreement with the United Auto Workers on a new deal that will cut its healthcare spending on hourly retirees by $1 billion. GM and the UAW are currently in court, defending that agreement against complaints by the retirees, who now have to pay a portion of their previously all-company-paid healthcare costs. While the retirees claim that the chance constitutes a breach of contract, the union and the company, in rare agreement, argue that the changes are necessary for GM's long-run survival, so that it can continue paying any benefits.

The bonds of GM's financial arm, General Motors Acceptance Corp., which rise and fall more or less in tandem with its corporate parent's, were also somewhat firmer on the session. A trader saw the GMAC 8% notes due 2031 at 91.5 bid, 92.5 offered, its 6¾% notes due 2014 at 88.5 bid, 89 offered and its 6 7/8% notes due 2011 at 90 bid, 90.5 offered, all up half a point on the session.

Another trader saw those 8s at 92 bid, 93 offered, but called that a gain of a point on the day.

The trader also saw GM rival Ford Motor Co.'s flagship 7.45% notes due 2031 up a point at 71.5 bid, 72.5 offered, suggesting that maybe investors "believe that Ford may follow suit" in trying to cut its own costs, since the Number-Two carmaker is affected by many of the same unfavorable industry dynamics as GM - a bloated employee cost structure left over from better days, combined with recently reduced revenues from lower car sales.

Mixed picture in parts

He also saw some other gains in automotive parts sector names, following in GM's wake, with Visteon Corp.'s 8¼% notes due 2010 a point better, at 79.5 bid, 80.5 offered, while American Axle & Manufacturing Holdings Inc.'s 5¼% notes due 2014 were likewise up a point, also at 79.5 bid, 80.5 offered.

However, another trader saw lesser gains. While he saw the Ford bonds at that same 71.5 bid, 72.5 offered, he called them up ¾ point, saw the Visteons only up 1.4 point, and saw some other auto names easier, including bankrupt Dana Corp.'s 6½% notes due 2008 at 69.5 bid, 70.5 offered, and its 5.85% notes due 2014, at 68 bid, 69 offered, each down 1/4, and its 7% notes due 2028 and 2029, each off ¾ point, at 69 bid, 70 offered.

He also saw bankrupt Delphi Corp.'s 6.55% notes due 2006 and 7 1/8% notes due 2029 each off ¼ point, at 56.5 bid, 57.5 offered, and 57.5 bid, 58.5 offered, respectively.

And the trader saw Tower Automotive Inc.'s 12% notes due 2013 half a point higher at 65 bid, 66 offered.

Among the non-bankrupt automotive names, Lear Corp.'s 5¾% notes due 2014 were unchanged at 77.5 bid, 78.5 offered. Remy International Inc.'s 9 3/8% notes due 2012 were at 40 bid, 41 offered, little changed.

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