Movie Gallery, asbestos bank debt, bonds off; Winn-Dixie better after numbers

By Paul Deckelman and Sara Rosenberg

New York, May 15 - The distressed secondary bank loan market as well as the bonds of many distressed issues in general felt heavy and illiquid on Monday, traders said, with names like Movie Gallery Inc. and Armstrong World Industries Inc. falling noticeably lower.

Bankrupt Lancaster, Pa.-based floorcovering and cabinet maker Armstrong's bonds meantime followed fellow bankrupt asbestos-challenged issuer Owens Corning lower.

On the upside, bonds of bankrupt Jacksonville, Fla.-based supermarket operator Winn-Dixie Stores Inc. were seen firmer in apparent reaction to improved quarterly operating numbers.

Bank loan traders saw Movie Gallery's term loan B's levels fall to 96.75 bid, 97.5 offered from Friday's levels of 97 bid, 98 offered.

They said that the Dothan, Ala.-based Number-Two U.S. home video rental company's paper was being hurt by an overall sense of market heaviness, but also by profit-taking in the wake of its strong recent run-up.

It was much the same story in the junk bond market, where Movie Gallery's 11% notes due 2012 were in retreat.

They had progressed steadily from the upper 50s to the lower 60s by the middle of last week on speculation that the company's latest quarterly results would be much better than Wall Street was expecting. Then, on Thursday, the bonds zoomed as those optimistic hopes came true and it reported that profits more than doubled from a year earlier, as did revenues, thanks to its absorption in the interim of larger rival Hollywood Entertainment Corp. The bonds had pushed to highs in the mid 70s by Friday afternoon, but began back pedaling from the get-go on Monday. A trader saw the bonds down three points to 71 bid, 73 offered, while another called the drop a two-pointer to 72 bid, 74 offered.

The company's Nasdaq-traded shares plunged 71 cents (15.33%) on Monday to $3.92 on volume of 4.7 million, about 1½ times the usual turnover.

Owens Corning leads asbestos down

Back among the asbestos-challenged names, the biggest loser on the day was Owens Corning's bonds - which had shot solidly higher last week as the bankrupt Toledo, Ohio-based insulation maker came to an agreement on a reorganization plan with its various creditor groups, but which then surrendered a big chunk of their gains Monday, although they still remain well above where they were a week ago.

A trader quoted the company's 7½% notes due 2018 as having dropped back to 115.5 bid from levels around 122 at the end of last week, and saw its 7% notes due 2009 at 114.25, down from 120.75 last week.

Another trader quoted the Owens Corning bonds at 116 bid, 118 offered, down from around 121 bid 123 offered on Friday. He declared that profit-taking was the sole reason for the downturn, as did a third trader, who pegged the bonds down seven points on the day, at 115 bid, 116 offered.

Bond traders also saw Armstrong's bonds, and those of Federal-Mogul Corp. lower on Monday. They had risen on sector sympathy last week with Owens Corning, and were likewise down in tandem with Owens on Monday.

A trader saw Armstrong's 6.35% notes that were to have come due in 2003 as having retreated four points on the session to 85 bid, 86 offered, while bankrupt Southfield, Mich.-based automotive brake manufacturer Federal-Mogul's 7½% notes due 2009 were down a deuce at 61.5 bid, 62.5 offered.

The former had risen to around a 90 bid context and the latter into the mid-60s as Owens Corning's bonds soared over several sessions last week from the upper 90s to above 120 - first on speculation that the company would come to a settlement with its creditors and then, more strongly, when the reorganization deal was announced. It called for the establishment of a $5 billion trust fund to pay out all present and future asbestos medical claims, as well as the payment, in cash and in full of the company's bank creditors. Bondholders and unsecured creditors were envisioned getting back around 58 cents on the dollar, while the asbestos creditors would get about half their claims. Equity holder's current shares would be cancelled and they would be given warrants to buy newly issued stock in the reorganized company. With all of the major creditor groups signing off on the plan - which still needs to be voted upon by rank-and-file creditors and then approved by the U.S. Bankruptcy Court in Wilmington, Del. - Owens Corning, which was forced to duck into Chapter 11 in 2000 under a deluge of asbestos claims, envisions finally emerging from reorganization later this year.

Owens Corning's OTC Bulletin Board-traded shares - which also shot up smartly last week on news of the agreement - fell 25 cents (13.89%) on Monday to $1.55, although volume of 2.2 million shares was only a bit heavier than usual.

In the bank debt market, Armstrong's paper fell to 85.5 bid, 87 offered from previous levels around 89 bid, 90 offered, a trader remarked.

As was the case with Movie Gallery, market heaviness was seen as a prime contributor to the weakening, but profit taking was named as a culprit as well, coming off the recent big gains.

Winn-Dixie higher after results

On the upside, bond traders saw Winn-Dixie's 8 7/8% notes due 2008 move up to 88 bid, 90 offered, a one-point gain on the session, while its 8.181% real estate-secured pass-through notes were also firmer at 80 bid, 82 offered.

The company, which filed for bankruptcy protection last year in Florida, reported a $22.46 million operating loss for the 12 weeks ended April 5 on net sales of $1.77 billion, according to a 10-Q filing Monday with the Securities and Exchange Commission.

That was an improvement from the $38.44 million operating loss for the same period in 2005 on net sales of $1.71 billion - even though the net loss for the 2006 period was $29.98 million, up from a $13.41 million net loss the year before.

However, cash and cash equivalents as of April 5 were $131.71 million, well up from $34.22 million a year earlier.

Werner weak after missing coupon

Back on the downside, a trader said, Werner Holding Co. Inc.'s 10% senior subordinated notes due 2007 were trading at 31 bid, 33 offered, down from recent levels around 33-34, "on conjecture that they weren't going to make the coupon payment" due Monday on the $135 million of outstanding bonds. He said he had seen no confirmation one way or another - although the Greenville, Pa.-based maker of industrial ladders ultimately did release a statement Monday saying that it indeed had elected not to make the coupon payment at this time, instead invoking the standard 30-day grace period while it holds negotiations with it bondholders and other creditor constituencies on a potential recapitalization.

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