Movie Gallery carnage continues; Calpine climbs while James River jumps; Dura launches exit financing

By Paul Deckelman

New York, Nov. 28 - Movie Gallery Inc.'s already battered bonds continued to get pounded mercilessly on Wednesday, pushed down several points into the teens against the backdrop of a junk market that was otherwise seen rising solidly pretty much across the board in line with the strong stock market rally.

Among the distressed issues which were seen as big winners on the day, taking advantage of the rising tide, were such names as Calpine Corp., helped by a bondholder-friendly court decision, James River Coal Co., given a boost by its planned stock offering, and Tekni-Plex Inc., rebounding from Tuesday's drubbing,.

In the bank-debt market, Dura Automotive Systems Inc. launched its $425 million exit financing facility; price talk and discount information emerged from the company's bank meeting.

Movie Gallery mauled

Bankrupt Dothan, Ala.-based video rental store chain operator Movie Gallery bucked the generally positive trend seen in the junk market, its bonds slashed as badly as any victim in a Freddy Krueger film, pushed downward by a companion retreat in the company's bank debt.

Those 11% notes due 2012, which on Tuesday were seen having fallen at least 4 or 5 points down to about the 21 level, were seen in free-fall Wednesday, with one trader quoting them as low as 13 bid, 18 offered. "It's a meltdown," he declared

"Holy ****," exclaimed another trader when he looked up Movie Gallery's afternoon levels and saw them hovering in the mid-teens, down from the 20s on Tuesday. "Wow."

Yet another trader saw the bonds a little less bloody - but only a little - at 16 bid, 18 offered, still down 5 points on the day.

A trader, noting the recent fall in the company's first-lien bank debt to levels below 80, asserted that "the reality is that if the senior bank debt is only worth 80 cents on the dollar, these are worthless." He said that with the senior bank debt below 80, the second-lien debt "can't be worth more than 50 cents. When you start adding up the numbers, there's really no value left for the bonds."

He said that there were a couple of big holders, "and they can't afford to jump ship because nobody is going to buy it from them - but if you were just hanging on, and owned a couple of million [dollars of] bonds, thinking you're going to get something out of it - I'd say it's time to jump ship, yeah."

However, he didn't see a lot of activity in the credit. "Not really," he said. "there were a couple of trades today - but I don't think it had traded for a while before [Tuesday and Wednesday].

James River jumps

Movie Gallery was the major exception to the rule on Wednesday, with almost everything else seen up solidly.

One such name was James River Coal, whose 9 3/8% notes due 2012 were seen cooking on news that the Richmond, Va.-based coal producer plans to sell 4.5 million shares of stock, which at current prices would produce about $31 million in proceeds, a sizable sum for a relatively small company such as James River.

"That will help their liquidity," said a trader who saw the bonds up about 2 points on the session at 85.5 bid, 86.5 offered.

Another trader saw the bonds even better, around 88, which he called a 5 point gain, and suggested that the company might be able to "pay off their revolver and put a few dollars in [their coffers]. "I think the fact that people are willing to buy $30 million of stock gives the bondholders a lot of comfort."

Calpine climbs on ruling

A trader saw Calpine's 8½% notes due 2008 up 1½ points at 101.5 bid, 103.5 offered, and its 7¾% notes due 2009 up 2 points at 102.5 bid, 103.5 offered.

Another trader saw the bankrupt San Jose, Calif.-based power producer's 8½% notes due 2011 4 points better at 103.5 bid, 104.5 offered, and attributed the gains to a federal bankruptcy judge's ruling approving a settlement of certain litigation issues.

That ruling by judge Burton Lifland of the U.S. bankruptcy Court in New York was seen moving Calpine closer toward its goal of coming out of Chapter 11 at the end of January by removing what he called "the risk of litigation" from bondholders who had complained they lost future interest payments when Calpine decided to pay off hundreds of millions of dollars in bonds before the debt was due.

Tekini-Plex bonds rebound

Traders saw Tekni-Plex's 12¾% notes due 2010 gain about 3 or 4 points on the day to end at 54 bid, 55 offered. The Somerville, N.J.-based packaging company's bonds had fallen as low as the upper 40s Tuesday before ending around 50-51, a trader said, in response to news that company executives had cancelled a scheduled conference call.

Homebuilders post gains - for now

Homebuilder names were also seen higher across the board, swept along by the market's overall rising tide despite the battered sector's continuing problems. A trader saw Red Bank, N.J.-based high yield sector stalwart Hovnanian Enterprises Inc.'s 8 5/8% notes due 2017 up 2 points on the day at 73 bid, 75 offered, while a source elsewhere saw its 6 3/8% notes due 2014 better by 1 point at 71. The first trader also saw Standard Pacific Corp.'s 6½% notes due 2008 up 2 points at 85 bid, 87 offered.

Another trader saw the latter company's 7% notes due 2015 some 2 points better at 63 bid, 65 offered, while Beazer Homes USA Inc.'s 8 5/8% notes due 2011 were also up a deuce at 76 bid, 78 offered.

He additionally saw WCI Communities Inc.'s recently hard-hit 9 1/8% notes due 2012 and its 7 7/8% notes due 2013 each up 1 point, at 60 bid, 63 offered and 55 bid, 58 offered.

Yet another trader was not much impressed by the sector's gains. He said that while "the better ones found a bid," along with just about everything else in the market, it was his opinion that "the weaker ones didn't do a whole heck of a lot of anything.

"I don't think they've found their bottom yet," he said, adding that "the weaker ones are still in trouble, and there's still a problem area there." He categorized Standard Pacific and WCI as being in that latter category, along with Tousa Inc.

He said that Hollywood, Fla.-based Tousa has "pretty much announced they're bankrupt - they're just waiting and hoping the bondholders come to them with a reasonable plan. When your sub[ordinate] debt is trading at 5 cents on the dollar, you don't have a lot of hope that you're not going to be bankrupt."

ResCap seen better

Hand in hand with the fortunes of the homebuilders are those of the mortgage companies, such as Residential Capital LLC, whose bonds had been seen a little lower Tuesday on profit-taking after the big run-up they had experienced last Wednesday and, to a lesser degree, on Friday, after the Minneapolis-based company and its corporate parent, GMAC LLC, announced that ResCap will tender for some of its shorter bond issues, while GM outlined plans to help support its problem child, possibly including a capital infusion or other strategic transactions.

On Wednesday, ResCap's bonds were better, in line with just about everyone else's, a trader seeing its 7½% notes due 2013 up 2 points at 62 bid, 64 offered. Another trader called them "up a little."

Dura launches exit facility

In the bank loan market, bankrupt Rochester Hills, Mich.-based automotive components maker Dura came out with price talk on its proposed $425 million senior secured exit financing credit facility as the deal was launched with a bank meeting during the morning hours, according to a market source.

The $125 million ABL revolver was presented to lenders with talk of Libor plus 250 bps, the $225 million first-lien term loan B was presented with talk in the Libor plus 550 bps area and the $75 million second-lien term loan was presented with talk in the Libor plus 850 bps area, the source said.

The first- and the second-lien term loan are both being offered to investors at an original issue discount of 99, the source continued.

Furthermore, the first- and the second-lien term loan both have call protection provisions, the source added.

The first-lien term loan has call protection of 102 in year one and 101 in year two, and the second-lien term loan is non-callable for one year, then at 102 in year two and 101 in year three, the source added.

Goldman Sachs and Barclays Capital are the lead banks on the deal that will be used, along with a proposed rights offering, to repay the company's debtor-in-possession facility and pre-bankruptcy second-lien term loan, as well as to fund plan distributions.

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