Blockbuster rebounds from day's lows; Delphi, Federal-Mogul dip on credit concerns

By Stephanie N. Rotondo

Portland, Ore., Oct. 22 - The distressed market started out lower Monday, following the lead of the equity markets.

The Dow Jones Industrial Average began the day about 100 points lower than the previous session, spurred by ongoing concerns in the credit and housing markets. As the day wore on, however, the equity started to rally, taking the junk sector along with it.

"People whacked some bids early on," a trader said. "Then the market inched its way back and rebounded about a point or so."

Another trader said there was an aura of fear in the morning, but as the stock market came back up, that seemed to dissipate. Still, he noted that there was "not much real big activity" in the bond market.

Following the trend of the day, Blockbuster Inc.'s bonds rallied from their lows on the day. A trader speculated that activity in the name would pick up after competitor Netflix Inc. released its third-quarter numbers after the market closed.

Continuing concerns about obtaining exit financing in a shaky credit market prompted Delphi Corp. and Federal-Mogul Corp. to lose some ground in their bonds. Late last week, Delphi postponed its hearing on its disclosure statement, as it wants more time to negotiate with shareholders and lenders alike.

Blockbuster rebounds

Blockbuster's bonds rebounded from the day's lows, mimicking the trend of the general market. But as competitor Netflix released its third-quarter financials just after the close of the market, one trader expected to see movement in Blockbuster's debt.

The trader said Blockbuster's 9% notes due 2012 closed the day at 89.5 bid, 90 offered after trading as low as 87.75.

Online movie rental service provider Netflix reported net income of $15.7 million for the third quarter of 2007, compared to a net income of $12.8 million for the same quarter in 2006. Revenues increased 15% year over year to $294 million, though that represented a 3% decline from the second quarter of 2007.

Blockbuster has engaged in a head-to-head battle with Netflix as both try to steal market share from one another. Troubled Movie Gallery Inc. has also been involved in the ongoing battle, though as that company has filed for bankruptcy, many market players believe it will not win the war. Last week, the Dothan, Ala.-based company received notification that it would be delisted from Nasdaq due to failure to meet certain requirements.

A trader noted that Movie Gallery's 11% notes due 2012 have been strangely quiet, adding that nothing traded during Monday's session. Another trader called the Movie Gallery notes unchanged at 26 bid, 27 offered.

"I didn't see much activity there," a trader said.

Blockbuster will hold an analyst and investor call on Nov. 8.

Delphi, Federal-Mogul weaker

Names in the autosphere were weaker across the board as concerns regarding exit financing weighed the sector down.

A trader called Federal-Mogul's bonds down 1 to 1.5 points at 89 bid, 89.5 offered. The trader also saw Delphi's 6½% notes due 2009 lower by 1.5 points at 95 bid, 95.5 offered.

At another desk, a trader said Delphi's 7 1/8% notes due 2029 were "down a touch" at 96 bid, 97 offered.

Elsewhere, a trader said Delphi's 6.55% notes due 2006 fell to 94.75 bid, 96.75 offered from 95.5 bid, 97.5 offered. Its 6½% notes due 2013 were down a point at 94 bid, 96 offered. Federal-Mogul's bonds fell 2 points to 89.5 bid, 90.5 offered.

Delphi postponed a hearing on its disclosure statement until Nov. 8, a move aimed at gaining more time to negotiate the terms of its reorganization plan. The company also is looking to modify agreements with General Motors Corp.

The rescheduling of the hearing was "probably not good news," a trader said, though he noted, "you could look at it a couple of ways."

The trader said that if Delphi was trying to get former parent GM to reduce its cash distribution under the plan, as well as encouraging the automaker to participate in the company's exit financing, it "could be a positive."

Still, as the case continues to drag on, there are real concerns in the current market that the company will not be able to secure exit financing - something Federal-Mogul is facing as well.

In the rest of the automotive realm, a trader said Dura Automotive Systems Inc.'s 8 5/8% notes due 2012 were weaker at 48.

Dana Corp.'s 6½% notes due 2008 lost 2 points to 81 bid, 83 offered, while Visteon Corp.'s 8¼% notes due 2010 eased a point to 91 bid, 93 offered and its 7% notes due 2014 were down 3 points to 78.5 bid, 79.5 offered.

Broad market gains

A trader said Standard Pacific Corp.'s 6½% notes due 2008 were "up dramatically for a one-year piece of paper" at 86 bid, 88 offered. The bonds were trading around 83 late last week.

Another trader said the bonds "look up a couple of points," with its 7% notes due 2015 firming to 73 bid, 75 offered from 68 bid, 70 offered late Friday.

Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2014 were deemed active and better at 90 bid, 90.5 offered.

Toward the end of the day, Tembec Inc.'s bonds gained a couple points, according to a trader. He pegged the 8 5/8% notes due 2009 around 48.

Paul Deckelman contributed to this article.

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