Calpine bonds better, active; Blockbuster, Movie Gallery up; Bon-Ton Stores firmer

By Stephanie N. Rotondo

Portland, Ore., July 12 - Whether it was fresh news or a more active market, Calpine Corp.'s bonds were described as more active during Thursday trading.

The power company's bonds have been quiet recently, just barely a month after the company filed its reorganization plan. Traders have said that is likely due to those in the name holding on to their notes.

However, as the company announced Thursday that it had reached an agreement with a group of debtholders to reduce their claims, the bonds were seen more active and firmer.

Also slightly higher on the day - an overall trend traders were seeing in the rallying market - was Blockbuster Inc.'s bonds. The bonds were seen lower at the open but managed to stage a small comeback to end higher.

Pressure in the industry has hurt the Dallas-based company as well as rivals Movie Gallery Inc. and Netflix Inc. Blockbuster has said that it would seek amendments to its EBITDA covenants, but word in the market is that discussions with its investors are not going well.

And speaking of movie rental chains, Movie Gallery's bank debt as well as its bonds were deemed better during the session. One trader speculated that gains in the bank debt were due to market players feeling there would be decent recoveries in the event of a bankruptcy.

Elsewhere, better-than-expected second-quarter results from larger retailers might have been the catalyst for Bon-Ton Stores Inc.'s rally in its bonds. Still, the company did show an 8% decrease in same-store sales for June and also cut its forecast for the rest of the year.

Farther south, Doral Financial Corp.'s bonds and equity were seen as better as investors expected to hear something soon on the company's pending recapitalization plan.

Traders excitedly reported more activity and price movement in the distressed bond market, boosted by an equity market that hit record highs.

"The world came to an end yesterday, but all of a sudden people found some change in their sofas and came in buying," a trader said, adding that the general market was about a half point better.

"We're all happy," said another trader. "It's been a tough week until today."

"It could be short covering or guys who were long in stuff trying to push things," another trader said. "But the equity market certainly helped."

Calpine bonds better

Calpine's bonds were seen more active amid news that the company had reached a settlement with some of its debtholders.

A trader pegged the 8½% notes due 2008 slightly better at 121.25 bid, 122.25 offered, up from the previous day's level of 121 bid, 122 offered. At another desk, a trader saw the 8½% notes due 2011 up by about 3 points at 127 bid, 128 offered from 124 bid, 125 offered in the previous session.

The San Jose, Calif.-based integrated power producer said Thursday it had come to terms with a group of its debtholders, who had agreed to reduce their claims against the company by 65%. The agreement states that second-priority secured debtholders - which hold about $282 million of the company's debt - would receive a secured claim in the amount of $60 million as well as an unsecured claim for $40 million.

But while the bonds, which have been relatively quiet of late, saw more trading activity, a trader said it was likely due to an overall more active marketplace, as the settlement was expected.

Blockbuster 'on a ride'

Blockbuster's bonds "went on a little bit of a ride," a trader said, as the bonds began the day lower than the previous session but managed to end the day higher.

He saw the 9% notes due 2012 open around 87 and then trade as low as 86 before closing the day at 87.5.

"They are under a little bit of pressure," he said, citing reports that the company is meeting resistance from its bank debt holders as it tries to obtain EBITDA covenants amendments.

"They might be having a tougher time getting the bank debt holders to give them an amendment," he said. "But it is a tough sector," and some might be unwilling to relax the covenants, especially in light of the recent situation with rival Movie Gallery.

Movie Gallery loan, bonds up

Movie Gallery's first- and second-lien term loans headed higher as people are starting to feel more comfortable with recoveries, a trader said.

The first-lien term loan B ended the day at 93 bid, 94 offered, up on the bid side from 92 bid, 94 offered, the trader said.

Meanwhile, the second-lien term loan went out at 73 bid, 75 offered, up from 70 bid, 72 offered, the trader added.

The Dothan, Ala.-based movie rental chain's bonds were seen better on the day, after a recent beat down that dropped the bonds 40 points in just one day.

The 11% notes due 2012 were seen "straddling" 25, according to the trader, up with the overall firmer market.

Last week, the company said that it is considering strategic alternatives, including asset divestitures, recapitalizations, alliances with strategic partners and a sale to or merger with a third party.

In addition, the company revealed that it was not able to meet the financial covenants contained in its senior facility for the fiscal quarter ended July 1 due to significantly softer-than-expected second-quarter results.

The company is talking to its lenders about a way to remedy the defaults, including possibly seeking a waiver, amendment, forbearance or similar agreement.

Bon-Ton firms

Despite posting lower sales for June, Bon-Ton Stores saw its bonds rally, though they opened a bit lower.

A trader said the 10¼% notes due 2014 traded around 98.5, calling the name up with the general market.

The company said sales for June slipped 8.1% to $279.6 million, compared with $304.2 million for the prior-year period.

"Personally, I don't think that the same-store sales numbers were that good," the trader said.

But better-than-expected quarterly numbers from retailers such as Wal-Mart may have contributed to the bonds' firmness.

"They had decent numbers," he said. "They might have helped the overall market in general."

Doral's notes gain

Doral's bonds were seen firming, along with its equity, as a trader said investors were expecting to hear news on the company's planned recapitalization.

The floating-rate notes due in a matter of days were quoted at 97 bid, 98 offered, up from the previous day's close of 96.5 bid, 96.625 offered.

On the equity side, the stock closed the session at $1.16, up 2 cents, or 1.75%. The equity traded as high a $1.21 and as low as $1.15 during the day.

A shareholders meeting is scheduled for next week to give investors a chance to vote on a $610 million takeout deal from a Bear Stearns-led equity group. Two proxy advisory groups, Glass Lewis & Co. and Institutional Shareholder Services, are recommending a vote for the proposal.

Tembec bonds bounce back

A trader saw the bonds of Canadian forest products company Tembec Inc. bouncing back strongly Thursday following several sessions of decline linked to the strong Canadian dollar and the company's recent announcement of a temporary closing of one of its Ontario sawmills due to soft demand for the hardwoods produced there.

He quoted Tembec's paper "up a couple of points," with its 8 5/8% notes due 2009 finishing at 56.5 bid, 57.5 offered, its 8½% notes due 2011 at 50 bid, 51 offered and its 7¾% notes due 2012 at 49 bid, 50 offered - all told, up about 2.5 points across the board.

The bonds had previously been going down, market participants said, because of the strength of Canada's dollar, which has been trading at about US$0.95, its highest level in 30 years, helped by strong prices for oil, a key Canadian export commodity. The strong loonie increases the costs of products such as lumber and paper sold by Tembec and other Canadian forest product companies in the United States and other foreign markets.

Sea Containers' debt dips

Elsewhere, Sea Containers Ltd.'s bonds were down about a point across the board against the backdrop of a generally stronger market, although the trader had not seen any specific bad news out about the bankrupt Bermuda-based maritime and railroad transportation company. Its 10¾% bonds that were to have come due last year eased to 91 bid, 93 offered, its 7 7/8% notes due 2008 moved down to 87 bid, 89 offered, while its 10½% notes due 2012 ended at 90 bid, 92 offered.

Autos mixed

Among the automotive supplier names, a trader saw Dura Automotive Systems Inc.'s 8 5/8% notes due 2012 move up to 71 bid, 72 offered from 68 bid, 70 offered previously, while the bankrupt Rochester Hills, Mich.-based vehicular components manufacturer's 9% notes due 2009 likewise gained 3 points, moving up to 13 bid, 14 offered. No news was seen on the company, whose bonds had moved up smartly at the end of last week and the beginning of this week on news that it had agreed to sell its Atwood RV components business for $160 million.

Also in that sector, "nothing" was happening in Remy International Inc. after an active session Wednesday for the troubled Anderson, Ind.-based electrical systems maker's bonds.

The trader saw Dana Corp.'s bonds better, saying the bankrupt Toledo, Ohio-based parts maker "was up 2 points, making up what it lost [Wednesday]." He saw its 6½% notes due 2008 up a deuce at 104.25 bid, 105.25 offered.

And the trader saw "nothing" going on with Collins & Aikman Products Co.'s 10¾% notes due 2011, quoted at 2.5 bid, 3.5 offered, the same level they've held for a very long time, even as the U.S. Bankruptcy Court in Detroit confirmed the Troy, Mich.-based automotive interior components manufacturer's reorganization plan, a key step in its effort to emerge from Chapter 11.

Spectrum bonds drop

A trader saw Spectrum Brands Inc.'s bonds drop after the Atlanta-based consumer products manufacturer revised its full-year EBITDA projections downward. He saw the company's 11¼% notes due 2013 ending at 84 bid, 86 offered, down 3.5 points from Wednesday's close but off a full 5 points from its Thursday peak level around 89 bid, 90 offered.

The company cut its full-year EBITDA expectations to $260 million to $264 million, well down from $282 million previously.

Aveta loan stronger

Aveta Inc.'s term loan was also stronger on Thursday as some positive news on the private side came out regarding the company's Puerto Rico business, according to a trader,

The term loan ended the session at 86 bid, 87 offered, up from previous levels of 82 bid, 84 offered, the trader said.

Aveta is a Fort Lee, N.J., for-profit company focused on Medicare Advantage and the health care needs of the chronically ill.

Generac bank debt active

Generac Power Systems Inc.'s first- and second-lien term loan debt was stronger on the day as well in active trading, as the secondary market in general had a better tone to it, according to a trader.

The first-lien term loan ended the day at 96 bid, 96¾ offered and the second-lien term loan ended the day at 92 bid, 93 offered, with both tranches up by about half a point, the trader said.

Generac is a Waukesha, Wis., manufacturer of standby power products.

Sara Rosenberg and Paul Deckelman contributed to this article.

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