Movie Gallery bonds move up; Fedders steady; Retailers hold on despite poor sales

By Stephanie N. Rotondo

Portland, Ore., Sept. 14 - Bonds in a handful of names changed hands in an otherwise quiet trading session on Friday, a trader said, as some market players took a long weekend for Rosh Hashana and others still were waiting until the Federal Reserve's meeting on Tuesday.

One trader said investors are looking to see what kind of rate cut the Fed might make, as credit concerns continue to rampage through the market.

"Countrywide Financial Corp. is a disaster that is not over yet," he said, citing news that the largest mortgage lender in the United States had received an additional $12 billion in financing. "But the rest of the market seems to be shaking bad news off."

The trader said many in the marketplace are "adamant" that the Fed will make a 50 basis point rate cut, noting that it would probably be a quarter of a percent reduction.

"There is a lot of pain now," he said.

Another trader called the day's market, "crazy," adding "it started going lower, but it seems like it wants to rally now."

At another desk, a trader characterized the day as "quiet with a positive tone."

With that in mind, it seemed that someone was positive about Movie Gallery Inc.'s bonds. The debt, which has been quiet of late despite news of deferred interest payments, has been in the low-30 range for some time. Thus a trader was shocked to see that the bonds traded late in the day at 40.

Meanwhile, Fedders Corp.'s corporate debt has been holding steady for weeks. A trader attributed the lack of price movement to the belief that the bonds are worth zero.

A trader was surprised to see that distressed retailers, such as Bon-Ton Stores Inc., Claire's Stores Inc. and Linens n'Things, were unchanged to slightly better on the day, despite lower-than-expected sales figures for August. The figures for the back-to-school shopping month were about half of what many analysts had expected.

Movie Gallery bonds rise

With little going on in the market, a trader was surprised to see that Movie Gallery's bonds had traded at 40, up 9 points.

The trader gave a 31.5 bid, 32 offered market on the 11% notes due 2012, adding that he had seen an earlier market at 40, which he called "stupid" - thus his shock when the movie rental chain's bonds actually traded at that number.

"How the hell could they get them to trade up there?" he asked. "Wow."

Another market source pegged the bonds at 32.25, up a quarter point.

Earlier in the week, the Dothan, Ala.-based company said it would defer interest payments on some of its debt. While technically that constitutes a default, the company said it was covered by forbearance agreements. Those agreements are set to expire on Sept. 30.

Fedders steady

Liberty Corner, N.J.-based Fedders has seen its bonds maintaining their levels of late, despite several issues coming up in court.

A trader quoted the 9 7/8% notes due 2014 at 16 bid, 17 offered, still ahead of its low in the 14 area.

"The bonds are trading as if the whole thing is worth zero and they will just take care of the bank debt," he said.

Still, if the company makes an asset sale, recovery could be possible on the bonds.

On Thursday, Fedders' official committee of unsecured creditors sought to fight approval of the company's $79 million debtor-in-possession facility. The committee said that costs associated with any potential asset sale would be placed on their shoulders.

Meanwhile, the U.S. Trustee for the case is objecting to a proposal that would allow secured creditors to trade company securities. The trustee claims the proposal does not go far enough to protect the committee's fiduciary duties.

Retailers hold up despite low sales

Retailers "held up well," a trader said, despite lower-than-expected sales figures for August.

The trader placed Bon-Ton's 10¼% notes due 2014 at 93 bid, 93.5 offered. He also said Claire's Stores' 10½% notes were better with a 77 bid, while Linens n'Things floating-rate notes were unchanged at 70 bid, 71 offered.

Retail sales increased by 0.3% during the month when back-to-school shopping was at its peak. That compares to a 0.5% increase in July.

The gain, which was about half of what many analysts expected, was helped by a significant jump in auto sales, at 2.8%. Without that figure, retail sales would have seen the biggest decline in a year.

But one trader, however, was not so sure the monthly sales figures would have any effect on distressed stores.

"I don't think retail junk bonds really change on one month's sales," he said.

Broad market mixed

A trader said Neff Corp.'s senior notes due 2015 were "up a good bit" at 74. He speculated that the increase was due to short covering.

A market source called Remy International Inc.'s 8 5/8% notes due 2007 "a touch low" with a 107 bid. Elsewhere in the distressed automotive sector, Delphi Corp.'s 6½% notes due 2013 were "in a little" at 80 bid, 82 offered, while Federal-Mogul Corp.'s bonds caught a "feeler market" of 71 bid, 76 offered early in the trading day.

The source also said James River Coal Co.'s 9 3/8% notes due 2012 were better at 73 bid, 75 offered.

WCI Communities Inc.'s 4% notes due 2023 were pegged at 89 bid, 91 offered.

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