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Movie Gallery bonds off on CFO departure; GM, Ford up
By Ronda Fears
Memphis, April 13 - Motor City paper from General Motors Corp. and Ford Motor Co. accounted for much of the flow on distressed debt desks Thursday, which was light given it marked the start of Passover and was a short session ahead of the markets being closed for Good Friday. GM and Ford were both higher as the short week came to a close.
Movie Gallery Inc., however, declined Thursday after the company announced late the day before that its chief financial officer, Timothy Price, has resigned.
The Movie Gallery 11% bonds due 2012 were pegged closing out Thursday at 46.5 bid, 48.5 offered, lower by 1.75 points.
"That this would move the price so much shows how tight the market is [for Movie Gallery bonds]. That it was sold back down shows that some low hanging fruit is still out there, alive and well," said a fixed income fund manager in Texas.
"This creates some uncertainty about the company's path going forward, their strategy. But we think there are some big buyers out there."
Movie Gallery said that its interim CFO will be Mark D. Moreland, the current senior vice president and treasurer. Moreland joined the company as part of its 2005 acquisition of Hollywood Entertainment Corp. The company said Price resigned for personal reasons.
As part of an effort to cut 300 jobs, or 17% of its work force, by the end of this year, the company also announced it had eliminated several management and administrative positions but did not elaborate beyond three other specific positions.
"We have already made great progress in reducing costs and enhancing efficiency," said Movie Gallery chief executive Joe Malugen in a prepared statement. "Today's announcement will further our efforts to create value for shareholders and better position Movie Gallery for long-term success."
Based in Dothan, Ala., Movie Gallery the second largest video rental chain in North America.
Ford bonds a tad better
Ford Motor Co. paper were a little better Thursday on news that the No. 2 automaker will shut down assembly plants in Norfolk, Va., and St. Paul, Minn., in 2008 as yet another prong in its struggle to better situate itself financially.
"It was not news really, everyone knew it was coming down the pike," said a bond trader.
Ford said in January that it would close 14 plants by 2012, but only identified five of them. The five plants whose closure Ford announced earlier are the St. Louis, Atlanta and Wixom, Mich., assembly plants, Batavia Transmission in Ohio, and Windsor Casting in Ontario.
"A decision to end production at a plant is not an easy one, and I'm deeply mindful of the impact this decision has on Ford employees, families and communities," said Mark Fields, Ford's president of the Americas, said in a statement. "Unfortunately, these are necessary steps we must take to move the business forward."
Ford, in a news release announcing the closures, said the staff reductions associated with Thursday's announcement also are part of the 25,000 to 30,000 job cuts announced in January.
Ford said it expects 82% of its assembly facilities to be flexible, meaning they can shift from one model to another more easily and build several vehicles on the same production line, by 2008. In 2004, 38% of its facilities had that capability.
GM bonds drop, bounce back
General Motors, also is in the midst of a major restructuring with plans to close 12 plants by 2008, had another bomb dropped on the market Thursday but it recovered quickly as buyers stepped up on the downswing as the company outlined some $13 billion in savings from healthcare cuts for union employees.
GM's benchmark 8 3/8% bonds due 2033 ended the day at 74.5 bid, a sellside bond trader said, after opening at 71.5 and drifting as low as 68.5 before "some serious buying" kicked in and lifted the bonds by day's end.
"At first it looked like this was a certainty, then it became clear that this is just prognostication," a sellside trader said.
At issue was a Wall Street Journal article that described an event for GM in which proposed accounting rule changes would force it to recognize a massive deficit in its pension and other retiree-benefit plans as a liability on its balance sheet. It would result in a change to the tune of swinging shareholder equity from nearly $15 billion at the end of 2005 to a negative $43 billion at the end of 2006, or worse.
The proposed accounting change, which many Wall Street pundits think will be enacted by the FASB later this year, could weigh against GM's dividend as well, which the company halved earlier this year. GM lost $10.6 billion last year.
More concrete in the way of impact to GM, however, was the company's disclosure in a Securities and Exchange Commission filing Thursday it expects to see net cost savings of about $13 billion over six years from its deal with the United Auto Workers union on healthcare benefits.
GM said it will begin to realize a reduction in healthcare expense in the third quarter.
Hayes stock picked over bonds
Hayes Lemmerz International Inc. securities were lower across the board Thursday after getting lifted earlier in the week from positive presentations at the Morgan Stanley automotive conference and then drifting lower by its report of a wider fiscal 2005 net loss.
But traders noted that a credit analyst is pitching the stock as a pick over the bonds, and one bond trader said, "I think there are a lot of the hedge funds already set up heavy in the stock."
Hayes Lemmerz has $162 million of 10½% senior notes due 2010. The bonds Thursday slipped by a quarter-point to 83 bid, 84 offered, while the stock (Nasdaq: HAYZ) closed Thursday off by 6 cents, or 2.08%, at $2.82.
On Tuesday, the Northville, Mich.-based supplier of automotive and commercial highway wheels, brakes, powertrain, suspension, structural and other lightweight components said its fiscal 2005 net loss widened after charges to $461.9 million, or $12.19 a share, from $62.3 million, or $1.66 per share, a year before.
Gimme Credit analyst Shelly Lombard said in a report Wednesday that while Hayes Lemmerz's liquidity appears adequate and there are no negative catalysts like upcoming maturities, it faces strong competition and "it has a habit of disappointing investors.
"So although these bonds have traded down 15 points to the low 80s since ... last September, we are not buyers yet. If EBITDA improves by $25-$35 million, the bonds could have 10 to 15 points of upside, but the equity could more than double in value," Lombard said. "Investors inclined to bet on improving numbers at Hayes may have a better risk/reward scenario in the stock."
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