MGM Mirage sells $500 million drive-by; Calpine up on tender; funds see 2nd straight inflow, $109 million

By Paul Deckelman

New York, June 9 - Gaming giant MGM Mirage became the latest well-known high-yield issuer to roll the dice with a quickly shopped drive-by bond offering, as it sold $500 million of new 10-year notes on Thursday.

Also in the primary market, Sierra Pacific Resources was heard by syndicate sources to have remarketed the notes underlying an issue of Preferred Income Equity Securities, while price talk was heard on the Service Corp. International deal slated to come to market on Friday, and on Rafaella Apparel Group Inc.'s six-year deal that is expected to price next week.

In the secondary market, all three tranches of Qwest Communications International Inc.'s new bonds, which were priced Wednesday, were seen having firmed smartly in Thursday's action. The same could not be said for DirecTV's new issue, which also priced Wednesday.

Back among the established issues, Calpine Corp. rode a roller coaster, first falling on news that the Securities and Exchange Commission was looking into the San Jose, Calif.-based power generating company's recent announcement that it was restating the size and value of its natural gas reserves, but then bouncing off its lows and moving higher after Calpine announced plans for a bond tender offer.

And as trading wound down for the session, market participants familiar with the junk bond mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that for a second straight week more money came into the funds than left them, although the $109 million net inflow for the week ended Wednesday certainly pales in comparison with the $976 million inflow seen in the previous week (ended June 1), which was the largest single inflow that the funds had seen since the $1.143 billion infusion in the week ended Sept. 3, 2003, according to a Prospect News analysis of the AMG figures.

Even so, after having been battered by 15 straight weeks of outflows prior to last week - during which time $6.776 billion had hemorrhaged from the funds, according to the Prospect News analysis - market participants will gratefully take that latest inflow, however relatively modest it may be, in hopes that the suddenly renewed flow of liquidity into the market will bode well for both the primary and the secondary spheres.

"An inflow is an inflow is an inflow, right?" one source said of the news.

In the past two weeks, a total of $1.085 billion more has come into the funds than has left them. Even so, for the year to date, the total net outflow still stands at a whopping $6.616 billion, according to the analysis of the data, although that is down from the previous week's cumulative outflow total of $6.725 billion, and well down from the peak total 2005 outflow of $7.701 billion, seen in the week ended May 25. Inflows have now been seen in five weeks out of the 23 since the start of the year - but outflows were seen in the other 18 weeks.

The AMG figures are seen as a measure of overall market liquidity trends. The exclude distributions and count only those funds that report on a weekly basis.

The two weeks of liquidity infusions have coincided with a revival of the high-yield primary market, which has seen a number of large, quickly priced drive-by deals for well-regarded issuers looking to strike while the iron is hot and take advantage of suddenly more favorable market conditions.

MGM Mirage brings drive-by

On Thursday, it was the turn of MGM Mirage, the Las Vegas-based gaming empire. The company sold $500 million 10-year senior notes via joint bookrunning managers Morgan Stanley and Merrill Lynch & Co., as well as a host of co-managers.

Those bonds priced at par to yield 6 5/8%. They are non-callable for the life of the issue, other than a make-whole call at 50 basis points over Treasuries. The company said that it would use the proceeds of the bond issue to repay existing debt.

Also pricing Thursday was a remarketing by Sierra Pacific Resources of the senior notes underlying its exchanged issue of Preferred Income Equity Securities (PIES), via Merrill Lynch and Lehman Brothers.

The Reno, Nevada-based utility holding company's $99.142 million of notes, carrying a coupon of 7.803%, priced at 102.310 to yield 7 3/8%, market sources said. The notes are not callable for the first four years after issue and mature in 2012.

Talk on Service Corp., Rafaella

Besides deals which priced, price talk emerged on two other issues that are upcoming.

Service Corp. International's $300 million of non-callable 12-year senior notes are expected to price to yield around the 7 1/8% area, syndicate sources said.

The Houston-based deathcare giant's deal is being brought to market by joint bookrunning managers Merrill Lynch and JP Morgan, along with co-managers Banc of America Securities, Lehman Brothers and Raymond James.

The deal was announced by the company Wednesday, was marketed to investors via a conference call Thursday, the sources said, and is expected to price Friday, with the books slated to close at 11 a.m. ET and pricing seen soon after that.

The company - which was once waggishly dubbed "McBurial" by legendary stock guru Peter Lynch due to its ubiquitous, McDonald's-like presence in all corners of the U.S. funeral home and cemetery industry - plans to use the proceeds of the new deal to finance its tender offer for its outstanding 7.2% notes due 2006 and 6 7/8% notes due 2007.

Price talk also emerged on Rafaella Apparel Group Inc.'s planned $160 million issue of senior secured notes due 2011, which is expected to price early next week via Jefferies & Co. Market sources said that the New York-based women's sportswear maker's offering was being talked at a yield of 12%, and they said that to sweeten the deal, registration rights had been added and some cash flow sweep might also be included.

Proceeds of the Rule 144A offering will be used to help fund the buyout of the company by a Cerberus Capital Management LP-led group.

Foodcorp plans deal in Europe

While all of that was going on in the domestic new-deal market, South African-based processed foods maker Foodcorp (Proprietary) Ltd. was heard getting ready to shop a €175 million issue of seven-year senior secured notes via a roadshow scheduled to start Friday.

Pricing is expected some time next week, via sole bookrunning manager Citigroup. Proceeds will be used to pay existing debt.

MGM Mirage little moved in trading

When MGM Mirage's new 6 5/8% senior notes due 2015 were freed for secondary dealings, a trader quoted them at par bid, 100.25 offered, right at their issue price, while another saw the new bonds slightly better, at 100.25 bid, 100.5 offered.

MGM's existing bonds were at the same time seen little changed, with its 8½% notes due 2010 holding steady at 109.75 bid, 110.75 offered.

Qwest deal up in secondary

Meantime, Qwest Communications International's three tranches of new notes, which priced Wednesday, seemed to have caught the fancy of secondary investors.

A trader said that the two new issues of subsidiary Qwest Corp.'s notes - the 7 5/8% senior notes due 2015 and floating-rate seniors due 2013 - had each gotten as good as 101.625 bid in early dealings, well above their par issue price. He saw both issues having come down from that peak later on, with the 10-year fixed-rate notes closing at 100.5 bid, 101 offered, and the eight-year floaters at 100.875 bid, 101.375 offered.

Another trader saw the Denver-based telecommunications operator's new bonds slightly above those closing levels, with the 7 5/8s having initially dipped to 99.5 bid, 101.5 offered, before firming to 100.75 bid, 101.25 offered. He pegged the new floaters at 101.5 bid, 101.75 offered.

The trader also saw parent Qwest Communications International's add-on 7½% senior notes due 2014, which had priced Wednesday at 91.827, as having moved up to 93.25 bid, 93.75 offered. Another trader saw those new bonds at 93 bid, 94 offered.

DirecTV drops, ends little changed

While the regional Bell operating company's paper seemed to be a bellringer for secondary players, El Segundo, Calif.-based satellite television broadcaster DirecTV's new 6¼% senior notes due 2015 did not turn anyone on.

The $1 billion of bonds had priced at 99.087 on Wednesday, and a trader saw them Thursday having opened at 99.5, but then having dropped as low as 98.375, before firming off those lows to end essentially little changed on the day, at 99 bid, 99.25 offered. Another trader saw them a bit lower than that, at 98.75 bid, 99 offered.

Calpine moves around, then gains

Back among the already outstanding issues, Calpine's barrage of news made for volatile trading in its bonds, before the news "lifted them to some extent," a trader said.

He saw the company's 8½% notes due 2011, which had gone home Wednesday at 59 bid, 60 offered, falling in the early going Thursday to 58 bid, 59 offered after the company disclosed in an SEC filing that the Commission had asked it in April for documents relating to its downward revision of proved oil and gas reserve estimates, as well as for documents about a terminated employee's statements to regulators about state taxes, Calpine's upward restatement in April of its earnings for the third quarter last year, and other information about the first three quarters of 2004.

Calpine said it was cooperating fully with the regulatory requests.

But the trader saw those 8½% bonds tick back up as high as 61.5 bid during the early afternoon, as Calpine separately announced that it would it would pay down debt with funds from the sale of gas assets, starting with its 9 5/8% senior secured notes due 2014. Calpine began a tender offer for the $785 million of outstanding notes, which is scheduled to run through July 8.

However, the trader said, after hitting that peak level, the bonds "wilted," and moved back down to 59.5 bid, 60.5 offered, "net-net on the day up half a point," he noted.

Another trader saw a similar patter with the company's 8½% notes due 2008, which "opened weaker" on the SEC news, falling two points to 58.5 bid, 59.5 offered, before coming back on the gas-asset sale and bond redemption news. He saw the bonds trade back up to 61 bid, 62 offered, their closing level, "up three points from the lows, but up about a point on the day."

He saw the 9 5/8% notes that the company is tendering for up two points on the session at par bid, 100.5 offered, their tender level.

Elan gains on journal reports

Also higher on the session was Elan Corp., whose embattled Tysabri multiple sclerosis drug was pulled from the market some months ago after being linked to several patient deaths from a rare form of brain illness; on Thursday, the Irish drugmaker and its partner, Biogen Idec Inc., got some support from articles and editorials appearing in prestigious medical journals.

Elan's 7¼% notes due 2008 and 7¾% notes due 2011 were each seen up two points, at 93 bid, 95 offered, and 87 bid, 89 offered, respectively.

Sbarro higher on earnings

Long Island, N.Y.-based Italian restaurant chain operator Sbarro's Inc.'s 11% notes due 2009 were seen up a point at par bid, 101 offered, after reporting what a trader termed "decent" quarterly numbers.

However, traders saw little trading activity among XM Satellite Radio Holdings Inc.'s bonds - one said they "rarely" trade - after the satellite radio broadcaster announced plans to raise $300 million via a stock offering.

On the whole, a trader said, "there was not a whole lot of action" in the secondary market. "It was a Calpine kind of day," which much attention focused on the power company's developments, "and digesting the new issues - and thinking about what's coming up."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.