MGM, El Pollo, Rock-Tenn, Speedway price, new MGM firms while existings fall; funds gain $981 million

By Paul Deckelman and Paul A. Harris

New York, May 14 - MGM Mirage finally priced its $1.5 billion secured bond offering on Thursday, a transaction which had originally been expected Wednesday, as part of the Las Vegas-based gaming giant's ambitious efforts to shore up its beleaguered balance sheet. Both tranches of those new bonds firmed smartly on the break and held most of those gains going home. However, the company's existing issues - most of which had shot solidly higher Wednesday on news of MGM's efforts to fix its finances - were generally seen several points lower on the day, although several specific issues that are to be taken out using bond-sale proceeds more than held their own.

Also pricing were several quickly-shopped smaller deals - a somewhat upsized offering of three-year secured notes from restaurant chain operator El Pollo Loco Inc., an add-on tranche to an existing issue of packaging manufacturer Rock-Tenn Co.'s bonds, and an upsized offering of seven-year paper for auto racing promoter and track operator Speedway Motorsports, Inc.

Climbing onto the forward calendar were an offering of secured seven-year notes for Sealy Mattress Co. - the bedding products company's deal hit the road for a marketing campaign, with pricing anticipated early next week - and natural gas operator Regency Energy Partners LP's seven-year unsecured offering, which could price on Friday.

Goodyear Tire & Rubber Co.'s recently priced offering continued the piecemeal surrender of the strong gains the issue notched after it came to market a week ago - a not uncommon phenomenon in the lately hot new-issue realm. However, Ameristar Casinos Inc.'s deal from earlier this week proved to be the exception to that general trend, hanging onto the initial gains those bonds notched.

Back among the established issues, trader said that there didn't seem to be much focus. They said the market seemed to be heavier, based both on their own anecdotal observations as well as some commonly followed statistical measures. Recently strong performer Ford Motor Co. continued to spin its wheels.

Cash bonds were down ½ point or so, a high yield syndicate source said.

Funds show $981 million inflow

And as trading was wrapping up for the session, market participants familiar with the high yield mutual fund flow statistics generated by AMG Data Services of Arcata, Calif. - a key barometer of overall market liquidity trends - said that in the week ended Wednesday some $981 million more came into the weekly reporting funds than left them. It was the ninth consecutive inflow, including the $822.4 million cash infusion seen in the previous week, ended May 6.

That nine-week winning streak has generated around $6.481 billion of inflows, according to a Prospect News analysis of the AMG figures. With 19 weeks of the year now in the books, inflows have been seen in all but three of them - a losing streak back in late February and early March which saw cumulative outflows of $996 million.

Including the latest week's inflow number, the year-to-date net inflow for the weekly reporting funds has swelled to $8.86 billion, according to the analysis, up from $7.879 billion the week before.

Those numbers include exchange-traded funds; excluding such ETFs, market sources put the week's inflow figure at $885.3 million, with a total of $5.385 billion having come in over the past nine weeks, including the previous week's $777.5 million cash infusion.

However it is calculated, the massive multibillion-dollar flow of funds into high yield is seen as having been largely responsible for the relatively strong pace of new issuance and the solidly positive year-to-date returns that have been seen in Junkbondland for most of the first four-plus months of the year - except for a lull in both the primary and secondary spheres for several weeks that largely coincided with the three weeks of outflows. The sustained inflows have helped the junk market bounce back nicely from last year's staggering 25%-plus loss and sharply reduced primary activity totals.

EPFR sees record weekly gain

At another fund-tracking service, Cambridge, Mass.-based EPFR Global, analysts also noted that the junk funds had notched a ninth straight weeks of inflows, with the $1.14 billion cash infusion they calculated pushing the nine-week cumulative inflow up to $6.23 billion and the year-to-date inflow figure up to $8.4 billion.

EPFR's managing director Brad Durham noted that the $1.14 billion figure represented the largest weekly inflow since his service began keeping track of weekly changes in the funds several years ago. In the previous week, EPFR said the funds had seen a $724 million inflow.

While the EPFR junk figures usually point essentially in the same direction as AMG's, the precise weekly and year-to-date numbers almost always differ somewhat due to EPFR's inclusion of some non-U.S. funds in its universe. Any and all cumulative fund-flow totals, whether for AMG or EPFR, can include unannounced revisions and adjustments to figures from prior weeks.

Durham declared that "risk appetite appeared to move up another notch," as investors poured money into the junk funds even despite default rates heading towards 9%, and expected to hit around 15% going into 2010. He said the investors "continue to back their belief that, in light of aggressive action by policymakers around the world, this asset class was oversold last year."

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they comprise considerably less of the total monies floating around the high yield universe than they used to - because there is no similar reporting mechanism to accurately track the movements of cash coming into the junk market from other, larger sources seen in recent years such as insurance companies, pension funds and hedge funds.

'Pretty phenomenal'

"That's pretty phenomenal," a banker said, in a remark that was characteristic of those heard from sell-siders.

Meanwhile a money manager, whose portfolio includes high-yield bonds and stock, said that the load of cash being put to work in junk bonds - approximately $6.5 billion over the past nine weeks, based upon AMG's numbers - makes sense.

"We passed the maximum point of risk last fall, and now things look more orderly - especially in the financial sector," the investor said.

"A lot of the companies that got TARP money have raised enough cash to pay it back.

"And there isn't any new material bad news.

"They seem to have a grip on all the housing write-offs, and the Fed is going to keep rates low.

"So it looks as if the economy is stabilizing.

"All of that is pretty favorable for high-yield."

An investment banker, however, said that it was difficult to escape the feeling that the junk market has gotten somewhat ahead of itself.

"It's a pretty serious number," the banker said, referring to the $981 million inflow.

"But I think the primary market is getting a little heavy, to be honest.

"We got most of the big stuff out of the way this week," the banker said, referring to MGM Mirage, as well as to the $1 billion priced earlier in the week by Calpine Construction Finance Co., LP/CCFC Finance Corp.

There will likely be a couple of more big deals next week, the source added.

"With all of this cash coming in, hopefully the market will digest those too."

MGM prices $1.5 billion

Meanwhile the cranking continued in the new issue market, with four issuers pricing a face amount just north of $2 billion, in five tranches.

MGM Mirage priced $1.5 billion in two tranches of senior secured notes (B1/B) that played to "a ton of demand," and was "massively oversubscribed," according to a source close to the deal.

The company priced $650 million of 10 3/8% five-year notes at 97.184 to yield 11 1/8%. The yield came on top of yield talk, while the issue price came cheap to the 2 points of original issue discount price talk.

MGM Mirage also priced $850 million of 11 1/8% 8.5-year notes at 97.344 to yield 11 5/8%. Again the yield was printed on top of yield talk while the issue price came cheap to the 2 points of OID price talk.

There was more than $10 billion of orders from over 100 accounts, according to a banker who was part of the bookrunning syndicate.

"Guys were literally coming out of the woodwork to play that deal," the source asserted.

Banc of America Securities LLC, Barclays Capital, Citigroup, RBS Greenwich Capital and Wachovia Securities were joint bookrunners for the Rule 144A with registration rights offer.

The notes are secured by MGM's Bellagio and Mirage properties.

Proceeds along with funds from a concurrent $1 billion stock offering will be used to repay at least $750 million of bank debt, redeem all of the 7¼% senior debentures due 2017, purchase all of the 6% senior notes due 2009 of Mandalay Resort Group and senior notes due 2009 tendered in the pending tender offer, and for general corporate purposes.

Speedway speeds through

Elsewhere Speedway Motorsports priced an upsized $275 million issue of 8¾% seven-year senior unsecured notes (Ba1/BB) at 96.826 to yield 9 3/8%.

The yield came on top of yield talk while the issue price came slightly cheap to the discount talk of approximately 3 points. The deal was increased from $250 million.

"Speedway is a closely followed name in our market," remarked a syndicate source, who added that demand was strong.

The deal was a couple of times oversubscribed, the source added.

Banc of America Securities LLC, JP Morgan and Wachovia Securities were joint bookrunners for the quick-to-market issue. SunTrust Robinson Humphrey and Calyon Securities were joint lead managers.

El Pollo Loco upsizes

El Pollo Loco priced an upsized $132.5 million issue of 11¾% senior secured notes due Dec. 1, 2012 (B) at 98 to yield 12.465%.

The coupon came tight to coupon talk of 11¾% to 12%, the issue price came on top of price talk, and the yield came just inside of the 12.47% to 12.72% yield talk.

Jefferies & Co. ran the books for the quick-to-market debt refinancing deal from the fast-food restaurant operator based in Irvine, Calif.

Rock-Tenn add-on

Finally Rock-Tenn priced a $100 million add-on to its 9¼% senior notes due March 15, 2016 (Ba3/BB-) at par to yield 9 ¼% on Thursday.

The quick-to-market deal was talked earlier in the day at par, and came on top of that talk.

Banc of America Securities LLC, Wachovia Securities, SunTrust Robinson Humphrey and JP Morgan were joint bookrunners for the debt refinancing deal.

The original $200 million issue priced at 99.30 to yield 9 3/8% on Feb. 28, 2008.

Hence Rock-Tenn realized 12.5 basis points of interest savings with Thursday's tap, relative to the yield printed on the existing paper.

The total issue size is $300 million following the add-on transaction.

Regency for Friday

Friday will get underway with just one deal scheduled to price.

Regency Energy Partners plans to price a $250 million offering of seven-year senior notes (expected ratings B1/B) late Friday morning via Wachovia Securities, Barclays Capital and Morgan Stanley.

Proceeds will be used to pay down the Dallas-based midstream natural gas services company's revolver.

An investor call took place Thursday afternoon. However no official price talk was circulated, an informed source said.

Also on Thursday, Sealy Mattress began a roadshow for its $350 million offering of seven-year senior secured notes, which is expected to price early next week.

JP Morgan is the lead-left bookrunner for the debt refinancing and general corporate purposes deal. Citigroup and Goldman Sachs & Co. are joint bookrunners.

New MGM bonds jump...

A trader said that in the secondary "the focus was mostly on MGM," whose two-part mega-deal finally hit the market after having been a no-show on Wednesday. But the wait seemed to be worth is, as the gaming company's new issue proved to have a hot hand when it got to secondary.

Those senior secured bonds shot up solidly, with the trader seeing the $650 million of 10 3/8% notes due 2014 getting as good as 101 bid, 101½ offered, before the issue came off its highs later on in the session, to end at

100¼ bid, 100¾ offered, although that was still well up from the 97.184 level at which the company had priced the bonds to yield 11 1/8%.

At another desk, a trader saw those bonds doing even better, going out at 100 5/8 bid, 101 1/8 offered.

The first trader said the other half of the behemoth MGM deal, the $850 million of new 11 1/8% notes due 2017 - in contrast to the five-year tranche - was "still going like gangbusters," riding high at 101½ bid, 102 offered, after having priced earlier at 97.344 to yield 11 5/8%. The second trader also saw the new bonds at that lofty closing level.

...while old bonds take their lumps

It was quite another story for MGM's existing bonds, which a trader said mostly "came down a little" after having recorded sharp gains on Wednesday when the company announced its balance sheet improvement plans, which included the bond issue, a $1 billion stock sale, tenders for two issues totaling nearly $1.05 billion that are scheduled to come due later this year, a call of one of its other issues, and a reworking of some of its bank debt terms.

It should be noted that not all of the existing bonds spat up their Wednesday gains - the several specific issues slated to be taken out as part of the measures announced Wednesday all managed to hold their gains, and even add to them. For instance, MGM's 6% notes slated to come due on Oct. 1, one of the issues being tendered for, which had risen about 6 or 7 points on Wednesday, were quoted ½ point higher Thursday at 99½ bid, or a 7.377% yield to maturity, on mid-afternoon volume of nearly $18 million.

Apart from that exception, its other issues seemed to mostly be on the downside, with the 6¾% notes due 2012 falling as much as 7 points to 691/2, on volume of $17 million, and its 8 3/8% notes due 2011 down 4½ points on the day at 76 bid, on about $11 million turnover. The company's 8½% notes due 2010 lost nearly 2 points to move down to around 90 ½ bid, on volume of $190 million, and its 6 5/8% notes due 2015 lost 3 points to end at 63, although on more restrained volume of $6 million. MGM's 7 5/8% notes due 2017 dropped 5 points to the 64 level, also on $6 million traded.

At another desk, the 6 5/8s were quoted down more than 2 points at the 63 level.

MGM-owned Mandalay Resort Group's 9 3/8% notes due 2010 dipped to under the 90 mark, down more than 2 points on the day, with about $12 million having traded through mid-afternoon.

But a market source saw Mandalay's 6½% notes coming due on July 30 - the other issue being tendered for, which also rose multiple points on Wednesday - gaining more than a point on Thursday to end at 99¾ bid.

And the Mirage Resorts Inc. 7¼% notes due 2017 - which on Wednesday had zoomed on the news that MGM would call them for early redemption, going from the mid-80s pre-news to above 120 - not only hung on to all of its gains - it actually added to them, firming another 1½ points to end at 125 bid.

New El Pollo Loco, Rock-Tenn bonds firmer

Apart from MGM, El Pollo Loco's upsized offering of 11¾% senior secured notes due 2012, which had priced at 98 bid to yield 12.465%, were seen up perhaps ½ point on the session at 98½ bid.

The company's established 11¾% notes due 2013 meantime traded at 80¼ bid, on volume of about $6 million.

Rock-Tenn's 9¼% notes due 2016 - Thursday's offering was an add-on to the original issue - were seen by a trader at 100¼ bid, 100¾ offered, versus the new bonds' par issue price .

Goodyear gains continue deflating

Among other recently priced deals, one of the traders observed that Goodyear's issue of new 10½% notes due 2016 "keeps getting weaker and weaker now." He saw the bonds get no better than 95 7/8 on the day, and saw them going out at 95¼ bid, 95¾ offered. "That's back around issue now," he noted - the Akron, Ohio-based tiremaking giant had priced its mega-deal at 95.846 back last Wednesday, to yield 11 3/8%.

There had been enough investor interest in the deal to warrant upsizing it to the $1 billion mark, fully twice the $500 million the company had originally planned to issue. After the bonds priced, the issue shot up later last Wednesday and through last Thursday to reach peaks around the par level. But by last Friday, the air had begun to leak out of those bonds, and they started going progressively lower, losing ground on Friday and all of this week.

Some market participants felt the Goodyear bonds - like a number of recent new issues, among them last week's humongous Teck Resources Ltd. three-part offering - had priced too cheaply in the first place. They reasoned that after the strong initial flurry taking the bonds up to around par, with the buyers scooping up the tens of millions of dollars left on the table by the issuer and the underwriters, those buyers, having made their money, would proceed to flip out of the bonds, and they would come down from their peak and keep going down.

Other explanations were also heard - the trader, for instance, suggested that "it might be more the industry," with Goodyear - a major factory OEM supplier to U.S. automakers - likely to be hurt by the continued production cutbacks scheduled by an increasingly desperate Detroit.

While he noted that "they do a lot more than that [just selling tires to the Big Three for factory installation on new vehicles]" - for instance, the company runs a chain of some 1,800 retail stores that sell tires to motorists, installs them and does other automotive mechanical work - but even this business is being affected by the downturn in consumer discretionary spending.

At any rate, with the bonds having surrendered virtually all of their post-pricing gains and now coming back to their issue price, "people are starting to take a look at it back at that level right now."

Goodyear's established 7.857% notes due 2011 meantime eased nearly 2 points to just over 96 bid.

Ameristar a market star

One of the few exceptions to the general trend of new bonds trading at or below their respective issue prices, or moving aggressively upward on the break, only to give up its gains subsequently, was Ameristar Casinos' 9¼% notes due 2014. The Las Vegas-based operator of regional casinos located elsewhere priced $500 million of those bonds on Tuesday at 97.097 to yield 10%, and they began moving higher on the break, soon reaching a 99-par context.

A trader said that on Thursday, the issue continued "doing better," relative to its new-deal peers, quoting them at 99 bid, 99½ offered.

New-issue glut

With another $2.007 billion face amount of bonds coming to market on Thursday, bringing the week's running total to $4.423 billion, and on top of the previous week's nearly $8 billion of new paper, traders were speculating that junk was suffering from a glut of new paper that has not yet been fully digested, causing the new deals to underperform and existing issues to back up as well.

"There have been quite a few deals," one said, although he added that investors are counting on at least some of the recent big new deals to sop up some of the excess cash that seems to be causing bond-price inflation of late - too much cash chasing too few bonds [available for purchase], thus driving prices up.

Market indicators move downward

Back among the established issues with no new-deal connections, a trader saw the CDX Series 12 High Yield index - which tumbled by a full point on Wednesday - down another ¾ point to finish Thursday at 78¾ bid, 79¼ offered.

The KDP High Yield Daily Index, which fell by 33 basis points on Wednesday, gave up another 45 bps on Thursday to end at 59.85, while its yield widened out by 15 bps to 11.46%.

After giving up their tenuous lead over decliners, and falling behind them three to two, advancing issues continued to trail by a five-to-four margin.

Overall market activity, measured by dollar-volume totals, gained nearly 31% from Wednesday's levels.

A trader said that aside from interest in the new MGM Mirage bonds and other new-deal related issues, "the rest of the market was slow and off."

Ford bonds losing their shine

A trader saw General Motors Corp.'s benchmark 8 3/8% bonds due 2033 up ½ point at 4½ bid, 5½ offered, but saw Ford Motor Co.'s 7.45% bonds due 2031 down 2 points to 52 bid, 54 offered.

The Ford bonds had, until this week, been steadily rising, its benchmark issue about doubling in price from the upper 20s to the mid-50s, reflecting investor enthusiasm for the Dearborn, Mich.-based Number-Two carmakers efforts to keep from following in the tire tracks of smaller rival Chrysler LLC, which wound up in the bankruptcy court, which increasingly also looks like bigger rival GM's likely destination.

However, after peaking at levels around 57-58 earlier in the week, those bonds have since retreated.

Another trader characterized Ford's bonds as "slightly lower to unchanged," seeing the long bonds dip to 53 bid, 55 offered, before firming a little off their low to finish at 54 bid, 55 offered. He said there was "not much activity" there.

He meanwhile said that GM was 'in the category of 'who cares?'" since a bankruptcy filing for the nation's largest automaker is looking increasingly likely - even CEO Fritz Henderson now calls it "probable." He saw the GM paper at the same 4-5 level it has held for several days.

Lear takes a loss

Also in the automotive world, a trader saw Southfield, Mich.-based automotive parts supplier Lear Corp.'s bonds - one of the big winners earlier in the week-fall to the high 20s from the lower 30s on Wednesday. He pegged the 8¾% notes due 2016 "down 5 or so points" at 27 bid, 29 offered, while its 8½% notes due 2013 were "down a couple of points - 2 to 4" - at 28 bid, 29 offered following the release of quarterly results and the company's conference call.

Lear reported a loss of $262.8 million, or $3.42 per share. That compared to a profit of $78.2 million, or $1.01 per share, in the first quarter of 2008.

Sales dropped to $2.2 billion from $3.9 billion. The company said that restructuring costs of $115 million attributed to its quarterly deficit.

During the conference call to discuss the results, Matt Simoncini, Lear's chief financial officer, note that the company was focused on addressing its debt structure.

"We recognize we have to address our debt structure, although our liquidity remains strong," he said.

On Wednesday, Lear announced that it had received a second covenant waiver from its bank lenders, giving the company until June 30 to cure a default. However, under the conditions of the waiver, the company will be unable to pay interest payments coming due on June 1.

"We haven't made a decision on the bond payments," Simoncini told analysts during the call. He noted that any action taken on the debt could extend outside the 30-day grace period.

Still, the company continues its restructuring efforts and remains committed to achieving a reorganization outside of bankruptcy.

"It is our strong preference to accomplish this outside of court," said Bob Rossiter, Lear's chief executive officer.

But not everyone is optimistic that the company can restructure on its own.

"Lear's first quarter results were expectedly bleak," wrote Shelly Lombard, an analyst with Gimme Credit LLC, in a note to clients. "To ensure it had liquidity if customers like General Motors filed Chapter 11, Lear borrowed $1.2 billion on its revolver at the end of 2008. But that put the company in violation of its leverage covenants and, rather than providing covenant relief, the banks appear to be forcing Lear to restructure. If Lear can't restructure before June 30, it may have to file bankruptcy."

Stephanie N. Rotondo contributed to this report

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