Claire's, Universal Hospital, Bonten deals price, Tesoro launches; MGM Mirage off as agencies wary

By Paul Deckelman and Paul A. Harris

New York, May 22 - Claire's Stores Inc. was heard by high yield syndicate sources to have successfully priced nearly $1 billion in new bonds in a three-part offering Tuesday.

Also coming to fruition were new deals from UHS Merger Subs Inc./Universal Hospital Services Inc. and Bonten Media Acquisition Co., the former a two-part offering which traded solidly higher when it was freed for secondary dealings.

In a break from a recent trend which has seen much of the new paper being priced coming from suddenly-appearing offerings from opportunistic issuers looking to take advantage of favorable market conditions to get their deals done, all three of Monday's pricings were forward calendar deals which had been pitched to potential investors by the traditional roadshow process.

Elsewhere on the new-deal scene, Tesoro Corp. announced talk on its upcoming sale of $500 million worth of new bonds; it will use the deal proceeds to repay bank borrowings it used to recently acquire certain refining and retail assets from Shell Oil Products US.

That was the most prominent of several would-be issuers who popped onto the radar screens, including Psychiatric Solutions Inc., Tristan Oil Ltd. and Foodcorp Pty. Ltd. All three of those deals are structured as add-ons to existing bond issues. The latter is a euro-denominated offering.

In the secondary market, MGM Mirage bonds were seen lower - even as the Las Vegas-based gaming operator's shares took off on speculation that it might be acquired, following Monday's late-session announcement from its major shareholder, billionaire Kirk Kerkorian's Tracinda Corp., that it would explore strategic options for its 56% stake in the company. The three major ratings agencies were all eyeing MGM Mirage for possible downgrades.

Elsewhere, Fremont General Corp.'s bonds were solidly higher on the news that the California-based financial services company will sell its commercial real estate loan division for $1.9 billion.

Claire's restructures

Tuesday's primary market saw three issuers bring a combined total of six tranches of high yield notes which generated slightly less than $1.52 billion of proceeds.

Claire's Stores priced $935 million of notes in a restructured three-tranche transaction.

The Pembroke Pines, Fla., specialty retailer priced an upsized $600 million two-part offering of eight-year senior unsecured notes (Caa1/CCC+).

It included $250 million of fixed-rate notes that priced at par to yield 9¼%. The yield was printed at the tight end of the 9¼% to 9½% price talk.

Claire's Stores also priced a $350 million tranche of senior unsecured toggle notes at par to yield 9 5/8%. That yield was printed on top of price talk that had the toggle notes pricing 37.5 basis points behind the fixed-rate notes.

The combined two-part senior unsecured notes offering was upsized to $600 million from $535 million.

In addition Claire's Stores also priced a downsized $335 million issue of 10-year senior subordinated notes (Caa2/CCC+) at par to yield 10½%, on top of price talk which had the subordinated notes pricing 125 basis points behind the senior unsecured fixed-rate notes.

The subordinated notes tranche was downsized to $335 million from $400 million. Hence $65 million was shifted to the senior unsecured notes from the subordinated notes.

Bear Stearns, Credit Suisse and Lehman Brothers led the LBO deal.

Universal Hospital prices $460 million

UHS Merger Sub Inc. (Universal Hospital Services Inc.) priced $460 million of eight-year second-lien senior secured notes (B2) in two tranches.

The Edina, Minn.-based medical equipment company priced a $230 million tranche of floating-rate notes at par to yield six-month Libor plus 337.5 basis points, on the tight end of the Libor plus 350 basis points area price talk.

UHS also priced a $230 million tranche of fixed-rate toggle notes at par to yield 8½%, on the tight end of the 8 5/8% area price talk. The coupon of the toggle notes steps up by 75 basis points should the issuer elect to make an in-kind, as opposed to cash, interest payment.

Merrill Lynch & Co., Bear Stearns & Co. and Wachovia Securities were joint bookrunners for the acquisition financing.

An informed source told Prospect News that the deal was significantly oversubscribed.

Bonten brings 9% notes

The only single-tranche transaction during the Tuesday session came from Bonten Media Acquisition Co. which priced a $125 million issue of 9% eight-year senior subordinated PIK toggle notes (Caa1/CCC+) at 99.50 to yield 9.089%.

The yield was printed toward the lower end of the 9 1/8% area price talk.

As with the UHS toggle tranche, the coupon steps up to 9¾% should the issuer elect the PIK option.

Lehman Brothers ran the books for the acquisition financing.

Bonten Media Group is a Wichita, Kan.-based operator of middle market television stations.

Tesoro talks $500 million

Tesoro set price talk for its quick-to-market $500 million offering of 10-year senior notes at a 175 basis points spread to Treasuries.

The San Antonio refiner's debt refinancing deal, which is being led by Lehman Brothers and JP Morgan, is expected to price Wednesday.

A source close to the deal commented that Tesoro has been de-leveraging, and added that there is some expectation that the company could become investment grade in the next 12 months.

In addition to Tesoro, Neff Corp. is expected to price its downsized $230 million offering of eight-year senior unsecured notes (Caa2/B-) on Wednesday.

On Monday the Miami-based construction equipment rental company, which shifted $20 million of the acquisition financing to its second-lien term loan, talked the notes at 10% to 10¼%.

Banc of America LLC is the left bookrunner. CIBC World Markets is the joint bookrunner.

Psychiatric Solutions to tap 7¾% notes

Psychiatric Solutions will run a brief, Wednesday-Thursday investor roadshow for a $200 million add-on to its 7¾% senior subordinated notes due 2015 (B3/B-).

Citigroup and Merrill Lynch are joint bookrunners for the add-on which the Franklin, Tenn.-based behavioral health services provider is bringing in order to help fund its acquisition of Horizon Health Corp. as well as to fund tender for the Psychiatric Solutions 10 5/8% senior subordinated notes due 2013.

The original $220 million issue priced at par on June 30, 2005.

From EM land

Two additional add-on offerings were announced during the Tuesday session.

Both are being offered to high yield accounts. However each has a one foot planted squarely in the emerging markets.

British Virgin Islands-based Tristan Oil will host an investor call on Thursday for a $120 million add-on to its 10½% senior secured notes due Jan 1, 2012 (existing ratings B2/B+).

Pricing is expected during the week of June 4 following a consent solicitation.

Jefferies & Co. is the bookrunner.

The notes are guaranteed on a senior secured basis by Kazakh affiliates Kazpolmunay LLP (KPM) and Tolkynneftegaz LLP (TNG).

Proceeds will be used for working capital and for the general corporate purposes of KPM and TNG, including future capital expenditures.

The original $300 million issue priced at par on Dec. 13, 2006.

Elsewhere South African processed foods company Foodcorp will begin a two-day roadshow on Wednesday for a €142 million add-on to its 8 7/8% first priority senior secured notes due June 15, 2012 (B2/B+).

Citigroup is the bookrunner for the acquisition financing.

The original €175 million issue priced at par on June 15, 2005.

A high yield syndicate official who is not in either deal suggested that between Tristan and Foodcorp, Tristan is apt to generate the most interest among high yield investors because at present any credit from the energy sector is coveted.

The source added that the 10½% coupon on the existing Tristan bonds renders them comparatively cheap to own.

Energy XXI talks private deal

Finally, Energy XXI Gulf Coast, Inc. set price talk for its $700 million offering of six-year senior notes (Caa2/CCC) at 10% to 10¼% on Tuesday.

The Regulation D/Regulation S private placement via Jefferies & Co. is expected to be completed on Thursday.

Proceeds, in addition to a draw upon the company's first lien revolver, will be used to fund the previously announced acquisition of oil and natural gas properties in the Gulf of Mexico from Pogo Producing Co. and to repay its second lien revolver in full.

New Universal Hospital bonds well received

When the new Universal Hospital bonds were freed for secondary dealings, traders saw them post healthy aftermarket gains.

A trader said that the floating-rate notes moved up to 101.375 bid from their par issue price earlier in the session, while the 8½% toggle notes due 2015 got as good as 101.75 bid, also up from a par issue price.

Another trader saw the floaters at 101 bid, 101.5 offered, and the fixed-rate togglers at 101.75 bid, 102.25 offered.

The Claire's Stores deal priced too late in the session for meaningful aftermarket dealings to be seen. Also unseen in the secondary, even though it priced considerably before the other two deals, were the Bonten Media 9% notes due 2015, probably owing to the relatively small size ($125 million) of the offering.

On the other hand, Enterprise Products Partners LP's $700 million offering of hybrid fixed-/floating-rate notes due 2068, which priced very late on Monday, was seen trading around on Tuesday. The new bonds, which carry a 7.034% coupon for the first 10 years after issue, and then float upward from that initial rate starting in early 2018, were seen at 99.631, down slightly from Monday's 99.979 issue price.

MGM in retreat

Back among the established issues, traders saw MGM Mirage's bonds off for a second straight session, down about 2 points across the board, after all three major ratings agencies expressed wariness and caution about the possible transactions which could emerge from Tracinda's strategic review of its investment.

A trader said the gaming giant's paper "has definitely traded lower" in the wake of the Tracinda announcement. He saw the company's recently issued 7½% notes due 2016, which priced at par back on May 8 and then subsequently moved as high as 101 bid, 101.25 offered, drop back to 98.5 bid, 99.25 offered in Tuesday's dealings.

He said the bond was "very active" at those lower levels.

Another trader saw another relatively new MGM Mirage issue - the 7 5/8% notes due 2017, which priced on Dec. 13 at par, and which then moved upward - as having dropped a deuce to 99.25 bid, 100.25 offered.

"The bonds were down across the board," he said - although he noted that the bonds of other casino operators did not follow them down in any kind of sector sympathetic response.

"It was pretty MGM-specific," he noted. For instance, he said, Trump Entertainment Resorts Inc.'s 8½% notes due 2015 - which last week had zoomed several points to around 102.5 after the Atlantic City, N.J.-based gamer said that it had received several preliminary expressions of interest from potential acquirers - "stayed up their own news," unfazed by the fall in MGM Mirage.

In the credit default swaps market, the contract to protect MGM Mirage debt for five years widened out by 29.3 basis points to 184.8 bps - the widest level in more than six months, reflecting market fears of an increased likelihood of a default.

After Tracinda - the investment vehicle for MGM Mirage's principal owner, billionaire tycoon Kirk Kerkorian - said that it would consider "alternatives" for his more than $9 billion investment in the company, and would also negotiate for the possible purchase of its Vegas crown jewel, the Bellagio resort as well as its City Center property, the major ratings agencies all weighed in - and their response was uniformly negative, with Moody's Investors Service, Standard & Poor's and Fitch Ratings all putting the company's debt under scrutiny for a possible downgrade. Moody's currently rates MGM Mirage's senior debt at Ba2, while S&P and Fitch peg it at BB.

Among the alternatives which could emerge from Tracinda's review is a buyout of the 44% of the company that Kerkorian does not yet own - carrying with it the potential for a sharp increase in MGM Mirage's leverage.

The company said late Tuesday it has formed an independent board committee to study Tracinda's plan to enter talks to buy the two properties and perhaps restructure the company.

While bondholders and the ratings agencies were wary, shareholders were anything but - MGM Mirage's New York Stock Exchange-traded shares skyrocketed $17.03 (27%) to $79.98 Tuesday.

Fremont General jumps

Elsewhere, the 7 7/8% notes due 2009 of Fremont General were seen having jumped around 4 points on the session to the 99.5 level in busy trading, after the Santa Monica, Calif.-based company announced its plans to sell its commercial real-estate unit for $1.9 billion to iStar Financial Inc. and bring in new managers, led by billionaire banker Gerald J. Ford.

The sale is the latest step in Fremont's efforts to return to financial health after the company got caught up in the meltdown of the subprime loan market earlier this year. It previously announced the sale of its subprime operations.

Getting out of the real estate lending area will leave Fremont a considerably smaller retail banking operation.

The major agencies have adjusted their outlook for the company's debt to developing from negative previously.

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