MGM Mirage gains on project financing news; Six Flags gain continues; Tembec off despite smaller loss

By Paul Deckelman and Paul A. Harris

New York, Aug. 5 - MGM Mirage's bonds firmed Tuesday as the Las Vegas-based casino giant said that it had lined up about half of the roughly $3 billion of financing it will need this year for its ambitious CityCenter development project in the Nevada gaming capital. That news was positive enough to offset the company's second-quarter earnings, which showed a steep decline from year-ago levels.

Also on the earnings front, Tenet Healthcare Corp.'s bonds were seen lower, in line with a fall in the Dallas-based hospital operator's shares, even though it managed to post a smaller loss for the latest quarter versus a year ago.

Back on the upside, Six Flags Inc.'s bonds continued upward, building on their momentum from Monday, when the New York-based theme park operator had reported surprisingly good numbers.

Dish Network Corp. - the company formerly known as EchoStar - was higher amid renewed speculation, prompted by a Wall Street Journal article, that Dish is mulling over the idea of trying to link up with larger rival DirecTV Corp.

Automotive bonds, led by Ford Motor Co. and General Motors Corp., were higher, breaking out of their recent rut.

Market indicators move up

Against the back drop of a massive rally in stocks - coming as the Federal Reserve left the fed funds rate unchanged at 2.0% and a barrel of crude oil fell by nearly $2.25, touching an intraday low of $118 per barrel - junk was a little firmer on Tuesday, and the market was quiet, according to a senior high-yield syndicate official.

A trader said that the widely followed CDX index of junk bond performance was up ¼ point on Tuesday, quoting it at 92 5/8 bid, 92 7/8 offered. The KDP High Yield Daily Index rose by 13 basis points to end at 70.27, while its yield narrowed by 1 bp to 10.63%.

In the broader market, advancing issues led decliners by a narrow margin. Activity, represented by dollar volume, jumped nearly 78% from the anemic levels seen in Monday's session.

A trader said that while stocks were on "a wild ride, you really didn't see the bids creeping up in conjunction with the stocks."

Wall Street jumped after the Federal Reserve - as expected - left interest rates unchanged, with the key federal funds rate for overnight bank lending staying at 2%, and declared that "economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports," mollifying investors fearful about the economy's status.

Also helping out was another downturn in world crude oil prices, with the price of a barrel of black gold falling as low as $118 before settling at $119.17, down $2.24 on the New York Mercantile Exchange. All of that helped to send the bellwether Dow Jones Industrial Average up more than 330 points, with the broader equity market indexes notching gains approaching a hefty 3% on the session.

Despite that exuberant equity upturn, the trader said, junk bond trading was by no means an across-the-board rally, but rather was "topical activity, surrounding news-driven stuff."

He said that the stock run-up didn't really have a dollar-for dollar impact on the bond move, and there was nothing really noteworthy happening in terms of the names here."

"Overall, the [junk] market felt like it didn't really want to participate in this market rally on the stock side today."

Another trader said that "in general, our market did not rally on the heels of stocks. It was kind of mixed - I saw some things that were higher and some things that were lower."

There was "not a ton" of activity going on, yet another trader said. "It was kind of quiet most of the day, although equities were up, obviously." However, "the pace picked up a little bit in the afternoon. But for the most part, it was a reasonably quiet day."

MGM Mirage gets financing boost

MGM Mirage's bonds were mostly a bit higher, helped by the news that the world's second-largest gaming company - behind only Harrah's Entertainment Inc. - has received commitments for over half of the $3 billion that it currently needs to proceed with CityCenter, a huge complex of hotels, a casino, condominiums and retail outlets that MGM Mirage and partner Dubai World are building on the famed Las Vegas Strip.

A trader saw its 7½% notes due 2016 gain 2 points on the session to end at 81.5 bid, 82.5 offered, while its 6 5/8% notes due 2015 moved up more than a point to 80.5

Another trader said "you always see a lot of action around the MGM stuff, and they felt better bid for. A lot of the time, you'll get a lot of the directional tone with the equities in some of that gaming paper." In fact, the company's New York Stock Exchange-traded shares pushed up by $4.85, or 15.65%, to end at $35.85, its peak level for the day, on volume of 8.8 million shares, more than twice the norm.

Usually, he said, "I can't keep track of those [gaming] issues because they trade pretty sporadically - but I did see a lot of MGM numbers out there today."

He went on further that "there seems to be a number of people playing that by buying the short paper." He opined that while he was "not sure ultimately if their house is in order financially longer term, but people tend to think that the shorter paper is going to be okay, and that's typically where you see a lot of bid interest."

Among some of the shorter MGM paper, the company's shortest issue, its 6% notes due 2009, was being quoted higher in busy odd-lot trading, at one point touching par before going out around 99.125, up a point on the session. Its 6¾% notes due 2012 got as good as 90 bid in busy odd-lot trading before coming down from that summit to still end up nearly a point on the day at 87.5.

In some of the longer paper, a market source saw the company's 7½% notes due 2016 move up to 82 bid from prior levels just above 80 on Monday, in round-lot trading, although the bonds were well down from their peak level near 84. Its 6 5/8% notes due 2015 moved up more than 1¼ points to above the 80.5 level, but couldn't hold those gains and finished pretty much unchanged at 79. However, the 7 5/8% notes due 2017 had improved by about 2 points on the day to 82.

The bonds and shares got a boost on the company's announcement that it had received commitments from various banks for $1.65 billion of funding for the CityCenter project, somewhat more than half of a $3 billion financing package which MGM and Dubai World are working on. MGM said that it had received financing commitments from lead banks Bank of America, Royal Bank of Scotland, UBS, BNP Paribas, and Sumitomo Mitsui, as well as commitments from Deutsche Bank, Morgan Stanley, and the Bank of Nova Scotia.

MGM - which just last week had said that the financing for the project was being delayed by currently tight financial market conditions - now says that the financing package should be finalized sometime this quarter. When the project is completed, the total pricetag should total $9.1 billion.

MGM's apparent success in getting lenders to commit to the financing package stands in stark contrast to several competitors who have recently had to shelve development packages because of tight funding - notably Boyd Gaming Corp., which reported mediocre quarterly numbers last week and said that it was delaying its $8.4 billion Echelon development project on the Strip.

MGM's good news on the financing more than offset the not-so-good news the company reported as far as its earnings in the second quarter, which slid 68.6% from year-earlier levels to $113.1 million, or 40 cents per share; in the year-ago quarter it was $360.2 million, or $1.22 per share. On a continuing-operations basis, earnings for the quarter fell to $183.3 million, or 40 cents per share, from $285.5 million, or 62 cents per share. Wall Street was expecting earnings to come in at around 42 cents per share.

MGM said that among the factors hurting earnings was the fact that visitors were spending less money - gambling revenues were down 4% companywide, although chief executive officer Terry Lanni said on a conference call with analysts following the release of the results that while gaming was off at the company's lower-end casinos in Las Vegas, higher-end casinos like MGM's Bellagio were seeing increased play. Outside of Nevada, its casinos in Mississippi and Michigan were doing better sequentially, versus the first quarter. However, Lanni called the results from its 50%-owned casino in the Chinese principality of Macau "disappointing."

MGM lifts other casino names

Generally speaking, a trader said, with MGM Mirage reporting its numbers and making its financing announcement, "there seemed to be a lot of gaming paper banging around out there." He said "you see these tribals [i.e. tribal gaming operators] from time to time and you see the Isle of Capris, and it's the same host of names you see every time."

Another trader said Boyd Gaming "seemed to be a popular name today," calling the Las Vegas-based casino operator's 7¾% notes due 2012 up a point at 86.5 bid, 87.5 offered. Boyd's 6¾% notes due 2014 were among the more actively traded issues, up more than 2 points at about the 77.875 area.

Station Casinos Inc.'s 6% notes due 2012 were seen up more than 2 points to 70 bid, although another market source had the bonds at 68, up only ½ point. Harrah's 5¾% notes due 2017 were seen almost a point better at 44, although its 5 5/8% notes due 2015, also in the 44 neighborhood, were called down 1½ points.

Pinnacle Entertainment Inc.'s 8¼% notes due 2012 edged upward to around 95. Wynn Las Vegas LLC's 6 5/8% notes due 2014 were actively traded around the 90.5 level, up nearly 1½ points.

Tenet lower despite smaller loss

Tenet Healthcare's 6 3/8% notes due 2011 were seen by a trader to have fallen a point to 97. At the same time, its NYSE-traded shares were off 51 cents, or 8.19%, to end at $5.72. Volume of 19.7 million shares was nearly triple the norm.

The company's bonds and shares retreated despite what ostensibly could be thought of as good news - Tenet cut its losses in the latest quarter to $15 million, or 3 cents per share, half of the year-ago red ink. The company wound up with a 1 cent loss for adjusted earnings, in line with Wall Street expectations.

However, while Tenet showed improvement in key areas, such as the number of patient admissions, which helped drive what chief executive officer Trevor Fetter called the company's best results in four years, the results contained other signs of weakness, which spooked investors despite the other improvements.

For one thing, while revenues grew by 6% to $2.18 billion, they came in well under analysts' expectations of about $2.29 to $2.30 billion.

While admissions were up 2% overall, driven by a 16% rise in governmental managed-care admissions, admissions for patients having commercial insurance - more generous and thus, more financially lucrative for the hospital operator - actually fell 2% on the quarter.

And Tenet's bad-debt expenses - debt a hospital incurs with uninsured or underinsured patients which it has not been able to collect from them - increased 8% to $153 million from $142 million.

Six Flags still flying

Six Flags bonds were seen higher, several traders said, as the company's bonds continued to climb on the heels of their 3 to 4 point gains on Monday, when the bonds, and the company's shares, rose smartly on unexpectedly good earnings numbers - a swing back to the black versus a year-earlier loss.

A trader said that there was "a bunch of activity today in them." He saw the 9 5/8% notes due 2014 trading in a 54-55 context, up from Monday's closing levels in the mid-52s, "so that's better again."

At another shop, a trader said the 9¾% notes due 2013 were up about 2 points at 56.5 bid, 58.5 offered.

"The numbers really weren't that great," he said - the profit was largely due not to any operational improvements, but due to a debt-for-debt exchange transaction that got nearly $108 million of debt off the books - "but it was good enough to get the bonds up a little, though nothing serious."

Yet another market source pegged those same bonds at 58.5, up some 2½ points on the session, while the 9 5/8s were being quoted at 55, up 2 points.

However, another trader took a contrary view, suggesting that activity in Six Flags "seemed to have subsided a bit. I think initially you started to see that there might have been some bid interest in it - but the offering sides never really filled in where it really traded a bunch."

WSJ article spurs Dish interest

Elsewhere, Dish Network's bonds were seen better on a Wall Street Journal article indicating that the Colorado-based Number-Two satellite TV company's management, led by its chairman and chief executive officer, Charles Ergen, is thinking about possibly combining somehow with larger rival DirecTV - something the two companies tried to do in 2001, only to be stopped by federal regulatory roadblocks.

Now, according to the article, Ergen believes that the regulatory and competitive environment may be more favorable for such a deal.

Neither company has made any kind of a definite proposal to that end, the Journal said - but Dish executives and their counterparts at El Segundo, Calif.-based DirecTV have informally discussed the idea over the past few months.

A trader said that "it seemed like there was a bit more quoted out there in Dish, given the news in the paper today about Ergen talking about a DirecTV-EchoStar merger. You saw a lot more quoted," although he said that there was "just kind of sporadic interest in the name, more so than you have [recently]."

He saw the Dish 7 1/8% "wrapped around 91," figuring them at 90.5 bid, 91.5 offered. A market source at another desk saw those bonds up perhaps ¼ point to 91.5.

Its 6 3/8% notes due 2011 were quoted a little better at the 97.25 level, while DirecTV's 6 3/8% notes due 2015 were off a little at around the 94 region.

Sony deal piques Warner bondholder interest

A trader, seeing the Warner Music Group 7 3/8% notes due 2014 at 78.5 bid, 79 offered, said that "there was a little bit of a buzz around this Sony transaction," with the Japanese electronics and entertainment giant buying out 50-50 joint venture partner Bertelsmann AG for a reported $900 million to take full control of music label Sony BMG, a Warner Music competitor.

Another source saw the Warner Music bonds down ¾ point at 78.5.

Autos better on no real news

In the autosphere, a trader said that General Motors' benchmark 8 3/8% bonds due 2033 were up ½ point at 48 bid, 49 offered, while another saw those bonds up a point at 47. A market source at another desk saw those bonds as high as 49 and change, up more than 2 points on the day in busy trading.

Among GM's other issues, a trader saw its 7.20% notes due 2011 up 2 points to 60 bid, 60.5 offered, although at another desk, they were seen up more than 1 point, at about the mid-59 level. GM's 7 1/8% notes due 2013 were up more than a point to 52.

A trader saw the 7.45% bonds of GM's domestic arch-rival, Ford, up 1 point at 49 bid, 50 offered. Another saw the bonds up 1½ points, at above the 50 mark.

GM's GMAC LLC financing arm's 8% bonds due 2031 were up 1 point to 55. Ford Motor Credit Co.'s 5.80% notes due 2009 gained more than 2 points to end just under 97.

Two on the road

The primary market generated no news whatsoever.

Market sources, some of them recommending vacations, continued to attribute the lack of activity on the new issue-front to the traditional August lull.

The Tuesday session came to a close with just a pair of deals on the road, according to sources.

Allis-Chalmers Energy Inc.'s $350 million offering of 10-year senior notes, via RBC Capital Markets and Goldman Sachs, has been roadshowing since the middle of last week.

The acquisition and general corporate purposes is expected to price late this week.

Meanwhile Caribbean Restaurants, LLC began a roadshow for its $149 million offering of four-year senior secured notes (B3/B).

Jefferies & Co. and Credit Suisse are joint bookrunners for the debt refinancing deal from the Puerto Rican quick-service restaurant franchise which operates 174 Burger King restaurants.

The roadshow is slated to wrap up late next week.

Beyond that point, sources say, new issue activity, especially deals which would come with investor roadshows, will likely taper off to zero until the market resumes activity following the Sept. 1 Labor Day holiday.

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