New MGM bonds firm; GM off as Chrysler merger stalls, GMAC down; Nextel stays with Sprint, gains

By Paul Deckelman and Paul A. Harris

New York, Oct. 31 - MGM Mirage's new five-year notes were heard to have firmed in very active trading from the level to which those bonds had fallen after their piecing on Thursday, with some investors seemingly caught up in the novelty of it all - this being the first genuine new deal to hit the junk market in well over a month. However, the Las Vegas-based gaming company's existing senior notes, which had moved up on Thursday on apparently improved sentiment about the company following the new deal, came back down on Friday.

Among established issues having no new-deal connections, General Motors Corp.'s bonds were lower as the air leaked out of the Chrysler merger balloon once Washington said it would not directly put up any cash to facilitate a merger of the two auto giants.

GM's 49% owned GMAC LLC's bonds meantime were several points lower as investors evaluated the problem-plagued automotive and residential lender's plans to give them new debt for a "significant" portion of their outstanding bonds - at a steep discount.

Sprint Nextel Corp.'s bonds were mostly lower on the news that the Overland Park, Kan.-based wireless telecommunications operator will "retain and rejuvenate" its iDEN network that is the heart of its Nextel division - dashing any hopes that investors may have entertained that it would look to unload Nextel, which it acquired several years ago. The news that Nextel will remain a part of Sprint did help its own former Nextel Communications Inc. bonds, now a part of the combined company's capital structure; that paper was up several points across the board in active dealings.

Primary activity - which had reached a relative fever pitch on Thursday with the successful pricing of the upsized $750 million MGM Mirage deal, at the same time that signs emerged that the $400 million 10-year offering that Brocade Communications Systems Inc. was shopping around would likely be pulled - subsided as the week wound down.

Market indicators mixed

The widely followed CDX High Yield 11 index of junk bond performance, which had risen by ¾ point on Thursday, gained another ¼ point on Friday, a trader said, quoting it at 81¼ bid, 81¾ offered. However, the KDP High Yield Daily Index fell by 22 basis points to 53.83, as its yield rose by 7 bps to 15.95%.

In the broader market, advancing issues led decliners by a slight margin. Overall market activity, reflected in dollar volumes, rose 5% from Thursday's pace.

A trader said that things were "kinda quiet," as Junkbondland stepped back and took a breather, even as equities were closing out the month of October - its worst month in 21 years - with a solid rally spurred by bargain-hunters. The bellwether Dow Jones Industrial Average rose 144.32 points, or 1.57%, to 9,325.01. Wall Street was volatile, with the Dow up by as much as 274 points at one point and down by 62 at another. Other, broader market indexes had similar finishes.

A trader from a high-yield mutual fund noted that there was some weakness in the automotive sector on Friday. However overall the cash bond market was headed out unchanged on a very quiet end-of-week session, the source added.

New MGM Mirage moves up

A trader said that the new MGM Mirage 13% notes due 2013 - which had priced on Thursday at 93.132, but which then fell to an 89-90ish context when they were freed for secondary dealings later that session - opened Friday at 90 bid, 91 offered. He saw them "trade all the way down to" 88.5 bid, 89, but then saw them head back up, to around 91.875 bid, 92.25 offered, their high for the day.

Another trader saw the new notes "bouncing around" in a 90.5-91.5 context, on "quite a bit of trading." He said that the new deal "consumed a lot of people" and was the main focus of the day for many market players who had not seen a genuine new deal - as opposed to several recent rollovers of leveraged buyout bridge loans into bonds by dealers - since around mid-September.

The new deal, he said was helped by "a pretty healthy coupon" and an even healthier yield - the bonds had priced at a deep discount to push the yield up to 15%. "This is where we are in the market," he said, when such tactics were necessary to get a deal for such a well-established company done.

'It's crazy," he said - but noted that "even modestly levered energy companies are trading [at average yields] north of 20%."

At another firm, the new MGM bonds were seen lower on the session - but this source had them closing out Thursday's session straddling their issue price.

From that issue price, they fell as much as 5 points in intraday trading Friday, according to a high-yield syndicate source who gave a bottom level of 88 1/8 bid.

However they recovered to 90¼ bid at the end of trading, a source added.

Existing MGMs in retreat

While the new MGM Mirage bonds were seen having improved on their initial aftermarket levels - although they have still not yet come back to the new 13s' issue price - the giant gaming company's outstanding bonds, which had been carried northward on Thursday in the wake of the new deal, were seen giving all of that back and then some.

A market source saw MGM Mirage's 6 5/8% notes due 2015 down more than 3 points on the session at 59, in active large-block trading, while the company's 7½% notes due 2016 were also at 59 in busy dealings, down nearly 2 points on the day. Another active issue was its 7 5/8% notes due 2017, off slightly to around 60.

No win for Wynn, despite good numbers

In that same sector, a trader saw Wynn Las Vegas LLC's 6 5/8% notes due 2014 at 73.5 bid, 74.5 offered, versus 74.5 bid, 75.5 offered. "The bid faded," he said. "There was not a lot to go on."

The bonds were not helped by the good earnings filed by parent company Wynn Resorts Ltd., which said that its third-quarter earnings rose 14% to $51.1 million, or 49 cents per share, versus $44.7 million, or 41 cents per share, a year ago. Revenue rose nearly 18% to $769.2 million - including a jump of nearly 37% at the Wynn Macau casino in China to $474.8 million. The strong results from Macau - the former Portuguese enclave which has become the Chinese version of Las Vegas, with numerous big hotels and casinos catering to high-rolling tourists - more than offset a downturn at Wynn's flagship property in Las Vegas itself, in line with the overall downturn of U.S. gaming companies.

While Wynn's bonds went nowhere, its Nasdaq-traded shares jumped $13.90, or 28.89%, to $60.40. Volume of 6.5 million shares was more than 2 ½ times the norm.

GM, GMAC off with merger on hold

General Motors' bonds, and 49%-owned GMAC's, which had been among the most actively traded issues earlier in the week, particularly as speculation mounted that GM might be nearing a deal to acquire rival Chrysler LLC to get hold of the latter's estimated $11 billion cash stash, were seen trading at lower levels Friday, on reduced volume.

A trader saw GM's benchmark 8 3/8% notes due 2033 down 2 points to 31 bid, while GMAC's 8% bonds due 2031 were seen 4 points lower at 45 bid.

Another trader saw the GM benchmarks down 1 point at 31 bid, 33 offered, while the GMAC 8s were 2 points lower at 46.5 bid, 48.5 offered , and Ford Motor Co.'s 7.45% bonds due 2031 were unchanged at 33 bid, 35 offered.

At another desk, a trader saw the GM benchmarks at 33 bid, 35 offered, which he called down 1 point, while the GMAC long bonds "came back down a little" to 46.5 bid, 48.5 offered, down from 49 bid, 51 offered on Thursday.

Hopes that GM might be able to soon announce a transaction to acquire Chrysler and thereby augment its own rapidly shrinking cash cushion, have now been put on hold, once the federal government said that it would provide no direct assistance for such a takeover transaction.

GM has been in talks on such a transaction with Chrysler's 80% owner, Cerberus Capital Management - which also, coincidentally, owns the other 51% of GMAC. Cerberus and GM have meantime been working on ways of restructuring the latter's troubled finances, including having it apply for bank holding company status, which would allow it to participate in some federal credit-rescue programs. GMAC also said Thursday that it plan to raise capital and would exchange new debt for a "significant" portion of its existing debt; details of that exchange are to be announced.

Sprint keeping Nextel - latter's bonds gain

A trader said that there was "a lot of hubbub around the Nextel news," which he said "kept a lot of people busy," once Sprint announced that it would continue to work on improving the underperforming Nextel, rather than selling the division, as some investors had hoped it would do.

Its own Sprint Nextel bonds "actually came off some," while the bonds of the former Nextel Communications - which were assumed when the company then known as Sprint Corp., acquired Nextel in 2005. He saw the Nextel issues move into the mid-to-upper 50s from prior levels in the 40s.

Another trader, looking at specific issues, said that the former Nextel 5.95% notes due 2014 ended at 54 bid, 55 offered, which he called up 6 or 7 points on the day, while the former Sprint Corp. 8¾% bonds due 2032 were off 2 points to 65.5 bid, 66.5 offered.

At another desk, a market source saw the former Nextel 5.95s up more than 6 points to 54.5 bid, while its 7 3/8% notes due 2015 were up by that same amount, to 56 bid, both in very active dealings.

Sprint's 6% notes due 2016 were perhaps the most actively traded Sprint issue on the session, a source said, seeing the bonds trading as low as 64 before going out around 68.875, still down from Thursday's late level at 71.

Sprint Capital Corp.'s 6 7/8% bonds due 2028 were seen down more than 3 points to the 56 level. Another source, however, saw them going home down 5 points at 54.

The Nextel bonds moved up while the Sprints moved down after the third-biggest U.S. wireless character said late Thursday that it plans to "retain and rejuvenate" the Nextel network by extending its long-term agreement with Motorola Inc. "to enhance the network and infrastructure support and improve products and services to customers."

Motorola was the developer of the Integrated Digital Enhanced Network, or iDEN, the system which Nextel used for its unique push-to-talk walkie-talkie-like feature in its service when it was an independent company and which it carried with it when it united with Sprint to form Sprint Nextel. Sprint's Boost Mobile pre-paid business also uses the iDEN technology, which Sprint Nextel's chief executive officer, Dan Hesse called "a key differentiation for Sprint, as it allows us to offer products and services no other carrier in the industry can match.

"We continue to build on our support for our industry-leading push-to-talk Nextel Direct Connect franchise through our aggressive marketing efforts which exploit the unique features and functionality of the iDEN network."

Sprint's decision would seem to once and for all put to rest market speculation that the company was disappointed with Nextel's performance and was looking to unwind the merger after only three years and get rid of the Reston, Va.-based unit. The bonds and shares had climbed for a time back in early May on news reports that Deutsche Telekom AG might make an offer to buy Sprint Nextel- an offer which never materialized - as well as speculation that Sprint was considering spinning off or selling Nextel.

Sprint Nextel - considerably smaller than wireless rivals AT&T/Cingular and Verizon Wireless, has struggled financially, particularly since it has considerable leverage and a relatively high rate of customer churn. It has written off losses of $29.7 billion so far this year resulting from impairment of the company's goodwill.

The first trader said that the activity in the Sprint and Nextel credits happened in the morning, and that apart from that, "it was an average Friday Halloween Day."

Pilgrim's Pride falls on bankruptcy fears

Elsewhere, Pilgrim's Pride Corp.'s bonds were seen trading lower after an analyst suggested that the troubled Pittsburg, Tex.-based chicken producer faced a strong possibility that it might have to file for bankruptcy in December.

That's when the 30-day grace period on its non-payment of interest on two series of notes is scheduled to expire. The company announced earlier in the week that it would not make the $25.7 million interest payment due on Nov. 3, and would instead use the grace period to explore financial alternatives. It also said that its bank debt lenders had extended an existing temporary waiver of meeting certain credit facility covenants through Nov. 26, and had agreed to meanwhile provide continued liquidity under the credit facilities during that same period.

Despite that temporary breathing room, CreditSights analyst Edward Mui said in a research note that a Chapter 11 filing once the grace period on the making the bond interest expires in early December is "highly probable."

A trader saw the company's 7 5/8% senior notes due 2015 down a point to 34 bid, 36 offered, while its 8 3/8% senior subordinated notes due 2017 were down 3 points on the day to 14 bid, 16 offered.

A market source at another desk, also seeing the seniors at 34, said they were down 4 points on the day.

Another trader said that "there are a lot of issues around the waiver - will the banks play ball [in further extending the waiver or renegotiating the debt terms] or not?' He said that investors were trying to assess what the various recoveries might be, should there be a Chapter 11 filing.

"I don't think it's been any more active than it has been in the past," he said, "but people are starting to become more intrigued" about what they might recover should the company go bankrupt.

Deal risk

MGM was the week's good news for the primary market, sources said.

Brocade Communications Systems Inc. was part of the bad news

Brocade's $400 million offering of six-year senior unsecured notes (B2/BB-) is expected to be withdrawn following the $400 million the downward revision of Brocade's bid for Foundry Networks, Inc., according to a source close to the deal.

Although no formal announcement has been made, it's safe to assume the bonds won't be sold, the source said, and added that a formal announcement of the withdrawal might not be made until the rescheduled Nov. 7 Foundry shareholders meeting when the lowered bid will be put to a vote.

Brocade lowered its bid to $16.50 per share in cash, or $2.6 billion, from $19.25 per share, or approximately $3 billion.

Further negative news impacting the primary market involved the expected $5.95 billion of notes backing Hexion Specialty Chemicals Inc.'s acquisition of Huntsman Chemical.

A Friday court ruling denied a request to extend a commitment from Credit Suisse and Deutsche Bank to fund Hexion's acquisition of Huntsman, which was set to expire Saturday.

"Deal risk is becoming terrifying," one high-yield syndicate source said late Friday.

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