Mandalay Bay scraps new deal; Fleming resumes slide; Mail-Well up on numbers

By Paul Deckelman and Paul A. Harris

New York, Feb. 10 - Two events generated attention in the high-yield primary market Monday - one that began happening and one that stopped.

DirecTV Holdings LLC brought the latest billion dollar-plus bond deal to the forward calendar, with a $1.4 billion offering that is part of a refinancing to address the balance sheet of parent Hughes' Electronics Corp.

Meanwhile Mandalay Resort Group surprised junk market participants on Monday by folding its hand and walking away from the table - just when everyone was expecting the Las Vegas-based casino operator to bring its $300 million 10-year senior note deal to completion.

In secondary dealings, the steep slide in Nash Finch Co.'s bonds seen last week appeared to have come to a halt - but competitor Fleming Cos. Inc.'s bonds, which had bounced around wildly last week, were back on the downside. On a more positive note, Mail-Well Inc.'s bonds were quoted several points higher, as the company reported better fourth-quarter results and optimistic guidance.

DirecTV starts its roadshow Wednesday for $1.4 billion of 10-year senior subordinated notes. A syndicate source told Prospect News on Monday that although ratings are pending, the transaction, slated to take place during the week of Feb. 24, will be conducted from high-yield desks.

Deutsche Bank Securities Inc., Credit Suisse First Boston, Goldman Sachs & Co. and Salomon Smith Barney are joint bookrunners.

In addition to the notes deal, the company will also take out $1.55 billion in new senior secured credit facilities. Proceeds from the notes and the term loan portion of the new credit facilities will be used to enable Hughes Electronics Corp. to repay outstanding indebtedness under its existing credit facilities, to fund Hughes business plan through projected cash flow breakeven and for Hughes' other corporate purposes, according to a Monday press release.

Meanwhile on Monday Mandalay Resorts cited rising yields as it yanked its $300 million of 10-year senior notes (expected ratings Ba2/BB+) off the block (see story elsewhere in this issue).

Prospect News heard price talk of 7½% area on Friday. The company declined to specify the extent to which price talk on the deal might have widened.

Mandalay Resort Group owns five casino resorts in Las Vegas, including Mandalay Bay, Circus Circus, Excalibur, and The Luxor, in addition to stakes in seven other casino-hotels in Nevada. One sell-side source, on Monday, pointed to rising oil prices, a weak U.S. economy, heightened levels of terrorist alerts and the looming specter of a U.S.-led war against Iraq as factors that could conceivably diminish the appeal of a credit with such extensive holdings in "fly-to" locations.

Secondary market traders were puzzled at Mandalay's decision to scrub the deal.

One trader noted that "the company thought that it was going to be more expensive to do the deal than last week," but added "it's ridiculous. Since when does a junk company - or should a junk company - care about five or 10 basis points here or there?

He meantime quoted Mandalay's outstanding 10¼% notes - the old Circus Circus bonds - as having firmed to 107 bid108 offered from 106.75 bid/107.25 offered, apparently on the news the new deal had been pulled. The company's 6.45% notes due 2006, however, were seen nearly a point lower, at 98 bid.

Another trader agreed that it seemed "strange - strange" that Mandalay would pull its deal just because the projected rate on the coupon had backed up slightly "from 7½% to 7 7/8%. It's not like they were looking at a 13% coupon."

On Tuesday the primary market figures to get Crown Cork & Seal Co.'s read on current market conditions. The company is set to price approximately $2.05 billion of junk bonds via Salomon Smith Barney, Deutsche Bank Securities.

The Crown Cork deal includes $1.2-$1.35 billion of eight-year senior secured second lien notes (B1/CCC+) talked at 9.5% area, €200-€300 million of eight-year senior secured second lien notes (B1/CCC+) talked at 75 basis points behind dollar-denominated seniors, and $500-$625 million of 10-year senior secured third lien notes (B1/CCC) talked at 150 basis points behind second lien dollar-denominated seniors.

Also on Tuesday Australian baking products manufacturer Burns Philp figures to price $150 million of eight-year senior subordinated notes (B3/B-) via Credit Suisse First Boston.

In its most recent edition of the high yield research organ, "One Stop Weekly," Deutsche Bank Securities' co-heads of high yield research David Bitterman and Andy Van Houten commented that last week's reported $563 million inflow, coming on the heels of the previous week's $605 million outflow, could be regarded as "very robust given how much money the mutual funds have attracted since December 2002. Particularly after this strong inflow, we will consider a few negative weeks a natural correction and think a major pullback should have only minimal impact on returns," the Deutsche Bank Securities researchers added.

They also said that at its present pace the primary market "should be sufficient to surpass the 2002 total new issuance of $60.5 billion. Considering that we have already had close to $9 billion in new issues it will only take an average of $1.12 billion in primary market activity between now and the end of the year to catch the total figure for 2002 (assuming no new issuance during the last two weeks of December, as is usually the case). Despite the expected slowdown in the summer this does not appear like a far-fetched goal as of now."

In secondary trading, Mandalay was not the only gaming name to be the subject of attention. In the same sector, Aztar Corp.'s 9% notes due 2011 were nearly a point lower, at 100.75 bid, while its 8 7/8% notes due 2007 were called half a point easier, at 101 bid. Ameristar Casinos Inc.'s 10 ¾% notes due 2009 were likewise half a point down, at 106.5 bid.

Casino bonds - which have consistently been one of the bright spots in an otherwise mediocre-to-struggling high-yield universe over the past several years - have recently come under some pressure. The sector has been pushed around lately by a combination of the usual erosion seen when a sector has run up strongly; war jitters, which make investors leery about the prospects of a sector linked to the fortunes of the travel industry; and moves by a number of state governments - notably New Jersey and some of the Midwestern riverboat gaming venues - to solve their budgetary problems by either raising existing taxes (and in New Jersey's case, imposing a new tax on complementary rooms and meals given to high rollers), or by expanding gaming by putting slot machines into racetracks that might draw away some players from nearby existing casino markets.

Apart from the gaming sector, the wholesale food and grocery distribution sector continues to attract much attention.

Fleming Cos. - whose bonds gyrated last week after the Dallas-based Number-1 U.S. grocery distributor and its biggest customer, the bankrupt Kmart Corp., announced the termination of the multi-billion-dollar supply pact the two companies had signed in 2001- continued to jump around. While the Fleming bonds first fell last week, and then seemed to bounce back from their lows by Friday, they were once again on the slide on Monday, although nobody had a concrete explanation for their renewed fall.

A trader saw Fleming's bonds "continuing in the gutter," with its 10 1/8% senior notes due 2008 having dropped about three points from Friday's pace, to 66 bid/69 offered. He pegged its 9¼% senior notes due 2010 at 64 bid/67 offered, a four-point drop from Friday, and said investors "continued to spit up" Fleming's 9 7/8% subordinated notes, which languished at 31 bid/35 offered, down from levels about four points higher on Friday.

At another desk, a trader characterized the Fleming paper as "sloppy," seeing the 10 1/8s at 66, and the 10 5/8% subordinated notes due 2007 six points down, at 33 bid/35 offered.

Fleming shares were also getting banged around, falling 19 cents (7.63%) to $2.30 in New York Stock Exchange dealings, on volume of 3.1 million shares, nearly four times the norm.

While Fleming was getting mauled, Minneapolis-based competitor Nash Finch - whose bonds had collapsed over several sessions last week after the company disclosed that it is under scrutiny by the Securities and Exchange Commission - were seen having bounced a bit Monday.

Its 8½% notes due 2008 - which were quoted as having fallen as low as 50 bid by Friday, down almost 20 points from prior levels - were seen Monday as having rebounded as high as 56.

Also continuing to rebound after having gotten slashed earlier last week were Goodyear Tire's 7.857% notes due 2011, quoted by a trader up three points, at 65.5 bid/66.5 offered.

Mail-Well's 8¾% notes due 2008 firmed smartly to 72 bid from prior levels at 67, while its 9 5/8% notes due 2012 advanced to 92.5 bid from 90, after the Englewood, Colo.-based commercial printing company reported a fourth-quarter net loss of $2.6 million (5 cents a share), considerably improved from its year-earlier net loss of $45.8 million (96 cents a share).

Excluding restructuring and other charges as well as other unusual items such as operations of assets held for sale, and changes in accounting principle, pro-forma earnings for the latest quarter were $5.3 million (11 cents per share), versus year-ago pro forma net income of $700,000 a year ago. Analysts had been expecting pro-forma profits of 5 cents a share.

Company executives also noted on a conference call that EBITDA in 2002, excluding restructuring and other charges, was $127.4 million, and that Mail-Well anticipates 2003 EBITDA of between $130 million and $140 million.

Mail-Well shares rose 36 cents (16.82%) to $2.50 on NYSE volume of 102,000 shares, only slightly above the usual turnover.

In the electronic communications area, a trader said that "the things that were better were the go-go names, the telecoms," quoted Time Warner Telecom's 10 1/8% and 9¾% notes at 69 bid/70.5 offered, up from Friday levels around 65.5 bid/67.5 offered, while Level 3 Communications Inc.'s 9 1/8% notes due 2008 firmed to 68 bid/68.75 offered from 65.5 bid/67 offered.

But EchoStar DBS notes were seen little changed on news reports that phone giant SBC Communications might make a bid for DirecTV, a rival satellite broadcasting operator; its 9 3/8% notes due 2009 were marginally higher at 105.875.

And there was little reaction to Cablevision's announcement that it planned to sell or close the 17 remaining stores of its underperforming Wiz consumer electronics unit, after having divested 26 other Wiz stores last year.

Cablevision's 7 7/8% notes due 2007 were unchanged at 97.

A trader suggested that it was unlikely that the unit could be sold; more probably, "they're going to close it." But the Wiz, he pointed out, "is not that big a part of their business," which mostly involves cable TV systems and sports teams like the New York Knicks and Rangers.

Anyway, he added "the news came out at 4:30 (ET). We'll see what happens [Tuesday], but it was too late to make any impact today."

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