MGM Mirage sells upsized add-on deal; Delta bonds up on turnaround plan

By Paul Deckelman and Paul A. Harris

New York, Sept. 8 - MGM Mirage sold a quickly shopped $450 million add-on offering to its existing 6% notes due 2009 Wednesday, actually upsizing it from the $400 million deal initially talked around the marketplace.

In the secondary arena, Delta Air Lines Inc.'s unveiling of its long-awaited, much ballyhooed strategic self-reinvention plan helped push the beleaguered Atlanta-based air carrier's battered bonds up a point or so, traders said. Also on the upside was Station Casinos Inc. bonds, after the Las Vegas-based gaming operator revised its previously announced earnings guidance upward.

Drive-by action from the gaming sector took center stage during Wednesday's primary market session as MGM Mirage completed an upsized $450 add-on to its 6% notes of 2009, pricing the deal above the midpoint of price talk.

Meanwhile the second session of the holiday-shortened Sept. 6 week saw a somewhat anemic forward calendar creep north of $1 billion, as Jostens IH Corp. announced a Friday roadshow start for a $500 million deal.

"The primary market looks very open right now," one senior sell-side source told Prospect News following Wednesday's close.

"People are going to buy paper."

Asked about the comparatively thin forward calendar, the investment banker said: "People are expecting the calendar to build but they don't think it's going to build by all that much.

"I think people are comfortable right now with the way the calendar looks a couple of weeks out."

Almost $1 billion of demand for MGM

Perhaps not surprisingly the first issuer to tap the post-Labor Day high-yield market emerged from the gaming sector - a play that high-yield watchers tend to label as "defensive" in almost any economy.

Casino and resort operator MGM Mirage reopened its 6% senior notes due 2009 in a Wednesday drive-by, pricing an upsized $450 million add-on (Ba1/BB+) at 101.50. The deal was increased from $400 million.

As a result of Wednesday's quick-to-market transaction, which priced above the midline of the 101.25-101.625 price talk, MGM Mirage walks away with a 5.653% yield, representing a spread of 228 basis points over the five-year Treasury.

JP Morgan, Morgan Stanley, Barclays Capital and Wachovia Securities were joint bookrunners for the debt refinancing deal.

One informed source told Prospect News that MGM Mirage got a notable reception from the buy side.

"There was almost $1 billion of demand for the deal," the source commented.

With Wednesday's add-on the total size of the issue presently stands at $1.05 billion.

Forward calendar tops $1 billion

Although the preponderance of market sources surveyed in the run-up to Labor Day forecast a purposeful build-up in the forward calendar after the holiday, the first two post-Labor Day sessions have witnessed news of just one roadshow start apiece.

Following Vanguard Health Systems, Inc.'s Tuesday announcement of a $700 million two-part deal, Jostens IH Corp. stepped forward on Wednesday announcing that it will hit the road on Friday with $500 million of eight-year senior subordinated notes (B3/B-).

Credit Suisse First Boston and Deutsche Bank Securities will run the books for the Minneapolis-based specialty printing and marketing services company.

Proceeds will be used to repay a $500 million bridge loan incurred to fund the acquisitions, merger and recapitalization of Jostens, Von Hoffman Corp. and AKI, Inc., including the tender for Jostens' 12¾% senior subordinated notes due 2010.

Tallying Vanguard Health Systems and Jostens with Fisher Communications' $150 million, a deal announced just before Labor Day, the forward calendar presently contains three deals now in the market totaling $1.350 billion.

Also in the market is German plumbing manufacturer Grohe AG, with €335 million of 10-year paper which the company began marketing on Tuesday via a roadshow.

According to recent correspondence with Prospect News European market watchers are also expecting a purposeful build-up to the forward calendar in September.

MGM little changed in trading

When the new MGM Mirage 6% add-on notes were freed for secondary dealings, a trader saw the bonds firm up to 101.875 bid from their 101.5 issue price earlier in the session; however, he saw them going out little changed, around 101.5 bid, 102 offered. The Las Vegas-based gaming operator's outstanding 8 3/8% notes due 2011 meantime were seen unchanged at 108.75.

Station rises on guidance

MGM Mirage's downtown rival, Station Casinos, meantime raised its guidance for fiscal years 2004 and 2005, and that caused investors to ante up, with the company's 6% notes due 2012 being quoted up almost a point on the session, at 101.5. However, at another desk, the 6s were seen little changed around 100.5 bid.

Station has a couple of casinos around downtown Las Vegas and several on the city's outskirts, mostly for the locals who feel lucky, but shuns the glitzy Las Vegas Strip, where MGM Mirage is one of the major operators. Even without any high-rolling big "whales" and depending more on locally generated nickel-and dime action - relatively speaking, anyway - the company is doing well enough that it was able to raise its third-quarter earnings estimate to between 42 cents and 46 cents per share, up from its previous estimate of between 37 cents and 42 cents per share. Analysts had been expecting earnings around 42 cents.

Station also raised its full-year 2004 profit forecast to a range of $1.87 to $1.97 per share from $1.84 to $1.93 per share previously, and upped its 2005 guidance to $2.13 to 2.26 per share from $2.04 to $2.18 per share previously. Analysts had previously indicated they were expecting 2004 earnings around $1.90 and 2005 profits of $2.25 per share.

Station - which also owns or manages several casinos in jurisdictions outside of Las Vegas - cited its expectations of stronger business in Vegas itself as that city's economy booms along, as well as better earnings from the Station-managed Thunder Valley Casino in the Sacramento, Calif. market. However, it tempered its optimism somewhat, keeping 2006 earnings expectations at the previously announced $2.43 to $2.62 per share, which is a bit below the $2.74 per share Wall Street has projected.

Delta higher after plan release

Elsewhere, Delta Air Lines' bonds, particularly its widely traded benchmark 7.70% notes due 2005, were being quoted higher after the air carrier - finally - released preliminary details on its turnaround strategy, many months in the making. Chief executive officer Gerald Grinstein called the strategy "a "comprehensive, 360-degree plan that reinvents Delta." It includes plans for as many as 7,000 job cuts over the next 18 months, plus a 15% reduction in administrative costs, including likely management headcount reductions. There will also be pay cuts and reductions in company funded benefits for the remaining roughly 63,000 employees, to be offset - partly - by an employee rewards program that will give employees stock and profit-sharing to compensate them for their sacrifices. Delta will also eliminate its Dallas-Fort Worth regional hub and will otherwise drastically overhaul its schedule (see related story elsewhere in this issue).

A trader saw Delta's 7.70s as having moved up to 48 bid, 50 offered from prior levels at 45 bid, 47 offered, while the company's 8.30% bonds due 2029 firmed to 29 bid, 31 offered from 27 bid, 29 offered. He said all of the activity came in the morning following Grinstein's webcast presentation, and the bonds "pretty much stayed up there."

At another desk, however, a trader saw a different pattern of activity. He quoted the 7.70s at 49 bid, 50 offered, up two points on the session, he said, while the 2029s were actually half a point off the previous levels he had seen, to end around 28 bid, 29 offered.

He dismissed the news as really having much impact, declaring that "the market had seen it coming," and noting that Grinstein, while acknowledging that Delta has a major problem in the form of over $20 billion of debt on its books, had nothing specific to say about debt reduction, other than a generalized pledge to bring the debt load down.

And another market source saw the 8.30s gyrating as high as 30 bid, 31 offered in the morning, after Grinstein's presentation, before cascading down to 28.25 bid, 29.25 offered by early afternoon, and ending at 29 bid, 30 offered. The same source observed the 7.70% notes get up to 49 bid, 51 offered early on, before easing off that peak to end at 48 bid, 50 offered. Delta's 7.90% notes due 2009 meantime ended at 32.75 bid, 33.75 offered.

Toys "R" Us suffers selling

Among other issues, a trader specializing in crossover-market debt said that he saw "still a lot of selling" in Toys "R" Us, Inc., which until March was an investment-grade issue and is still held by some high-grade players, as well as junk bond investors.

He saw the Wayne, N.J.-based toy and children's merchandise retailer's 7 5/8% notes due 2011 at 98 bid, 99 offered and its 7 3/8% notes due 2018 at 90.5 bid, 91.5 offered, "down about five points or more" since the company's recent announcement that it would separate the increasingly difficult North American toy-store business from its much more profitable Babies "R" Us unit, and might get out of the toy-selling business altogether.

"The prospect of them getting out via a leveraged buyout or sale to a private equity firm, which would likely leverage up the company [to finance the acquisition], while Babies "R" Us would be spun off, works for the stockholders - but is bad for bondholders," he said, in explaining the erosion in the company's bonds.

"They would probably get downgraded to the single-B level [from their current BB level] if that were to happen. So now, the market is fixated on them possibly selling the North American [toy store] unit to - who?

"The market believes it's going to be friendly for stockholders - but bad for bondholders," he reiterated.

Amkor lower

Also on the downside, though back among the true junk bonds, was Amkor Technology Inc.'s bonds, with the West Chester, Pa.-based semiconductor products company's 9¼% notes due 2008 seen down about two points at 92.75 bid and its 7¾% notes due 2013 also down a deuce at 81 bid, easing for a second consecutive session.

During Friday's short session, the company filed an 8-K report with the Securities and Exchange Commission indicating that it had completed its previously announced acquisition of approximately 60.0% of the capital stock of Unitive Semiconductor Taiwan Corp. Amkor agreed to make a cash payment of approximately $19.4 million at closing, plus the assumption of some $16.3 million of debt, the payment of approximately $450,000 in other costs and a variable contingent cash payment to be paid, if at all, based on the achievement of certain performance goals, a sum currently estimated to be approximately $2 million.

Calpine better

Back on the upside, a trader saw Calpine Corp. bonds up "about two points, and three on the short end," which he attributed largely to short-covering.

He quoted the San Jose, Calif.-based power generator's 7 5/8% notes due 2006 at 92.5 bid, 93.5 offered.

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