MGM Mirage deal prices; secondary quiet despite funds rebound

By Paul Deckelman and Sara Rosenberg

New York, Feb. 20 - MGM Mirage rolled the dice Friday on a $225 million 10-year bond offering, the only deal heard to have priced during the session. Also on the new-deal front, price talk emerged on Calpine Generating Co. LLC's upcoming $1 billion-plus two-part bond deal, while AMH Holdings Inc. said it would bring an offering of 10-year senior discount notes to market, probably late in the week.

Secondary dealings were quiet and largely range-bound, traders said, with no issues breaking out either to the upside or the downside - and no huge sign of relief in the wake of the report late Thursday that high yield mutual funds, a key measure of overall junk bond market liquidity trends, showed their first net gain after two straight weeks in which more than $2.6 billion had bled from the funds.

MGM Mirage, the big Las Vegas-based hotel, gaming and entertainment concern, sold $225 million of 10-year senior notes. The notes, carrying a 5 7/8% coupon, priced at 99.441 to yield 5.95%, at the wide end of pre-deal market price talk projecting a yield in the area of 5 7/8%.

Merrill Lynch & Co., Banc of America Securities, Citigroup and Deutsche Bank Securities were joint bookrunners on the deal, which was a public offering from an existing shelf registration. The Ba1/BB+ deal was heard to have priced off the investment-grade desks of its underwriters and was marketed primarily to high-grade accounts looking for a little crossover action.

When the new MGM Mirage bonds were freed for secondary dealings, they were seen treading water, quoted not far from the issue price at 99.25 bid, 99.75 offered.

The MGM Mirage deal was the only one heard to have priced by the time Friday's close rolled around; expectations that Calpine Corp. might bring its two-part $1.05 billion mega-deal to market by Friday went unfulfilled amid market scuttlebutt and news reports that the deal - part of a massive financing that also includes $1.3 billion of bank debt - may have run into some investor reluctance to get involved, with some junk players apparently turning a little cautious about riskier deals (Calpine's is just a B-) after the market's two-week downturn earlier in the month .

Price talk emerged Friday on the debt-laden San Jose, Calif.-based independent power producer's offering, the fat yields the market is anticipating seen as a sign that investors want to be compensated for going out on a limb and taking a chance with Calpine, which has about $17 billion of debt out there.

A market source said that the $525 million fixed-rate tranche is expected to carry a coupon of 10 7/8%, priced at a discount to yield 11¼%, while the $525 million floating-rate tranche was being talked at Libor plus 725 basis points, with a 1.5% Libor floor and 50 basis points original issue discount. Those bonds will be seven-year, non-callable. They will be brought to market by Deutsche Bank.

While market players speculated about whether Calpine's big deal would be well received by a market that seems to have cooled appreciably recently from the red-hot pace it enjoyed last month, another issuer joined the forward calendar - from Cuyahoga Falls, Ohio-based AMH Holdings Inc., corporate parent of home siding maker Associated Materials Inc.

AMH plans to sell an offering of 10-year senior discount notes to market via sole underwriter UBS Investment Bank. The notes will be priced to yield about $258 million of gross proceeds, which will be used mostly to take out $177.5 million of AMH preferred shares, and to pay a dividend to common stockholders.

The deal is hitting the road on Monday, with pricing expected perhaps as early as Thursday or Friday (see related story elsewhere in this issue)

AMF rises in trading

Apart from trading in the new MGM Mirage bonds, investors playing in recently priced offerings seemed to feel that AMF Bowling Inc.'s 10% senior subordinated notes due 2010 were right up their alley; the bonds, which had priced Thursday at par, "traded well," a trader said, quoting them as high as 102.5 bid, 103 offered.

However, the same could not be said of AMC Entertainment Inc.'s new 8% senior subordinated notes due 2014, a sharply downsized issue of which priced at par on Thursday but moved as low as 98.5 bid, 99.5 offered on Friday on "better sellers," the trader said, before ending down a point from issue at 99 bid, par offered.

"Those were pretty heavy," he added.

The trader also saw Isle of Capri Inc.'s $500 million of 7% senior subordinated notes due 2014 at 100.5 bid, 101 offered, up slightly from Thursday's par issue price.

At another desk, a trader saw the new AMF Bowlings at 102.25 bid, the new MGM Mirage bonds at 99.125 bid, 99.375 offered, while Comstock Resources Inc.'s new 6 7/8% senior notes due 2012 , which had priced at par on Wednesday, at 100.5 bid, 101 offered.

Calpine bonds dip

Among the established issues, the day was "pretty boring," a trader said.

Calpine's outstanding issues were seen lower, its 8½% notes due 2011 dipping to 79.25 bid from 80 previously and its 8 5/8% notes due 2010 down close to a point at 79.5.

A market observer quoted Qwest Communications International Inc.'s paper "off a little" for a second straight session, the Denver telecommer's 7¼% notes due 2008 a point lower at 96 and its 13½% notes due 2010 off more than a point at 117, a day after Qwest reported a fourth-quarter loss of $307 million (17 cents per share), a sharp turnaround from its year-earlier profit of $2.7 billion ($1.61 per share). Analysts had been looking for about eight cents per share of red ink.

One non-story was Nextel Communications Inc., whose debt was rock-steady despite good earnings numbers reported Thursday by the Reston, Va.-based wireless telecommunications operator.

The company reported fourth-quarter net profits of $637 million (56 cents per share); although that was down from $1.46 billion ($1.38 per share) a year earlier, Nextel still beat analysts' expectations. Excluding several special items, Nextel reported a profit of 48 cents a share in the latest quarter, well up from the 40 cents per share Wall Street was looking for.

Subscriber numbers were also strong, with the company reporting that it added 553,000 new subscribers during the quarter, and ended the year with 12.9 million subscribers, surpassing its own estimates. Nextel expects to add another 1.8 million subscribers at minimum this year, not including customers of its new Boost Mobile service, which is aimed at younger cellphone users.

Meanwhile there was praise for the company from the A.G. Edwards brokerage firm, which raised its recommendation on Nextel shares to "buy" from "hold," saying Nextel continues to outperform its peers while its attention to customer service and its unique - for the moment - Direct Connect walkie-talkie-like service helps to keep customer "churn" (turnover) low. With average revenue per user already higher than the industry standard, Edwards said, this means an increase in the lifetime value of Nextel's subscribers.

Despite all of this good news, the bonds - just as they had been on Thursday - were unmoved Friday, "just kind sitting there," a market source said, quoting its 7 3/8% notes due 2015 at 105.5 bid, up an eighth on the day.

Nextel bonds "are already priced to perfection," a trader said, noting that investors consider them "a cash equivalent. Where else can they go?"

Charter down on late selling

Other issues, he said, were softer, including Charter Communications Inc., whose 8 5/8% notes due 2009 ended at 84.25 bid, 84.75 offered, down about a half point on the session as a seller came in late in the day, and down and a point-and-a-half on the week.

Overall, he said, "the market felt very soft. In talking to some customers, we got the sense that the AMG number was misleading."

AMG Data Services of Arcata, Calif. reported late Thursday that $227.4 million more came into the high yield mutual funds than left them in the week ended Thursday, a switch from the previous two weeks, which saw net outflows of over $1 billion in the week ended Feb. 11 and over $1.5 billion the week before that.

Despite the positive fund flow number, "a lot of people are anticipating redemptions, outflows, that kind of thing, and there's not a lot of cash around. If the number had been negative, there REALLY would be no cash around.

"We had bonds for sale," the trader continued, "and really no buyers - nobody even showing bids, which is pretty telling."

While the market "really wasn't off all that much - a quarter to a half point in some spots - I think it was a lot weaker than it actually traded, because you really have no buyers out there - and if there were any sellers, we'd be in trouble."

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