Kansas City Southern de Mexico prices; MGM Mirage mauled; Ambac bounces back, Chemtura comeback continues

By Paul Deckelman and Paul A. Harris

New York, March 24 - Kansas City Southern de Mexico SA de CV priced a quickly-marketed $200 million issue of seven-year notes Tuesday, high yield syndicate sources said. The railroad operator's deal, already carrying a double-digit coupon, priced at a steep discount to par in order to boost yield to more investor-friendly levels - the latest in a series of such bonds pricing well under par.

Back among the established issues, MGM Mirage's battered bonds were further beaten down in very active dealings, as investors drew little confidence from the Las Vegas-based gaming company's seemingly unworried dismissal of a lawsuit filed against it on Monday by its CityCenter project joint-venture partner, Dubai World.

Ambac Financial Group Inc.'s bonds were busily traded, returning to the levels they have recently held, after having fallen sharply on Monday.

Also on the comeback trail was Chemtura Corp., whose bonds fell badly last Thursday on news the Middlebury. Conn.-based chemical company had filed for Chapter 11 but have been firming off those post-filing lows for the last three sessions now.

Newpage Corp.'s bonds were better as the papermaker officially closed on a sizable asset sale.

The Tuesday market had a good tone, according to a high-yield syndicate official who added that the buy-side is now waiting to see what kind of new issue calendar develops.

One deal priced in the primary market.

Kansas City Southern de Mexico, SA de CV priced a $200 million issue of 12½% seven-year senior unsecured notes (B2/B+) at 94.49 to yield 13¾%.

The yield came on top of yield talk while the issue price came in line with the price talk which had the notes coming discounted approximately five points from par.

Banc of America Securities ran the books for the quickly shopped deal which generated $188.98 million of proceeds. Funds raised will be used repay bank debt.

Cheaper than the parent's deal

During the middle of last December, parent company Kansas City Southern Railway Co. priced a $190 million issue of 13% five-year senior unsecured notes (B2/BB-) at 88.405 to yield 16½%.

The Mexican unit transacted Tuesday's deal at a reoffer price that was a full 6 cents richer than the parent's December deal. Its deal also yielded 2¾% less than the substantially better rated deal from the parent.

The comparatively low rate and shallow discount that Kansas City Southern de Mexico enjoyed Tuesday was largely attributable to market conditions, according to an investor whose high-yield mutual fund played the deal.

The bookrunner began quietly marketing the offering last Friday, the investor added.

The 94.49 issue price was slightly cheap to the 95 area price talk, the investor added.

"EBITDA is down 40% at the Mexican subsidiary, whereas EBITDA at the U.S. operation is not down nearly that much," the investor remarked.

"Business has been off, but it will come back."

Deals expected

With the Kansas City Southern de Mexico deal having cleared, the active forward calendar is once again empty, sources say.

However the primary is expected to see some news through the remainder of the week, according to high-yield syndicate sources.

Those deals, or at least some of them, are apt to surface from the energy sector, one banker said.

Lamar hangs in, Dole easier

The new Kansas City Southern de Mexico 12½% notes due 2016 priced too late in the session for any kind of aftermarket activity.

A trader said before the pricing that "people were looking at that - a normal number of people seemed to be willing to play."

Looking at other recently priced issues, another trader saw Lamar Media Corp.'s 9¾% notes due 2014 at 95 bid, 95.5 offered, down about ½ point from Monday's close at 95.5 bid, 96 offered, but still hold most of the gains it notched in explosive initial secondary dealings Friday. Another trader quoted the notes Tuesday off only slightly, at 95.25 bid, 95.75 offered

Those bonds had shot up to around the 95 level in late trading Friday after the Baton Rouge, La.-based outdoor advertising company priced its offering, upsized to $350 million from $250 million originally, at 89.979 to yield 12½%, causing some traders to lament that the deal priced way too cheaply.

The other recent new deal in the market, Dole Food Co. Inc.'s upsized $350 million of 13 7/8% secured notes due 2014, were meanwhile seen by a trader at 95.75 bid, 96.75 offered, although a second saw them having retreated to 94.25 bid, 95.25 offered from levels as high as 96 bid, 97 offered on Monday, bringing to a halt the seemingly unstoppable upward movement of those bonds.

Dole, a Westlake Village, Calif. food company best known for its lines of canned vegetables, fruits and juices, as well as imports of fresh pineapples and bananas, priced the bond issue - increased slightly from the original $325 million - on March 13 at 92.833 to yield 16%. After that, the bonds had been moving steadily upward for more than a week, firming anywhere from ¼ point to a full point on a session-by-session basis.

Dole sector peer and rival Chiquita Brands International Inc.'s 7½% notes due 2014 were meantime seen up for a second consecutive session, gaining 2 points to end at 74. A market source said the Cincinnati-based banana and salad company's bonds had firmed some 5 points over two sessions, despite a lack of fresh company-specific news.

Market indicators mostly better

Back among the established issues, a trader saw the widely followed CDX High Yield 11 index of junk bond performance - which had jumped 1 1/8 point Monday - down about 1/8 point in Tuesday's trading, quoting it at 69¾ bid, 70¼ offered.

But the KDP High Yield Daily Index meantime rose by 11 basis points to 52.32, while its yield tightened by 7 bps to 13.73%.

In the broader market, advancing issues remained ahead of decliners by a margin of nine-to-seven.

Overall market activity, measured by dollar-volume totals, zoomed by nearly 44% from the levels seen in Monday's session.

A trader said that from where he sat, "we were easier by ¼ to ½ point, while there were issues that were down more than that." Upticks, he said, "were rare today," at least among the more active issues.

For instance, he saw market barometer bond Community Health Systems Inc. 8 7/8% notes due 2015 at 95.75 bid on a round-lot basis, ¼ easier from its prior level, on $14 million of trading - although he allowed that the notes' performance "wasn't bad, considering how far equities were down."

Indeed, over in the stock market - which had surged mightily on Monday amid investor optimism about the Treasury's long-awaited, finally-released plan for dealing with toxic banking assets - Tuesday was a letdown. The bellwether Dow Jones Industrial Average, coming off Monday's spectacular 497-point, 7% gain on the day, surrendered 115.65 points, or 1.49%, to finish at 7,660.21, amid new market worries about the banks. The broader Standard & Poor's 500 index lost 2.03%, while the Nasdaq composite index was off by 2.52%.

Dynegy attracts attention

Despite that somber backdrop, another junk trader said that at his shop he saw "a whole eclectic mix of stuff." He saw "a lot of people come in, trying to do some buying today, not willing to move their levels, but still expressing interest in names."

He continued that they had "seen prices move higher a little bit" on credits like Dynegy Inc.'s 7¾% notes due 2019, where "we've had some people nosing around on those." After "a couple of dealers tried to move them higher, they settled back in" to levels around 64-65, although there were "only odd-lots trading."

Despite that interest in the Houston-based electric power producer on the bond side, its New York Stock Exchange- traded shares slumped 21 cents, or 12.35%, to end at $1.49, on volume of 15.6 million, nearly twice the usual turnover.

Those shares slid after Dynegy was downgraded to an "underperform" by Macquarie Capital USA Inc., which fretted in a research note that LS Power Group, which holds about 40% of Dynegy, may not make a buyout offer soon.

Looking for offerings

The trader continued that "today we saw [a ratio of] 'offering wanteds' to "bid wanteds' of 10-to-2 or 10-to-3. There were far more 'offer wanted' lists than 'bid wanted' lists coming over MarketAxess."

He said that market participants were mainly looking "for off-the-run names like Brigham Exploration Co. There were a couple of guys looking for that."

On the other hand, he said, there were "names that you can't move, like Land O' Lakes Inc." He said that the Arden Hills, Minn.-based dairy producer's 8¾% notes due 2011 "seem to be kicking around a little bit north of par."

The trader further said that he was "seeing an interest in some of the hybrids again - not only the financial companies but the insurance companies and even some of the utilities. We've seen buy interest anywhere from the 20s to the 50s, depending on the name, but nobody really willing to go too far up in price" for credits like AIG, Citigroup, or Bank of America.

He observed that traditional high-grade corporates "seemed to be much more active than the high-yield area. I think people are confused by what's going on with equities."

MGM gets murdered

A trader said that MGM Mirage "took a little bit of a hit, today, with that news out" about the big gaming operator being sued by joint-venture partner Dubai World and the company's dismissive insistence that the lawsuit is lame and "without merit."

He saw MGM's 6% notes coming due on Oct. 1 at 48.5 bid, 50.5 offered, and its 6¾% notes due 2013 at 31 bid, 34 offered, each down 4 points on the session.

Another trader saw MGM paper "mostly lower," quoting the 6s at 50.25%, or a 203% yield-to-maturity, "which is just screaming 'bankruptcy'." Those bonds fell to that level from Monday's close at 55.25, with $16 million traded.

He saw its 6¾% notes due 2012 down a deuce at 34 bid, on $14 million of volume, but the most active MGM Mirage issue was the company's 8½% notes due 2010. Some $27 million of those bonds changed hands, with the level falling to 38.5 bid from Monday's 40.875.

On Monday, Dubai World - MGM's joint venture partner on its CityCenter project on the Las Vegas Strip - filed a lawsuit against the casino operator, alleging breach of contract. In the suit filed with the Delaware Chancery Court, Dubai's Infinity World Development Corp. unit is asking the court to free it of making any future contributions or obligations to the project.

But, according to a Wall Street Journal report, MGM is calling the lawsuit baseless.

"The lawsuit filed yesterday by a subsidiary of Dubai World is completely without merit. Dubai World is well aware of our written commitment to meet our funding obligations and that MGM Mirage has available cash to satisfy those obligations," said MGM spokesman Alan Feldman in a statement. "MGM Mirage is ready, willing and able to fund its share of the costs to complete CityCenter, including a required payment this week."

The suit is just one more hiccup along the CityCenter project's timeline. Construction began in 2005 and remains uncompleted. But MGM has struggled to find the additional funding it needs to complete the project as the economy took a nosedive.

Furthermore, MGM's auditors raised concerns about the company's future in a regulatory filing last week.

"MGM has yet another headache in addition to efforts to remain afloat in the face of bank covenant violations and big upcoming debt maturities," wrote Gimme Credit analyst Kim Noland in an afternoon comment. "Dubai World filed suit alleging that the going concern language in the 10-K constitutes a breach of the joint venture agreement for City Center. While this may a tough lawsuit to win (MGM says it is without merit), MGM needs Dubai's support and its cash given its trouble raising the financing needed to complete the project."

Elsewhere in the gaming sector, traders saw no activity in Las Vegas Sands Corp.'s bonds on news that the Nevada-based MGM rival may seek to buy back as much as $800 million of bank loans.

Ambac bounces around

There was some fairly active trading in Ambac Financial Group's 5.95% bonds due 2035, with a market source seeing over $15 million changing hands and the bonds pushing back up to just under the 30 level - the level it had recently held - from Monday's closing levels around 10 points lower, although the source pointed out that the late Monday trades down around 20 bid had been on relatively smallish trades; on a round-lot basis, the bonds were essentially unchanged.

Investors have been looking at the New York-based bond insurer's paper in recent days, amid speculation about whether companies like Ambac and larger rival MBIA Inc. will be eligible to participate in the Treasury's just unveiled program for getting toxic assets off the books of financial companies. While the Treasury statement encourages insurance companies to participate as buyers of the toxic debt, along with other private investors, spokespersons for Ambac and MBIA have indicated that they are thinking more along the lines of becoming sellers of illiquid assets now stuck in the two bond insurers' investment portfolios.

Dollar General firmer post-numbers

On the earnings front, a trader saw some investor interest in Dollar General Corp.'s bonds, which were seen firmer after the Goodlettsville, Tenn.-based discount retail chain-store operator posted improved financial results for the fiscal fourth quarter ended Jan. 30.

"The subs were up a couple of points," he said, "while the seniors traded right around par" - a relative rarity these days for any junk-rated issue.

Another trader saw the company's 10 5/8% notes due 2015 up nearly ½ point at 99.875 bid, on volume of $11 million, while its 11 7/8% senior subordinated PIK toggle notes due 2017 gained ¾ point to 98.75, on $6 million traded.

A market source at another desk saw a fair amount of activity in the 10 5/8s, noting that the bonds moved briefly above 101 bid before coming off that peak level to settle in slightly above par, although on a round-lot basis it traded a touch below par and only marginally better than its 99.5 finish on Monday.

The 11 7/8s were meanwhile seen about a point better at the 99 level.

There was no trading seen in the company's 8 7/8% notes due 2010.

Dollar General - which sells name brand merchandise such as food, snacks, health and beauty aids, cleaning supplies, basic apparel, house wares and seasonal items at discounted prices through 8,400 stores nationwide, posted fiscal fourth-quarter earnings of $81.5 million, up from $55.39 million a year earlier, as sales rose 11.2% to $2.85 billion from $2.56 billion in the 2007 fiscal fourth quarter. Same-store sales in locations open at least a year - a key retailing industry performance metric - were up 9.4% in the quarter from a year earlier.

Analysts have noted that while much of the retailing industry has suffered badly from the economic downturn, the bargain-price segment of the business - low-priced "dollar" stores like Dollar General and rivals Dollar Tree Inc. and Family Dollar Stores Inc., as well as larger discounters like retailing kingpin Wal-Mart Stores Inc., the dominant name in the segment, and, to a much lesser extent, Target Corp. - have been doing relatively better and in some cases, even cleaning up, as consumers who used to buy at middle-level department stores like Kohl's or Sears (even including the latter's Kmart discount arm), traditional supermarkets and drug stores, as well as specialty retailers are now watching their pennies more closely and making an increasing percentage of their purchases at the low-price stores.

In line with this change in consumer habits, Dollar General, in announcing that 2009 capital spending will come in around $250 million to $275 million, said it plans to open 450 new stores, as well as remodeling or relocating another 400 existing outlets.

Chemtura keeps climbing

Chemtura's bonds, which have been firming over the last few sessions off the lows they hit Thursday on the chemical company's bankruptcy filing, continued to rebound on Tuesday.

A trader saw its 6 7/8% notes due 2016 rise to 42.5 bid from 40.5 on Monday, on volume of $8 million traded. Those bonds, Chemtura's most active and most volatile issue, had fallen to levels as low as 26 bid on Thursday on the Chapter 11 news, winning back most of that lost ground in a jump of 10-plus points on Friday.

He also saw the 6 7/8% bonds due 2026 originally issued by Witco, a Chemtura corporate ancestor, at 24 bid, up from Monday's 22.5, with $5 million traded.

He saw no round-lot dealings Tuesday in the 7% notes slated to come due on July 15, issued by another Chemtura predecessor, Great Lakes Chemical Corp. They had traded up to 23.5 on Monday.

However, another trader quoted the 7s at 22 bid, 24 offered, "up 2½ points over the last couple of days." He called the 2016 bonds 42 bid, 44 offered, saying they looked to be up 1½ points on an intraday basis and up 2 points in the last two sessions.

Newpage news boosts bonds

A trader saw Newpage's 10% notes due 2012 firm to 29.75 bid from 28.25 on Monday, on $11 million traded.

Miamisburg, Ohio-based paper manufacturer Newpage announced the completion of the sale of its Little Quinnesec hydroelectric facility in Niagara, Wis., to Northbrook Wisconsin, LLC, a unit of Northbrook Energy. The facility has the capacity to generate approximately 9.1 megawatts of power annually. The terms of the transaction were not disclosed.

Auto bonds a mixed bag

A trader saw Ford Motor Co.'s 7.45% bonds due 2031 down ½ point on the day at 28 bid, 29 offered, while General Motors Corp.'s benchmark 8 3/8% bonds due 2033 were unchanged at 17.5 bid, 18.5 offered,

Among the automotive finance bonds, a market source saw the recently strong Ford Motor Credit Co. 7% notes due 2013 up another 2 points at 66 bid, while its 7 3/8% notes coming due in October were ½ point better around 93. Ford Credit's 5.70% notes due 2010 were more than 2 point gainers to the 86 level.

However, GMAC LLC's 6 7/8% notes due 2012 were seen down several points to around 56 bid.

Also in the autosphere, Hertz Corp.'s bonds continued to firm, with its 8 7/8% notes due 2014 seen up more than a point around the 55 level, amid news reports and analyst commentary on the possibility that the Parsippany, N.J.-based car-rental company may buy back some loan debt.

Stephanie N. Rotondo contributed to this report.

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