MGM up on financing news; Wyndham prices bonds, others slate; Frontier firms on Verizon deal

By Paul Deckelman and Paul Harris

New York, May 13 - The bonds of MGM Mirage shot skyward after the Las Vegas-based gaming giant unveiled plans for a complex series of financing transactions aimed at bolstering its balance sheet, including a big new bond issue and buybacks of several existing issues. Market participants spent the day eagerly waiting for the two-part MGM mega-deal, but they were still waiting when trading wrapped up for the day. Word was that the well-oversubscribed offering, which had been expected to price Wednesday, would not come to market early Thursday.

Meanwhile Wyndham Worldwide Corp. priced a split-rated offering of five-year notes on Wednesday. Even in advance of that pricing, the hotel franchiser and timeshare company's existing bonds had risen.

Besides the MGM offering, the forward calendar continued to fatten with several other prospective deals, for Apria Healthcare Group Inc., Ashland Inc., El Pollo Loco, Inc. and Sealy Corp.

Tuesday's new offerings, for Calpine Corp., LINN Energy, LLC and Ameristar Casinos Inc., began trading around on Wednesday. But while Calpine and LINN were seen by traders to have generated no real interest and in fact were trading below their respective issue prices, the new Ameristar bonds firmed on the session.

Also solidly firmer on the day - albeit below early peak levels - were Frontier Communications Corp.'s several issues of bonds. They got a boost after the Stamford, Conn.-based telecommunications company announced that it will buy nearly 5 million phone lines in 14 states from Verizon Communications Inc., making Frontier the largest purely rural U.S. communications operator and overall the fifth-largest incumbent local exchange carrier in the country. Although Frontier will absorb or raise over $3 billion of debt as part of the funding for the transaction before it closes, about 12 months from now, the acquisition is seen as a de-levering transaction that will sharply cut the company's pro-forma ratio of net debt to EBITDA.

Overall the high-yield market traded lower on Wednesday, according to sources on both the buy-side and the sell-side.

MGM significantly oversubscribed

No junk issues priced on Wednesday. However there was primary market news aplenty.

MGM Mirage set price talk on a significantly oversubscribed $1.5 billion two-part offering of senior secured notes on Wednesday.

A tranche of five-year bullet notes is talked at the 11 1/8% area with 2 points of original issue discount.

Meanwhile a tranche of 8.5-year notes, with four years of call protection, is talked at the 11 5/8% area, also with 2 points of original issue discount.

Pricing is set for early Thursday morning.

The deal will not grow, according to market sources.

Allocations are expected to be severe.

Banc of America Securities, Barclays Capital, Citigroup, RBS Greenwich Capital and Wachovia Securities are joint bookrunners for the debt refinancing and general corporate purposes deal. Security for the notes is the Bellagio and Mirage properties.

Late Wednesday rumors circulated the market that the deal was 10-times oversubscribed.

That number elicited a laugh from a source close to the deal. However, demand for the MGM paper is intense, the source allowed.

El Pollo Loco for Thursday

Elsewhere El Pollo Loco plans to price a $120 million offering of senior secured notes due 2012 (B) on Thursday.

Jefferies & Co. is the bookrunner.

Proceeds will be used to repay bank debt and the company's senior secured notes due 2009, with any balance to be used for general corporate purposes.

Four on the road

Meanwhile the number of deals wending their ways along the high-yield roadshow circuit grew to four on Wednesday, as two bridge refinancing deals were announced.

Ashland will begin a roadshow on Thursday for a $600 million offering of eight-year senior notes (expected ratings Ba3/BB-).

An investor call will take place on Friday.

The roadshow wraps up on Tuesday, with the deal expected to price early next week.

Banc of America Securities LLC and Scotia Capital are joint bookrunners for the deal to refinance the bridge loan used to fund the acquisition of Hercules Inc.

Elsewhere Apria Healthcare Group will begin a roadshow on Thursday for a $600 million offering of senior secured notes due Nov. 1, 2014.

The roadshow wraps up on May 21, with pricing expected after that. An investor call will take place on Monday.

Banc of America Securities LLC, Wachovia Securities LLC and Barclays Capital Inc. are joint bookrunners for the deal to refinance the bridge loan used to fund the leveraged buyout of the company by the Blackstone Group. The loan was funded on Oct. 28, 2008

Ashland and Apria join Cellu Tissue Holdings, Inc., now roadshowing a $230 million offering of five-year senior secured notes (expected ratings B2/B), which is set to price next week via JP Morgan, and Gibson Energy ULC and GEP Midstream Finance Corp., on the road with a $545 million offering of five-year first-lien senior secured notes via UBS Investment Bank.

Fortunes of the road

It's good to see four deals on the road, an investment banker asserted on Wednesday.

"It means that the market has reopened to deals that demand investor attention, and that the dealers are confident that the investors will listen," the banker remarked.

However a high-yield mutual fund manager had a different take.

For only the fourth time in 2009, and for the first time since early March, this investor's fund saw redemptions on Wednesday.

"It's just another sign that the market has gotten ahead of itself," the investor said.

"They're going on the road because they have to sell these deals.

"Now we'll see who will buy."

Redemptions

The first day of net redemptions since early March - and only the fourth day of redemptions since the beginning of the year - is another sign that high-yield may have gotten ahead of itself, the investor said.

On Wednesday this source's fund saw $100,000 of outflows.

That's a minuscule amount compared to the $450 million the fund has taken in year-to-date, the source added.

Nevertheless it could signify that the market has gotten ahead of itself, the investor added.

"The sentiment, here, is that the market has gotten overextended," the source said.

"A lot of stuff traded off today."

Outstanding Wyndham bonds trade higher

The new Wyndham Worldwide 9 7/8% notes due 2014 priced too late in the session for any meaningful aftermarket activity.

However, a trader saw the Parsippany, N.J.-based lodging and vacation timeshare company's existing 6% notes due 2016 move up to 75½ bid ahead of the deal, which was first announced late Tuesday. That was up 3 points on the session, on fairly active volume of $15 million.

MGM moves up ahead of deal

Traders said the big winner on the session was MGM Mirage, whose existing bonds firmed smartly - some by 10 points or more - on the gaming company's early-morning announcement of a series of financing transactions aimed at cleaning up its debt-laden balance sheet, including the $1.5 billion bond sale, the sale of another $1 billion in stock, tender offers for its two bond issues slated to come due this year, and changes to its loan covenants, among other measures (see related story elsewhere in this issue).

MGM'S "stock got destroyed," a trader said, "but its bonds were up." He saw the company's 13% secured notes due 2013 up about 7 points on the day to the 107 level.

Another trader said that several tranches of MGM bonds were the most active issues in Junkbondland on Wednesday, notably its 8 3/8% notes due 2011, which were going home at 77½ bid, having zoomed from Tuesday's round-lot close at 65. Some $39 million of those bonds changed hands, the most of any junk issue.

He also saw MGM's 6% notes slated to mature on Oct. 1 - one of the issues being tendered for - last at 99 bid, for an 8.70% yield to maturity, up from 93 on Tuesday, on volume of $35 million. MGM's 8½% notes due 2010 swelled to 91¾ bid from 86 the previous session, on $26 million of volume.

The trader also saw MGM subsidiary Mandalay Resort Group's 6½% notes maturing on July 31 - the company will tender for these bonds as well - at 99½ bid, or an 8.80% yield, up from 96 at the start of the week. $10 million of the bonds changed hands.

Mandalay's 9 3/8% notes due jumped more than 10 points to 921/2, on volume of $18 million.

A trader at another shop called the company's paper "up substantially," seeing the 6 7/8% notes due 2016 up 4 points on the day at 66 bid, 68 offered, while the 8 3/8s gained 10 points to 77 bid, 79 offered.

But the biggest gainer by far in the MGM capital structure, a market source said, was the 7¼% debentures due 2017 that were originally issued by Mirage Resorts prior to that company's acquisition by the company then known as MGM Grand to form MGM Mirage. Those bonds - one of the issues being bought back - soared to levels above 120 bid from pre-news levels earlier in the week around 85. Over $12 million of the bonds traded.

But while MGM's bondholders were delighted at the prospect of the company taking out the several issues of really short-term debt slated to mature in a matter of months while gaining some measure of covenant relief on its loans, shareholders were appalled at the prospect that the company would dilute their holdings with a $1 billion share issue.

That sent the existing stock down $3.70, or 29.84%, to end at $8.70. Volume of 59.6 million shares was over triple the norm.

New Calpine bonds trade down

Tuesday's $1 billion offering of new 8% senior secured notes due 2016 from Calpine Construction Finance Co. LP and CCFC Finance Corp., both subsidiaries of San Jose, Calif.-based power generator Calpine Corp., were seen by several traders to have badly underperformed, this despite the interest in the deal that caused it to be upsized from the originally planned $800 million.

A trader said the bonds - which had priced at 95.488 late Tuesday to yield 8 7/8% - "were active in the morning, before they settled in around 95." He quoted them going out at 95 bid, 95 3/8 offered.

However, later on several traders saw the bonds having plunged through the 95 barrier, eroding to levels as low as 94¼ bid, 94¾ offered, well below their issue price.

A market source who quoted the bonds at 94 5/8 bid, 95 5/8 offered, considered the new deal to have been "fairly active" - but another said he was surprised there hadn't been more action in the mega-deal, especially considering how active some previous new issues, such as SuperValu Inc.'s recent $1 billion offering of seven-year bonds, had been. The Eden Prairie, Minn.-based national supermarket operator's 8% notes - upsized from the originally planned $500 million - priced on Apr. 30 at 97 bid, for an 8.58% yield.

LINN Energy a loser

Another downsider on the day, traders said, was LINN Energy's 11¾% notes due 2017. The Houston-based independent oil and gas exploration and production company's $250 million of notes, upsized from the original $200 million, had priced late Tuesday at 95.081 to yield 12¾%.

However, a trader saw those bonds get as low as 94 bid, 95 offered, "I believe, below issue."

Ameristar deal a winner

However, the third deal that came down the pipe on Tuesday, for Las Vegas-based casino operator Ameristar, seemed to make up for what its fellow Tuesday issues were lacking.

The $500 million of 9¼% notes due 2014, which had priced at 97.097 to yield 10%, were seen by a trader to have moved up solidly from that level to 98½ bid, 99 offered.

Market indicators move downward

Back among the established issues, a trader saw the CDX Series 12 High Yield index - which lost ¾ point on Tuesday - down a full point to finish Wednesday at 79½ bid, 80 offered.

The KDP High Yield Daily Index, which rose by 4 basis points on Tuesday, retreated up 33 bps on Wednesday to end at 60.30, while its yield widened out by 10 bps to 11.31%.

After regaining their lead over decliners by a narrow margin on Tuesday, advancing issues gave it all back and then some, falling behind by a three-to-two margin.

Overall market activity, measured by dollar-volume totals, fell by 11% from Tuesday's levels.

A trader said that there was "not a lot going on," outside of the several big-deal names that had news attached to them, such as MGM Mirage or Frontier Communications, "but there was some volume.

He characterized Wednesday's market as "something of a mixed bag," featuring "very selective trading, as well as "people staying on the sidelines."

Frontier out front

There was no sideline sitting when it came to the bonds of Frontier Communications, which were seen to have shot up by multiple points in busy early trading on news of its big deal with Verizon Communications, only to come off those highs later on, to mostly end up a point or so on the day.

A trader saw the company's most active issue, the 8¼% notes due 2014, as having risen to 98 bid, up a point on the day, on $27 million of turnover.

While Frontier's 6¼% notes due 2013 - originally issued under the company's former name, Citizens Communications Co. - were seen ending the day unchanged at 94, despite having traded $17 million, the Citizens 9% notes due 2031, firmed handsomely to 87 bid from 81½ on Friday, the last previous day it was seen trading in round-lots, on volume of $11 million.

The Frontier bonds moved up after the company announced the plans for its $8.6 billion purchase of rural phone lines in 14 states from Verizon, which wants to get out of the rural landline business to better concentrate on its internet and television businesses in more populous areas. Combined with Frontier's existing footprint in some of the far-flung smaller markets, that would make Frontier the largest purely rural play in the industry.

Frontier plans to give Verizon $5.25 million of stock, and company officials said on their conference call outlining the transaction that they expect to raise some $3.208 billion of debt prior to the closing of the deal, which is expected in about 12 months, with the proceeds to be given over to Verizon. There was no immediate indication from Frontier as to what form this debt would take - bank loans, bonds, convertibles or some combination - or the specific timing of such a financing transaction.

Even counting in any additional debt raised or assumed in the transaction, Frontier also said during the presentation that it anticipates its net leverage to sharply decline from the current stand-alone level of a 3.8 times ratio of net debt to 2008 EBITDA, to a pro forma level for the newly enlarged Frontier of 2.6 times, "approaching investment grade" standards, and projects that leverage to ultimately decline still further to a level of 2.2 times debt to EBITDA.

Restaurant bonds on the menu

Elsewhere, a trader said that "some of the restaurants have really taken hold" - for instance, O'Charley's Inc. , which had quarterly earnings out on Tuesday, causing its shares to jump and its recently improving bonds to keep rising.

"The bonds are on a roll," he declared, with its 9% notes due 2013 firming to around 84½ -85 bid. "Everybody thinks it's a great credit, which it is, and the bonds, in the last month to month and a half, came up from 57 bid to around 84 3/8 - and they still probably have room" for further upside.

A market source said the bonds had firmed further to 86 bid by mid-afternoon on Wednesday - up 1 5/8 points on the day, and a full 6 points up from where they had been at the start of the month.

The Nashville-based operator of such chains as the eponymous company flagship O'Charley's, Ninety Nine, and Stoney River Legendary Steaks, said Tuesday that first-quarter net earnings were $6.9 million, or 34 cents a share, down from $10 million, or 46 cents a share, a year ago, as revenue dropped 2% to $291.7 million. However, excluding unusual items like restructuring, disposal and impairment charges, adjusted earnings came out to 35 cents a share - sharply better than Wall Street expectations of a penny-per-share loss.

The company had further good news for bondholders - it cut debt by $26.7 million during the quarter, including the complete paydown of its former revolving credit facility.

The first trader said another name in that sector which "continues to get better" is Outback Steakhouse - more formally, OSI Restaurant Partners LLC. He saw the Tampa, Fla.-based operator of Australian-themed casual dining's 10% notes due 2015 trading in the lower 70s, up from recent levels around 69.

Another "good one" in that same sector, he said is Denny's Corp.'s 10% notes due 2012, although he noted that the Spartanburg, S.C.-based restaurant chain operator's issue "has been pretty strong for a while," migrating from the mid-80s recently into the mid-90s this week.

One sector name which has been a relative laggard, however, has been Sbarro Inc. - its 10 3/8% notes due 2015 "are still trading in distressed land," down around the low-to-mid 50s. He saw the Melville, N.Y.-based Italian-themed quick-service restaurant's bonds trading there a week ago but said "they haven't traded since."

Even so, he noted that the bonds had recently firmed above the 50 mark from the 40s previously.

GM, Ford take a back seat

In the autosphere, a trader saw beleaguered General Motors Corp.'s benchmark 8 3/8% bonds due 2033 continuing to trade in a "low single-digit" range around 5-6.

He also said Ford Motor Co.'s bonds like its 7.45% issue due 2031 "seemed like they held their own," in a 55ish context. Ford had some activity, he said, "though I wouldn't say it was robust."

At another desk, a trader saw GM's benchmark bonds down a point at 4 bid, 5 offered, while the Ford long bonds, finally weakening after a long upside run, were down 2 points at 53 bid, 55 offered..

The first trader also saw the Ford Motor Credit Co. 7 3/8% notes coming due on Oct. 28 "maybe a touch lower" at 95 bid, 96 offered. Another trader saw those '09s at 95 bid, or a 19% yield to maturity, down from 96½ on Tuesday, with $10 million traded.

Lear dips

Among the parts suppliers, a trader saw Lear Corp.'s bonds - which had been solid gainers on Tuesday - "down a little," apparently not much helped by the news that the Southfield, Mich.-based interior components maker's lenders had agreed to yet another extension of the existing default waivers on its credit facility, until June 30, while the company and the lenders continue restructuring talks. That waiver had been due to expire on Friday.

He saw Lear's 8½% notes due 2013 trade down to 30 from 31 or 32, but said it was "not a lot." While Lear is supposed to report earnings and hold a conference call on Thursday, he advised "forget earnings - at this point, the only question [for automotive supplier companies] is, are they gonna file [bankruptcy]?"

A second trader saw Lear's 5¾% notes due 2014 lose 1½ points to end at 34, while the 81/2s lost more than 2 points to end at 30 bid.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.