MMI, Station Casinos price to end week; Chesapeake improves; Frontier up on dividend cut

By Paul Deckelman and Paul A. Harris

New York, Feb. 17 - MMI International Ltd. and Station Casinos Inc. were heard by high-yield syndicate sources to have priced new deals in Friday's pre-holiday market.

Precision engineering company MMI's $300 million of five-year secured notes moved up solidly in aftermarket dealings.

Gaming operator Station meantime priced $625 million of an unusually structured six-year deal at a hefty discount to par; the bonds start with a very un-junk-like low coupon but gradually step up to more generous levels.

Canadian paper manufacturer Tembec Industries Inc. also came to market with a quickly-shopped $50 million add-on to an existing bond.

The issues raised the week's new-deal issuance totals in the dollar-denominated, strictly junk-rated market to about $4.44 billion. That's down from the $6.565 billion that priced in the preceding week ended Feb. 10, and well off the titanic $15.37 billion flood of new paper that appeared the week that ended Feb. 3. That week was not only the busiest new-issue week so far this year, but also the heaviest since last May.

Primaryside players also heard that education technology provider Core Education and Counseling Solutions, Inc., had postponed its planned $200 million five-year offering.

Among recently priced deals, Chesapeake Energy Corp.'s big seven-year offering - which racked up hundreds of millions of dollars in trading the first several sessions after its Monday pricing - was still busy on Friday, but not at those kind of volume levels. The natural gas company's bonds, which initially traded narrowly near their discounted issue price, were quoted Friday up to the par bid level.

Away from the new deals, which dominated the secondary market this week, traders said activity was muted as some participants made an early exit ahead of the three-day Presidents Day holiday weekend, which will see the debt markets closed on Monday.

There was some upside action in Frontier Communications Corp.'s bonds after the telecommunications company announced plans to cut its stock dividend and use the savings to bring down its leverage levels.

Statistical performance indicators were firmer on the day, though mixed on the week.

MMI prices at the tight end

In the dollar-denominated market, two issuers raised $353 million on Friday, each bringing a single tranche of notes. This extended the week's issuance total to $4.44 billion.

MMI International priced a $300 million issue of five-year senior secured notes (Ba3/BB-/B+) at par to yield 8% on Friday, at the tight end of the 8% to 8¼% price talk.

J.P. Morgan Securities LLC, Credit Suisse Securities (USA) LLC and UBS Securities LLC were the joint bookrunners.

The Singapore-based precision engineering company plans to use the proceeds to repay debt.

Tembec taps 11¼% notes

Tembec Industries priced a $50 million add-on to its 11¼% senior secured notes due Dec. 15, 2018 (B3/B-) at 105.50 to yield 9.781%.

The reoffer price came at the cheap end of the 105.50 to 105.75 price talk.

Bank of America Merrill Lynch ran the books for the quick-to-market add-on.

The Rule 144A notes, which have registration rights, become callable on Dec. 15, 2014 at 105.625. They will be fungible with Tembec's existing 11¼% notes upon registration.

The Quebec-based forest products company plans to use the proceeds for general corporate purposes, including additional liquidity to support its previously announced capital expenditure initiatives.

The original $255 million issue priced at 98.717 to yield 11½% in August 2010.

Sterling deal for Center Parcs

Away from the dollar-denominated junk primary market, Center Parcs Group priced a £280 million issue of class B fixed-rate secured notes (/BB+/B+) at par to yield 11 5/8% on Friday.

The notes have an expected maturity of Feb. 28, 2018 and a legal maturity of Feb. 28, 2042.

Royal Bank of Scotland was the global coordinator and a joint bookrunner. Barclays Capital, HSBC and Lloyds Bank also were joint bookrunners.

The debt transaction also included £980 million of investment-grade bonds.

Center Parcs is a Newark, England-based provider of fully self-contained forest village short-break holidays.

In the wake of Friday's activity, the active forward calendar was empty, heading into the three-day Presidents Day weekend in the United States.

The market is heading into a quiet period, as potential issuers freshen up their financial numbers, according to a high-yield bond portfolio manager.

However, there are dividend deals in the works, the manager added, citing information related by a salesman from one of the big syndicate banks.

MMI moves up

When the new MMI International five-year senior secured notes were freed for secondary dealings, a trader said that the Singapore-based company's new bonds were bid at 101½ versus their par issue price, though he did not see an offering and did not know 'if that was low."

A second trader said he saw a quote of 101¾ bid, 102¼ offered on the $300 million issue, but he said he saw no actual dealings.

Station Casinos a no-show

Traders did not see any trace of the new Station Casinos senior step-up notes due 2018, of which $625 million priced at 61.5.

"I couldn't figure Station out at all," a trader said of the Las Vegas-based company's unusually structured new bonds.

PSS holds its gains

A trader said that "the deal that really went crazy" was PSS World Medical Inc.'s 6 3/8% notes due 2022, of which $250 million priced at par on Thursday afternoon and then firmed smartly in the aftermarket.

He said the Jacksonville, Fla.-based medical products and services provider's new bonds closed at 103¼ bid, 103¾ offered.

A second trader pegged the bonds at 103¼ bid, 104 offered.

After their par pricing on Thursday, those bonds jumped to 103¼ bid, 103 5/8 offered, in Thursday's initial trading.

Pacific Drilling pops

A trader said that Pacific Drilling SA's 8¼% notes due 2015 "did pretty well," quoting those bonds up to a bid level a little better than 101, after pricing at par late Thursday.

The Houston-based deepwater drilling services provider's $300 million of those bonds came too late in the session on Thursday for any kind of trading.

And even on Friday, another trader said that he hadn't seen those bonds trading around.

Chesapeake bonds better

A trader said that "people are finally starting to get in" to the new-deal market. He pointed to gains in Chesapeake Energy's new deal, which had previously been languishing at, or just slightly above, the deal's issue price.

Chesapeake, an Oklahoma City-based natural gas producer, had come to market with its $1.3 billion offering on Monday. Those 6.775% notes due 2019, upsized from the initially announced $1 billion, had priced at 98.75 to yield 7%, and then went on to become the most heavily traded issue in Junkbondland, with an astounding $450 million knocked down on Tuesday and $150 million on both Wednesday and Thursday.

The new deal initially clung to trading levels at or just slightly above where it priced despite the great volume. That led traders to wonder why anyone was playing in it since it would be difficult to make money that way.

However, the trader said, "Chesapeake has traded up about three-quarters of a point in the last day or so."

He saw them going home Friday at around 99 7/8 bid, par offered.

"Chesapeake was still the most active" junk issue, a second trader said of Friday's session, estimating turnover at $47 million. That trader saw the bonds moving up to a range of par bid to 101 3/8 offered.

"Today it's starting to creep up, though on lighter volume. You had them trading earlier this morning around 99½ to ¾ and now just recently, a couple of million of the bonds traded above the par level."

A market source at another desk estimated the volume at above $57 million and said the bonds were as good as 101 bid at one point.

Other recent deals quiet

A trader said that apart from the Chesapeake deal, there was not much activity in other bonds that have recently priced, although he did see Rite Aid Corp.'s 9¼% senior guaranteed notes due 2020 "up slightly on the day" at 100¼ bid, 100½ offered.

The Camp Hill, Pa.-based No. 3 U.S.-drugstore chain operator priced $481 million of the bonds last Tuesday at par and they traded at or slightly below that level subsequently. But Rite Aid's existing bonds firmed on news that some of the existing debt would be taken out using the new-deal proceeds.

Frontier firmer on debt plans

Away from the new deals, the traders said things were dull with many shops only skeleton staffed ahead of the Presidents Day three-day holiday weekend.

However, a trader said there was some brisk activity in Frontier Communications, seeing the Stamford Conn.-based telecom company's 8 1/8% notes due 2018 up 4 points on the day to close at 105½ bid, and its 8¼% notes due 2017 some 3 points better at 106½ bid.

At another desk, a market participant quoted the company's 8½% notes due 2020 up several points at 105 1/8, on volume of more than $36 million, making it second only to Chesapeake Energy. The 81/4s were at 107½ bid on more than $18 million.

The bonds rose after the company said late Thursday, as part of its quarterly earnings report, that it would cut its dividend to 10 cents per share from 18.75 cents.

On the company's Friday conference call, chief financial officer Donald Shassian said, "We believe that this is the appropriate time to proactively change our dividend policy to increase our operational and financial flexibility. This excess cash flow from our new dividend policy will significantly improve our leverage ratio."

The company is aiming to cut its leverage to just 2.5 times adjusted EBITDA.

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