MGM adds in the gray ahead of pricing; AMD on earnings watch; CompuCredit stirred by tender

By Rebecca Melvin

New York, April 15 - MGM Mirage moved up in the gray market early Thursday, but pricing lost steam as the session progressed amid difficult stock borrow and concerns that the deal, seen as cheap, might be upsized or have price talk revised.

The deal, which was said to have gotten up to 103 to 105 bid in the gray market, was later 102 to 103. Revised price talk didn't materialize during the session.

"I heard it was three times oversubscribed. There's over demand for a large deal like this in the convert space. But stock borrow is difficult. Still, it will get done and probably trade up some in the aftermarket," a New York-based sellside trader said.

Advanced Micro Devices Inc. was on watch ahead of earnings that were released after the market close and proved better than expected. But AMD shares moved lower in after-hours trading.

CompuCredit Holdings Corp. saw its convertibles in trade after the company announced a modified Dutch auction tender for its 3.625% convertibles due 2025. The offer was lower than where the bonds have been trading, so "it stirred things up a bit," a Connecticut-based sellside trader said.

CompuCredit's 5.875% bonds were better bid but not seen in trade.

Overall, Trace volume for the convertibles market has been higher this week than in recent weeks, but a lot of the trading has been concentrated in large, liquid, investment-grade-type names like Transocean Ltd., sources said.

"People seem to be tied to relative value and short-term trades rather than making investment decisions," a West Coast-based sellside trader said.

MGM up in gray market

MGM Mirage's planned $750 million of five-year senior unsecured convertibles were getting the once-over from market players during the session.

The deal was expected to price after the market close and was talked to yield 4.25% to 4.75% with an initial conversion premium of 22.5% to 27.5%.

Using a credit spread of 700 basis points over Treasuries and a 45% volatility, the paper was seen 3% cheap even at the rich end of talk, according to a New York-based sellside trader.

Another New York-based sellside analyst said he saw the paper 4% cheap, using a 43% volatility and a credit spread of 1,000 bps over.

That spread was disputed by the first sellsider, who said that it didn't make sense given where the company's existing debt was trading.

Stock borrow was difficult and added 2.5 points to 3 points, or 2.5% to 3% per year, to the cost of funds.

All in all, the deal looked 3% to 5% cheap at the midpoint of price talk. But there was concern during the session that that talk might be revised.

There was also concern that the deal might be upsized a lot, which could affect stock dilution given any hedging activity related to the deal, or that it might price at the rich end of talk.

That was reflected in gray market action, which initially showed the deal plus 3 points to plus 5 points in the gray market but tapering down to plus 1 point to plus 3 points.

Bank of America Merrill Lynch, J.P. Morgan Securities, Barclays Capital and Deutsche Bank were joint bookrunners of the deal, according to the offering memorandum.

MGM sees loss-making quarter

Concurrent with the convertible offering launch, MGM Mirage, a Las Vegas-based casino resort owner and operator, pre-announced first-quarter earnings, which were negative.

The company said that its first-quarter loss would be larger than estimates at 22 cents a share, compared with a profit of 38 cents a share in the year-earlier period.

Revenue was expected to be slightly under previous guidance at $1.46 billion.

"They pre-announced a huge miss for the top line, and no one believes their guidance for the full year," a New York-based sellsider said. "Despite the issues with the quarter, if you compare the credit to Harrah's [Operating Co.] that just brought a straight deal, these should trade at a credit spread that are inside of Harrah's," a sellsider said.

The company had to take a charge for its Las Vegas CityCenter development project, which includes more than 2,000 condominium units that have been hit along with Las Vegas' depressed real estate market.

Moody's Investors Service said the outlook for MGM Mirage is stable and it assigned a Caa1 rating to the company's proposed convertible issue, also affirming the company's Caa2 probability default rating, Caa1 corporate family rating, B1 senior secured ratings, Caa1 senior unsecured ratings and Caa3 senior subordinated ratings.

As a result of the proposed debt issuance, MGM Mirage's liquidity profile has improved by creating sufficient revolver capacity to meet its 2010 and 2011 debt maturities, Moody's said.

The ratings also consider the company's high leverage, the difficult operating environment in Las Vegas, the potentially large guaranty funding for its CityCenter project, the need to close CityCenter condominium sales to offset guaranty funding and the need to obtain additional liquidity by 2011, the agency said.

AMD bonds in focus

Advanced Micro Devices' 5.75% convertible due 2012 was seen higher by about a point at 102, according to Trace data, but not actively traded during the session ahead of the Sunnyvale, Calif.-based chip maker's earnings release.

Advanced Micro Devices' 6% convertibles due 2015 wasn't heard in trade.

"Everybody loves semiconductors these days. Some people are paying attention to AMD. The general numbers out this morning on PC shipments were good, and those indicators are looking pretty good for a full-blown recovery in the sector," a New York-based sellsider said.

The company's shares fell in after-hours trade.

It reported better-than-expected revenue on strong PC and server spending. Revenue rose to $1.57 billion, which was better compared to estimates that saw the figure coming in at $1.54 billion.

Net income swung to a profit of $257 million, or 35 cents per share, compared with a loss of $416 million in the year-earlier quarter.

CompuCredit down some

CompuCredit's 3.625% convertibles due 2025 were seen trading as low as 60.875 and were last 61.25, which was down 0.75 point on the day.

CompuCredit's 5.875% convertibles due 2035 were seen better bid but not in trade.

For each $1,000 of convertibles, the Atlanta-based specialty financial company and marketer of branded credit cards said it will pay $550 to $600. If the total purchase price for the tendered convertibles would exceed $100 million, then the company will accept convertibles for purchase on a pro rata basis. In total the company said it will spend up to $100 million on the offer.

The company is also offering to purchase shares of common stock for $7 each. It will purchase an amount of shares equal to $100 million minus the amount spent to purchase tendered convertibles.

The tender offer will expire May 14.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

CompuCredit Holdings Corp. Nasdaq: CCRT

MGM Mirage NYSE: MGM

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