FireKeepers bonds price, sizzle in secondary; Wynn, MGM, Sands up on Macau limits; Swift keeps falling

By Paul Deckelman and Paul A. Harris

New York, April 22 -FireKeepers Development Authority was heard to have successfully priced an upsized offering of seven-year notes on Monday. After pricing at a hefty discount to par, the tribal gaming company's well-received bonds moved up solidly to around the par level.

There was some selective strength seen elsewhere in the casino sector, as traders quoted the bonds of Las Vegas Sands Corp., MGM Mirage and Wynn Las Vegas LLC up, along with the stock of those companies, on the news that the authorities in Macau will authorize no further casinos there - effectively freezing out any potential rivals for those three companies, each of which has gaming interests in the former Portuguese colony.

In a generally more buoyant market, big gainers included Six Flags Inc., still coasting on the momentum it generated with last week's announcement of improved revenue figures, Tribune Co., reportedly close to inking a deal to sell its New York-area Newsday publication, Levi Strauss & Co., and tech names like Freescale Semiconductor Inc., which was releasing quarterly results after the close.

On the downside, Swift Transportation Co. Inc. was once again stumbling along in the breakdown lane, driven lower by continued investor worries about rising costs for crude oil -and by extension, diesel fuel.

Sources were marking junk 1/8 to ¼ point lower on Tuesday. However they maintained that high yield outperformed equities, with the major U.S. stock indexes ending the day 0.82% to 1.29% lower.

"Over the past three weeks we've had a pretty big rally, but it seems as though it has stalled out here," commented a source from a high yield mutual fund.

However a high yield syndicate official saw the glass half full.

"Even today, with the Dow down 100 points, the high-yield market kind of held in," the source said.

Back in the new-deal arena, price talk emerged on CCS Inc.'s upcoming issue of seven-year senior notes.

FireKeepers tight to talk

One new issue cleared the market during the Tuesday session - a tribal casino project financing led by Merrill Lynch.

FireKeepers Development Authority priced a $340 million issue of 13 7/8% seven-year senior secured notes (B3/B) at 96 to yield 14.804%.

The notes were priced at the tight end of both the 14% area yield price talk and the original issue discount price talk which had them coming at 95 to 96.

The informed source said that the deal went quite well and played to a very oversubscribed order book.

Late in the afternoon a buy-side source, who did not get involved in the deal, was spotting the new FireKeepers 13 7/8% notes due 2015 trading at 99¾ bid, 100½ offered.

Meanwhile a sell-side source who was not involved in the trade, but who was keeping an eye on it, said that the buzz around the FireKeepers deal was that it played to an order book that was five-times oversubscribed.

This sell-sider said that when the deal first hit the market the whisper had the yield coming as high as 16%.

The source was spotting the new FireKeepers 13 7/8% notes at 99 5/8 bid, 100 1/8 offered.

The official also disclosed that after the Tuesday close there had been a seller at par, however a buyer had yet to surface.

New FireKeepers bonds are hot

When the new FireKeepers 3 7/8% notes due 2015 were freed for secondary dealings, traders saw them shoot right up, with one quoting the new bonds at 99.5 bid, 100.5 offered, up 3½ points on the session from their issue price at 96.

Another saw the bonds at 99 bid, 100.5 offered, observing that the issue had made "quite a move. They did really well."

He noted that "what typically happens is that the bankers will paint a picture that the company has to come wide of talk [pricing the bonds at a sufficient discount to boost the yield to attractive levels] and offer incentives for the investment community to be interested, like being senior secured, or having eight or nine interest coupons placed in escrow."

He continued that at some point, "the buy-side is very comfortable with the credit and there is enough interest in it, so that where the sizable accounts need such a substantial amount of bonds to make a difference in their account percentage-wise, they have to add to their allocation once the bonds free up."

That need to buy more bonds "creates the frenzy once the bonds are free to trade" that results in strong upside movement in initial aftermarket dealings. "When an issue is oversubscribed, of course, everyone is cut back. So if there's truly a decision where this is going to be a core position, the account needs to have a minimum amount of bonds, so that's why he has to add more bonds," creating further upside pressure on the news issue."

Macau move boosts other gaming names

Elsewhere in that same gaming sector, a trader saw Las Vegas Sands' 6 3/8% notes due 2015 up a point at 88.5 bid, 89.5 offered, while Wynn Gaming's 6 5/8% notes due 2014 were up ¾ point at 97 bid, 98 offered.

At the same time, he noted, over on the equity side, "there was strength - the Wynns were up $7 and Las Vegas Sands up $6." (Technically speaking, Wynn Resorts Ltd.'s New York Stock Exchange-traded shares rose $7.10, or 7.43%, to $102.64 on twice-normal volume of 4 million shares, while Las Vegas Sands' NYSE-traded shares gained $5.96, or 9.16%, to close at $70.99 on nearly triple the usual volume of 8.9 million shares).

A second trader said the Wynn bonds were up ½ point at 97 bid, 97.5 offered while the Las Vegas Sands paper was ¾ point better at 97 bid, 97.5 offered, although adding that trading wasn't all that active.

A market source at another desk saw MGM Mirage's 6 5/8% notes due 2014 up more than a point at 87.625, while yet another source called those bonds ½ point higher at 88.5. MGM's NYSE-traded shares were up $1.67, or 3.40%, to $50.73, though volume of about 3 million was pretty much normal.

The proximate cause of the rise in the bonds and the shares was the announcement by Edmund Ho, the chief executive of Macau - a special administrative region of China - that no new gambling concessions will be licensed there in the foreseeable future. Ho said that the 2002 decision to break the local gambling monopoly and license a half-dozen operators there, including the three Las Vegas-based companies, has helped to stabilize Macau's economy and improve its living conditions. He said that it is now up to his government to take a step back and "review and estimate the development of the industry."

The freeze on new licenses, the first trader said, "looks good for these guys [Wynn, Las Vegas Sands and MGM]" - especially since it leaves rival Harrah's Entertainment Inc. on the outside looking in, with apparently no chance to gain one of the coveted licenses for the near future.

"There's going to be a lot of money coming in there [to gamble]" at a relative handful of venues, including Wynn's eponymous Wynn Macau, Las Vegas Sands' two resorts, the Sands Macao and the Venetian Macao, and MGM Mirage's entry, the MGM Grand Macau, which opened late last year. By contrast, he noted, "look at all of the spots you have in Vegas," which dilutes the gaming revenues among many more operators. The Macau casinos, meantime "are extremely high end - like a Monte Carlo kind of deal."

In fact, Macau's gaming revenues in 2006 came in just under $7 billion, about equal to those of Las Vegas. Last year, Macau's gaming revenues jumped to some $10 billion, according to figures from the special administrative regional government.

The good news for Wynn, Sands and MGM did not translate into any major move by gaming names in general, because it only benefits those three companies and in fact is a negative for others who might want to get a piece of the action in Macau but can't now, such as Harrah's. At any rate, one of the traders said, "that sector is slightly being shunned right now," since it is feeling the pinch as Americans cut back on expensive discretionary spending, "so it would be very unusual to get any kind of a euphoric reaction."

Market indicators flat to firmer

A market source saw the widely followed CDX index of junk bond performance bid at 96.40, off marginally from Monday's level at 96.5 bid, 97 offered. Meanwhile, the KDP High Yield Daily Index rose by 16 basis points to 75.53 from 75.37, while its yield tightened by 3 bps to 9.29% from 9.32%.

In the broader market, advancing issues outpaced decliners by around a five-to-three margin. The level of activity, as measured by dollar volume, jumped about 60% from Friday's sleepy levels.

Even so, a trader said, "it was a quiet day overall, not a lot going on," while another said it was his impression that "it's another spring break week," with some schools closed and people consequently taking vacation time.

Six Flags keeps flying

Six Flags' bonds continued to push upward, apparently helped by the momentum from last week's positive revenue figures. A market source saw the New York-based theme park operator's 8 7/8% notes due 2010 some 2 points better at 79.5, while its 9 5/8% notes due 2014 were up almost 2 points to the 63 level.

The bonds have been firming ever since last Thursday, when the company announced that revenues rose a robust 35% year-over-year in the first quarter to $68 million, up from $50.7 million a year before. That also beat Wall Street expectations of around $53 million. Six Flags attributed the big gain to increased attendance and heavier guest spending.

Freescale up ahead of figures

Freescale Semiconductor's bonds rose ahead of the release - scheduled for after the close Tuesday - of its first-quarter earnings report and the accompanying conference call by company executives. The Austin, Tex.-based maker of computer chips said that it racked up net sales of $1.41 billion during the quarter, with adjusted EBITDA of $374 million, and said that as of the end of the period on March 28, it had cash, cash equivalents and short-term investments of some $1.25 billion.

Ahead of that data, Freescale's 10 1/8% bonds due 2016 were nearly 2 points better at 74.5 bid, while its 9 1/8% notes due 2014 rose nearly 3 points to 77, both bonds seen as actively traded. Another market source pegged its 8 7/8% notes due 2014 up a point at 83.

Sector peer Amkor Technology Inc.'s 7¾% notes due 2013 were up nearly a point at 94 bid, although Seagate Technology HDD's 6.8% notes due 2016 were down more than ½ point at about the 95 level.

Elsewhere, a trader saw Levi Strauss' 8 7/8% notes due 2016 up 2 points at 101 bid, 102 offered, but said he had seen "no news" about the venerable San Francisco-based apparel company.

He saw Tribune Co.'s 5½% notes coming due in October up 2 points on the day to 94 bid, 96 offered, citing market buzz that the Chicago-based newspaper company was nearing an agreement to sell Newsday to Rupert Murdoch's News Corp. for around $580 million. However, other news stories said that Murdoch rival Mortimer Zuckerman - his Daily News goes head-to-head against Murdoch's New York Post in the Big Apple's tabloid wars - was getting ready to submit a new bid for the Long Island daily paper.

Swift being towed lower

On the downside, a trader saw Swift Transportation's 12½% notes due 2017 at 33.5 bid, 35.5 offered and called them down another 5 points, although he said the movement came in the morning and he hadn't seen anything happening with them since then. Another trader also saw them several points lower at 33 bid, 35 offered.

They saw no fresh news out on the Phoenix-based trucking company - whose bonds have been on the slide since last week - but speculated the retreat was due to investor angst over escalating prices for oil, which hit $119 a barrel Tuesday - and by extension, diesel fuel, the trucking industry's lifeblood, which is now selling for well over $4 a gallon - up more than $1 from where it was a year ago.

Backlog bullishness

A high yield syndicate official acknowledged having lately become bullish on the LBO-related backlog of hung high yield bonds and leveraged loans.

The source is now spotting the combined backlog, once estimated to have been north of $230 billion, presently at $150 billion to $160 billion.

This banker threw in with the building consensus which holds that the bank loan backlog is now being sold down much more quickly than the bond backlog.

The official estimates that the bond backlog could be as high as $75 billion, or as low as $65 billion.

If it's $75 billion it implies that the bank loan portion is now down to around $80 billion, the official said.

"It appears now as if the loan backlog will actually start to dip below the bond backlog at some point."

BCE and Clear Channel

This official includes in the tally the hung LBO-related debt of Bell Canada (C$23.05 billion loans, C$11.3 billion bonds) and Clear Channel Communications Inc. ($19.525 billion loans, $2.6 billion bonds) as part of the total, but specifies that both transactions have lately been taking on the goodbye look.

Indeed, throughout the capital markets the purchase of flowers for the funeral of Clear Channel's LBO seems to be well underway. On Tuesday a buy-side source noted that the underwriter group involved in the Clear Channel is seeking arbitration.

However when Prospect News told the investment banker that early this month an informed source professed the expectation that the Bell Canada deal would go through, the banker did not object.

"I think people want the Bell Canada deal not to happen," the banker clarified, adding that for such a huge amount of supply to come off the calendar would provide an immense boost for prices in the secondary market.

Still today's news

Lately sell-side sources have been telling Prospect News that the leveraged markets are becoming satisfied that the backlog is being dealt with - the implication being that the junk bond and leveraged loan markets are poised to move on to new business.

The investment banker who spoke on Tuesday, the aforementioned bullish stance on the backlog notwithstanding, said that these sell-siders may be getting ahead of themselves.

"Estimates of the backlog are getting down to $150 billion or below," the banker said.

"That's definitely positive news, and it's one of the reasons we have rallied - and stabilized, somewhat - over the past two weeks.

"I don't think it's yesterday's news, however."

This source said that a return to normalcy in the leveraged markets requires some meaningful CLO formation.

Prospect News pointed out that on Monday Carlyle Group announced the final close of a $450 million CLO.

"Remember back in the heyday when the pipeline was $100 billion, and CLOs were seeing inflows of $10 billion a week?" the banker countered.

"We're not there yet.

"We're seeing a little bit of formation, and a little progress.

"But you still need to see CLO formation before we start becoming overly bullish."

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