Junk eases in dull trading; Wynn active on earnings, MGM off; Tyson talk emerges, deal could come sooner

By Paul Deckelman and Paul A. Harris

New York, Feb. 25 - The high yield market was generally easier Wednesday, with no overriding themes seen in a session that one trader termed "a little boring."

There was substantial activity in gaming issues, particularly Wynn Las Vegas LLC, which released disappointing fourth-quarter earnings late in Tuesday's session, and in MGM Mirage, whose bonds "got hit," a trader said, ahead of the company's release of quarterly numbers.

In the telecommunications area, Sprint Nextel Corp.'s bonds were mixed in active trading, while Mediacom Broadband's notes firmed on pretty good fourth-quarter results.

Terex Corp. improved after the Westport, Conn.-based heavy equipment maker got its lenders to agree to easier covenant terms.

In the primary market, price talk emerged on Tyson Foods Inc.'s upcoming five-year note issue, which, like many of the recent new junk deals, envisions the bonds coming at a significant discount to par to obtain a double-digit yield. And while the Springdale, Ark.-based meat and poultry producer's offering had been expected to probably price on Friday, it could now hit the market before that, due to an early closing of the order book for the deal.

Market indicators turn lower

A trader saw the widely followed CDX High Yield 11 index of junk bond performance - which had jumped over a full point on Tuesday - falling back by ¾ point Wednesday, to 72½ bid, 73 offered.

The KDP High Yield Daily Index fell by 30 basis points to 53.09, while its yield widened by 11 bps to 13.85%.

In the broader market, advancing issues continued to trail decliners, though by a narrower margin.

Overall market activity, measured by dollar-volume totals, declined by about 9% from the levels seen in Tuesday's session.

One of the traders characterized Wednesday's market as "a little boring," adding that "all of the action has been in the stock market," which bounced around in volatile trading - down sharply at one point on investor disappointment that Tuesday night's major address by president Barack Obama did not offer enough clarity on government plans for pumping up the economy and rescuing the hard-hit banking sector, but later trimming those early losses as the Treasury Department outlined in some detail plans to "stress test" banks to determine if they need further capital, while Federal Reserve chairman Ben Bernanke for a second straight day explicitly rejected the notion of the government nationalizing the banks. Treasury chief Timothy Geithner also appeared to rule out such a course.

That helped the bellwether Dow Jones Industrial Average - down as much as 194 points at its worst - end the day down a relatively modest 80.05 points, or 1.09%, at 7,270.89. The Dow, however, at one point had actually shrugged off its early losses to advance 54 points, before surrendering that gain and heading back to the downside. In the broader equity markets, the Standard & Poor's 500 index ended down 1.07%, while the Nasdaq composite index lost 1.14%.

Another trader, when asked what was going on, answered "not much," while a third noted that two of the big issues often seen as barometers for the overall junk market, Community Health Systems Inc.'s $3 billion-plus of 8 7/8% notes due 2015 and First Data Corp.'s $2 billion-plus of 9 7/8% notes, also due 2015, both indicated a lower market. Franklin, Tenn.-based hospital operator Community Health's bonds dipped ¼ point to a round-lot level of 94.75 bid, on $10 million traded, while Greenwood Village, Colo.-based financial transaction processor First Data's paper was ¾ point lower at 56 bid, also on $10 million, although the trader said that volume "shouldn't be considered a lot for the size of the issue, yet, it doesn't seem to be a really active one."

Although those two sometime-proxies for the overall market were to the downside, he opined that "I personally didn't feel that [lower] tone, generally, but there were some selected issues that got hit."

Other sources said cash bonds ended the Wednesday session flat to ¼ point lower.

Benchmark names that were hammered on Tuesday failed to regain much ground, if any, on Wednesday, according to a buy-side source who added that Hertz Global Holdings, Inc. and TXU Corp. saw precipitous drops during the Tuesday session.

TXU's 10¼% cash-pay bonds were down another ½ point on Wednesday, the source added.

"Stocks made a comeback, but then fell off pretty bad at the end of the day," the buy-sider said, noting that both the Dow and the S&P 500 sustained 1% losses on Wednesday.

"No one is going to do anything until they get the banks figured out," the buy-sider said, referring to a six-month deadline set by the government for the biggest US banks to raise whatever capital is deemed necessary by regulators following "stress tests" which are expected to wrap up by the end of April.

"It's just bull," the buy-sider said.

"No one wants to give the banks any capital.

"The government needs to isolate the toxic assets. That's the only way to regenerate credit and revive the housing market."

Wynn continues to lose - or not

A market source said that Wynn Las Vegas' 6 5/8% notes due 2014 were down 1¼ point on the session at 70.25 bid, versus 71.5 on Tuesday, when the Nevada gaming company reported disappointing fourth-quarter results. At one point, the source said, the bonds were down as low as 69 bid.

However, another trader saw the issue get as good as 71.5 bid during Wednesday's session, before coming off that peak to end at 70.5, which he called unchanged on the day.

And at yet another shop, the bonds were also seen having finished at 70.5 - although that was called a 1½ point gain on the session.

One thing that everyone could agree upon, though, was that Wynn was one of the most heavily traded bonds seen in Wednesday's dealings, with $52 million changing hands.

Wynn's bonds had also dropped, more sharply, on Tuesday after the company reported a $159.6 million net loss in the fourth quarter, versus net income of $65.5 million a year earlier, pulled down a plunge in gaming revenue and a hefty $98.8 million in tax payments. Adjusted earnings, excluding unusual items, were $7.6 million or 7 cents per share, just a fraction of the roughly 45 cents per share that Wall Street had been expecting.

Wynn noted the "dramatic deceleration" of the gaming business in its home base of Las Vegas, where it has two luxury resorts side-by side, including the recently opened Encore. Wynn has had to lower some its sky-high rates to boost occupancy, but says that it has to keep them fairly high to attract the kind of big-spending customer it needs to support the high-end restaurants, shops and other amenities at its hotels.

Earnings at its Macau casino resort in China were OK - but not strong enough to offset the Vegas decline.

The company's New York Stock Exchange-traded shares meantime slid $4.05, or 15.70%, to $21.75 on Wednesday, on volume of 7.7 million, around 3½ times the norm.

MGM Mirage off ahead of expected numbers

Also in that sector, Wynn rival MGM Mirage's bonds "got hit," a trader said, as investors anticipated what is probably going to be a pretty depressing quarterly report; although the company did not officially specify when the numbers would be released, some people were speculating that they could come Thursday, leading to a sharp upswing Wednesday in activity in put options on its shares, essentially a bearish bet against MGM.

In the junk market, the trader said that the Las Vegas-based gamer's 6½% notes coming due on July 31 fell to a round-lot level of 82.5, or a 59% yield to maturity, from 85 on Tuesday, though volume was only $2 million.

Far busier was its 5 7/8% notes due 2014, down a point at 46.5 on $8 million traded. Its 6 7/8% notes due 2016 lost 2 points to end at 45.5 bid on $7 million, while the most actively traded MGM, the 7½% notes due 2016, ended down nearly 3 points on the day at 45.75, on $9 million of volume.

A market source at another shop saw its 7 5/8% notes due 2017 at 47 bid, down 4 points on the day, while its 6 5/8% notes due 2015 were down 3 points at 46.

MGM's NYSE-traded shares lost 45 cents, or 10.11%, to end the day at an even $4, on volume of 6.1 million, around 1½ times the usual turnover.

When it reports, MGM is expected to post a profit of around 17 to 19 cents per share for the fourth quarter - a sharp drop from year-ago earnings of 43 cents per share. And if the past is any guide, the company's earnings probably won't even go that high, since MGM Mirage missed Wall Street's expectations in each of the last four reporting periods by an average of more than 12%.

Mediacom up on numbers

Not everyone's bonds are being done in by bad numbers, however; Middletown, N.Y.-based broadband provider Mediacom Communications Corp.'s 8½% notes due 2015 jumped nearly 3 points on the day to the 86 level.

Medicom reported a string of positives for the fourth quarter. Its revenues increased 8.3% to $360.2 million, its adjusted operating income before depreciation and amortization , or adjusted OIBDA, a key telecommunications industry performance metric, rose 8.4% to $129.6 million, while operating income rose 37.5% to $73.7 million. Another industry metric, average monthly revenue per basic subscriber, increased 8.9% to $90.88.

Mediacom, in announcing its results, also said that "despite the current economic uncertainties, we still expect to increase revenues and adjusted OIBDA in 2009, although at reduced growth rates than achieved in 2008. Moreover, due to an expected 20%-25% decline in capital expenditures in 2009 and the reduction in common shares outstanding ... we anticipate generating after-tax free cash flow of about $1 per share for full year 2009, up from less than $0.10 per share in 2008."

Analyst Shelly Lombard of the Gimme Credit investment research service characterized those results as "solid," and noting its "strong subscriber growth" in recent quarters and the fact that it seems to be "back on track" after some recent problems, says her service remains "cautiously optimistic" about it.

Sprint activity spirited

A trader saw Overland Park, Kan.-based telecom provider Sprint Nextel's 8 3/8% notes due 2012 trading unchanged at 80.5, but with "some activity," as $18 million of the bonds changed hands.

Another market source saw busy trading in its 6% notes due 2016, up a point at 66 bid, although its Sprint Capital Corp. unit's 7 5/8% notes due 2011 lost 3 points to close at 82.

Terex is tops after loan amendment

A market source saw Terex's 7 3/8% notes due 2014 up 1½ points to 85.5 bid.

A trader at another desk saw those bonds at that same level, also calling them 1½ point gainers.

That followed the news that Terex had entered an amendment of its existing credit agreement, easing the fixed-charge coverage-ratio covenant during 2009 and the first quarter of 2010.

It said it sought the easier terms from its bankers because it may have otherwise been unable to comply with the covenant this year.

AIG keeps gyrating

A trader said that American International Group Inc. paper was "all over the place." He saw its 5.85% notes due 2018 as "a pretty active one," trading in a 50-52 range. "They traded on both sides of that - 51 would be unchanged."

Another trader saw them move to a round-lot level of 52, down ½ point from Tuesday's close, on $13 million traded - quite a comedown from Tuesday, when some $80 million changed hands, as investors reacted to reports that the troubled New York-based insurance giant was seeking a restructuring of its $150 billion federal bailout.

AIG's International Lease Finance Corp.'s 33.5% notes coming due on April 1 eased to 93.5 bid, or an 88% yield to maturity, from 94.5 on Tuesday. Volume was $28 million.

GM gains, Hertz mixed, Visteon off

In the automotive realm, a trader saw General Motors Corp.'s benchmark 8 3/8% bonds due 2033 up a point on the day at 15 bid, 16 offered, while rival Ford Motor Co.'s 7.45% bonds due 2031 were unchanged at 18 bid, 20 offered.

A market source saw Hertz Corp. bonds - which were sharply lower on Tuesday - mixed on Wednesday, with the Park Ridge, N.J.-based car-rental company's 10½% notes due 2016 up about 2 points to the 40 bid level, while its 8 7/8% notes due 2014 fell another nearly 2 points to 52.5 bid.

Another source saw the latter bonds down 1¾ points on the day to 51.5, though on considerably less volume - only about $5 million - than the $30 million that changed hands on Tuesday in response to the company's bad quarterly numbers and earnings projections.

Elsewhere, a trader saw Visteon Corp.'s 8¼% notes due 2010 "right around " 10.5 bid, which he called "down a couple of points," as the Van Buren Township, Mich.-based parts company warned that it might have trouble complying with the covenants in its lending agreements.

However, he did not see any trading in the 7% notes due 2014, which he said had recently been quoted n the "low single digits, around 2-4, but with no trades. The 81/4s at least trade once in a while."

At another desk, a market source did peg the 7s down nearly a point on the day in the 4 area.

Elsewhere among the parts suppliers, Lear Corp.'s 5¾% notes due 2014 gained more than a point to end at 17 bid.

Tyson moved up due to demand

In the primary market, Tyson Foods Inc. will close the order book a day early for its $500 million offering of senior notes due 2014 (Ba3/BB), according informed sources.

The books will close at noon ET on Thursday, instead of on Friday. Pricing is expected on Thursday afternoon.

The move-up in timing is due to demand, a buy-side source said.

Meanwhile the Springdale, Ark.-based food manufacturer set yield talk in the 12½% area, and added that it expects to discount the notes to approximately the 92.5 area.

JPMorgan, Banc of America Securities, Barclays Capital and Wachovia Securities are joint bookrunners for the non-callable notes.

Proceeds will be used to terminate commitments under the company's existing accounts receivables facility, as well as to repay and/or refinance other debt and for general corporate purposes.

Although there was no other hard news from the high-yield primary on Wednesday, a small deal is expected to surface on Thursday, according to a syndicate official who declined to furnish either an issuer name or a sector.

Another deal is likely being teed up for launch next week, the source said.

Meanwhile cash continues to flow into the high-yield accounts, according to a mutual fund manager.

High-yield accounts play Nevada Power

There were high-yield accounts involved in Nevada Power Co.'s $500 million issue of 7 1/8% 10-year general refunding mortgage notes (Baa3/BBB/BBB-) which priced Wednesday at Treasuries plus 425 basis points, according to an informed source.

In general there has been a modicum of junk play lately in six-B rated high-grade deals, the source added.

Nevada Power's mortgage bonds were rated Baa3 by Moody's Investors Service, BBB by Standard & Poor's and BBB- by Fitch Ratings.

The Nevada Power notes priced at 99.917 to yield 7.136%.

Andrea Heisinger contributed to this report

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