Mohegan upsizes 10-year deal; Georgia-Pacific up on good earnings; funds see $358 million outflow

By Paul Deckelman and Paul A. Harris

New York, July 29- Mohegan Tribal Gaming Authority had the hot hand Thursday as the Uncasville, Conn.-based Native American casino operator was heard to have successfully priced an upsized issue of 10-year notes.

In the secondary arena, Georgia-Pacific Corp. bonds firmed by about a point after the Atlanta-based lumber and paper producer reported improved second-quarter numbers. Also on the upside was Dex Media Inc. after Moody's Investors Service raised the company's rating late Wednesday.

And after trading had finished for the day, market participants familiar with the weekly high-yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif. told Prospect News that the funds had a net outflow of $358.0 million in the week ended Wednesday.

That outflow breaks a four-week winning streak during which time a total of some $977.4 million more came into the funds than left them, according to a Prospect News analysis of the AMG statistics, including the $196 million inflow seen in the week ended July 21.

Even though mutual funds account for but a percentage of the total capital in the high yield universe, market-watchers consider their movements a generally reliable barometer of overall junk bond market liquidity trends.

After a strong start the first four weeks of 2004 - seen by analysts as a carryover from the extremely strong 2003 inflow trend - its been pretty much all downhill from there, with some $6.15 billion more leaving the funds than has come into them in the 26 weeks since the week ended Feb. 4, according to the Prospect News analysis. That was when the mostly negative stretch started, with the first of two back-to-bask outflows of over $1 billion. Since that time, outflows have been seen in 17 of those weeks, versus only nine inflow weeks.

Even counting the four strong weeks at the beginning of the year, the fund-flows picture is not much better; in the 30 weeks since the beginning of the year, inflows have been seen in just 13 of the weeks, versus 17 outflows. The total cumulative outflow for 2004 is $4.779 billion, according to the Prospect News analysis of the fund-flows data.

Those outflows have kept the high yield secondary market pretty much off balance, as the strong showing early in the year faded into a more indefinite pattern of ups and downs. The primary market, which also began the year on a red-hot roll, has also been generally issuing new bonds at a more sustainable market pace since then.

A sell-side official, mulling the outflow news, said that August, just two days away, is historically a good month for spotting outflows from the junk funds.

"It's pretty seasonal," said the official.

"You tend to see red in August every year, including last year, which otherwise was a huge year for total inflows."

The source added that "another medium-sized outflow" next week will not be surprising whatsoever.

This investment banker also conceded that the new issue calendar is now conspicuously built up for a season in which investors' attention is not as easy to get with so many on vacation.

Nevertheless, the official added, the companies now in the market are correct in coming, regardless of how thinned the buy-side ranks might be.

"Issuers should assume that rates are going up," the banker said. "And they should come now, while the gettin' is good. Because who knows where rates are going.

"Despite the volatility in recent days all that will matter in the end - even if at the time of pricing levels shift up an eighth to a quarter of a point - is that you are still going to do better now than if you wait six months, if interest rates go where everybody assumes they are going."

Another sell-side source, who noted that issuers don't have very much time left to launch if they intend to roadshow a deal and price it before Labor Day, also contended that for issuers the present is more promising than the foreseeable future.

"People are trying to get things done because the rates are kind of moving away from us, which adds some fuel to the fire," said the official.

"Let's face it, Greenspan doesn't really care that we saw kind of a soft spot in June. The Fed is determined to continue the rate hike."

Mohegan drive-by

As evidence, the drive-by market, active throughout the July 26 week with names such as Host Marriott Corp., Smithfield Foods Inc. and Chesapeake Energy Corp. (not to mention a stalled deal from Tenneco Automotive Inc.) continued to crank during Thursday's session.

This time it was Mohegan Tribal Gaming Authority dealing 10-year bonds in an issue that it upsized to $225 million and priced in the middle of talk.

Mohegan's quick-to-market $225 million issue of 10-year senior subordinated notes (Ba3/BB-) priced at par on Thursday to yield 7 1/8%, in the middle of the 7%-7¼% talk.

Citigroup, Banc of America Securities and SG Americas Securities ran the books for the Uncasville, Conn. tribal gaming company's debt refinancing deal.

The deal was upsized from $200 million.

Talk on PanAmSat's $1.01 billion deal

Meanwhile the market heard that price talk is 8¼%-8½% on PanAmSat Corp.'s upcoming $1.01 billion offering of 10-year senior notes (B1/B+), expected to price early Friday afternoon via Credit Suisse First Boston and Citigroup

And price talk of 10¾%-11% emerged Thursday on Magyar Telecom BV's planned €140 million of eight-year senior notes (Caa1/B-), which are expected to price on Friday via Credit Suisse First Boston and BNP Paribas.

One informed source told Prospect News that the Magyar deal is going very well.

"We have built a strong book with a combination of traditional high yield accounts and also emerging markets buyers who like the scarcity value since there is very little in the way of Hungary paper to play in," the source commented in an email message to Prospect News.

"The strong free cash flow profile of the company has grabbed investor's attention - they are very much looking at this as an incumbent within its local market concession areas. Investors are taking comfort in the utility-like nature of the asset. Management is also playing extremely well on the road."

Details on Securus

Finally, Securus Technologies, Inc. has a roadshow underway for $190 million of eight-year non-call-four senior notes (B3/B+), with pricing expected to take place late in the week of Aug. 2.

Credit Suisse First Boston and Morgan Stanley are joint bookrunners for the deal from the Denver-based security services provider.

Mohegan up in trading

When the new Mohegan Tribal Gaming Authority 7 1/8% notes due 2014 were freed for secondary dealings, a trader saw the bonds firm to 100.75 bid, 101.25 offered from their par issue price.

The already existing Mohegan 6 3/8% notes due 2009 were meanwhile seen up nearly a full point, at 101.375 bid.

And a trader saw Smithfield Foods Inc.'s new 7% notes due 2011, which priced too late on Wednesday to trade, straddling their par issue price in initial dealings Thursday morning, at 99.75 bid, 100.25 offered - but then pushed up to close at 101 bid, 101.5 offered.

He called trading in the Smithfield, Va.-based meatpacking company's new bonds "decent.

"They upsized the deal from $200 million to $400 million and priced it right at 7%. We had buyers all day."

Georgia-Pacific better on earnings

Back among existing issues, the trader saw Georgia-Pacific's bonds firm modestly on "very solid numbers." He saw the bonds up about a point early in the day, although they "gave a little of it back" to close up perhaps half a point. He attributed the late day easing from the peak levels to profit-taking, also noting that "that paper is very tight, as it is."

He quoted the company's 8 1/8% notes due 2011 at 111.5 bid, 112.5 offered and its 7.70% notes due 2015 at 108 bid, 109.5 offered, both half a point up on the day.

Another trader also liked Georgia Pacific, although from his perspective, the bonds actually "widened out" slightly after release of the numbers, after having rallied "tremendously over the past couple of weeks" in anticipation of the earnings results. "They're buying back debt and selling assets," he said. "I think the anticipation here could potentially be an upgrade."

But in Thursday's dealings, it was a classic case of "buy the rumor, sell the news," he said.

He also saw the 8 1/8s at 111.5 bid, 112.5 offered, while the 7.70s were at 107 bid, 108. However, he pointed out that just a few days ago the former bond was trading around 108 bid, 109 offered while the latter was at 103 bid, 104 offered.

The company reported second-quarter earnings of $220 million or 84 cents a share for the three months ending June 30, compared to a profit of $61 million or 24 cents a share in the same period a year ago. Striking out one-time items, such as earnings charges related to its debt, restructuring and severance costs, and Georgia-Pacific did even better - $239 million or 91 cents a share, even though that was a tad below Wall Street's expectations of 92 cents.

The trader said that not only has Georgia-Pacific been rallying lately, so have such sector peers as Bowater Inc. and Abitibi-Consolidated Inc.

However, he said "Abitibi and Bowater are two names that don't have the same financials as Georgia Pac. [Georgia-Pacific] is less than five times levered and kicks out free cash flow and is buying back debt and selling assets, whereas Abitibi and Bowater are [something like] six, seven, eight, nine times levered, no free cash flow or very little free cash flow, they're highly levered companies. It's just a different ballgame on these two.

AT&T 20bps wider on downgrade

Elsewhere, the trader saw the bonds of AT&T Corp. "widen out maybe 20 basis points," after Moody's Investment Service cut the once mighty Telephone's debt ratings to junk status, with the senior unsecured rating falling two notches to Ba1. Moody's cited "relentless competition" that the ratings agency fears will cause the phone company's sales and profits to fall faster and more sharply than it had originally anticipated.

For the moment, the debt is still considered investment grade by Standard & Poor's which has the BBB bonds on CreditWatch negative, but the trader said they are "expected to be downgraded" there as well.

Following the Moody's news, the company's 8.05% notes due 2011 and 8¾% bonds due 2031 were quoted 20 basis points wider, the former at 320 bps over Treasuries bid, 310 bps over offered, while the latter was at 390 bps over bid, 380 bps over offered.

Those particular bonds were the focus of some investor interest because both have indenture clauses that call for their coupons to step up by 50 bps in the event of a downgrade to junk, starting with the next coupon date, which for both of these issues is in November.

For the moment, the trader said, the bonds still trade on spread, but he predicted that they'd be quoted in dollars, as other junk issues are, before very long.

After the long-expected downgrade and the subsequent widening out, "we still got some buyers in here," apparently sensing a buying opportunity.

At another shop, a trader was quoting the 8.05% notes as having finished at 315 bps over bid, 295 bps over offered, while the 8¾% notes were at 395 bps bid, 375 bps offered.

Dex gains on upgrade

Dex Media's bonds also got some news from the ratings agencies - but it was good news for the Englewood Colo.-based telephone directory publisher, as Moody's late Wednesday raised Dex Media's senior implied rating to Ba3 from B1 and boosted its issuer rating to B3 from Caa2, with a stable outlook.

The ratings agency said the action reflected the reduced volatility in Dex's financial profile, its proven access to the public debt and equity markets, and expected further deleveraging due to continued strong cash flow.

A market source saw Dex's zero-coupon notes due 2013 firm to 69 bid from 68.25 previously, and saw its 8% notes due 2013 got to par from 99 bid. Its 12 1/8% notes ended up at 1118.25 bid from 117.5, and its 9 7/8% notes were half a point better at 113.

Owens-Illinois rises on sale

Owens-Illinois Inc. debt was seen a little higher, on news that the Toledo, Ohio-based packaging maker will sell its blow-molded plastic container operations to Graham Packaging Co. for $1.2 billion in cash, with proceeds to go for debt reduction.

Owens-Illinois' 7½% notes due 2010 were seen a point better at 101, while its 8.1% notes due 2017 were a point-and-a-quarter better at 105.

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