Mohegan bonds firmer on tender offer news; Jean Coutu readies

By Paul Deckelman and Paul A. Harris

New York, July 19 - Bonds of Mohegan Tribal Gaming Authority were seen firmer Monday, as investors reacted to Friday's news that the Uncasville, Conn.-based Native American gaming operator will tender for those bonds using the proceeds of an upcoming new bond deal and credit facility borrowings. Also on the secondary scene, the bonds of such refining companies as Giant Industries and Premcor were higher, perhaps pulled up by a sharp rise in the former company's stock.

In the primary arena, price talk was heard to have emerged on Building Materials of America's planned $150 million notes offering, and new-dealers readied themselves for the expected pricing Tuesday of Canadian pharmacy operator Jean Coutu Group's retooled two-part offering of $1.2 billion of new notes. Assuming it comes in at or around that level, the Coutu offering would be the second billion-dollar-plus megadeal in three days, following Friday's successful pricing of a $1.25 billion three-parter for Freescal Semiconductor Inc.

But generally high summer found the high yield primary market, perhaps characteristically, adrift in the horse latitudes, as the week of July 19 got underway

While the stock market continued to retreat, with the Dow Jones Industrial Average declining by another 46 points during Monday trading, one sell-side source said that it was a bad day for stocks but a good day for bonds.

The source noted the 10-year Treasury closed with a 4.35% yield, holding the ground it gained on Friday, when it closed at 4.36%.

"Things are fairly slow now, but they will probably slow down some more as we move toward Labor Day laziness," the sell-sider said.

"We have some big deals in the market right now. After those price you can expect the forward calendar, which is right now at around $3.9 billion, to start dropping to the $1.5-$2 billion range, until after the holiday."

Week's deals take shape

Market sources relayed price talk on three of the six tranches in five deals totaling $2.865 billion that are expected to price during the present week.

Price talk is for a yield in the 8½% area on Jean Coutu Group's $950 million of 10-year non-call-five senior subordinated notes (B3/B), according to an informed source.

Meanwhile talk is 7¾% area on the Longueuil, Que.-based pharmacy chain's $250 million of eight-year non-call-four senior notes (B2/B), the source said.

The $1.2 billion deal is expected to price on Tuesday.

Deutsche Bank Securities and Merrill Lynch & Co. are the bookrunners for the offering, which was restructured from a single $1.2 billion tranche of senior subordinated notes late last week.

And price talk is 7 ¾%-8% on Building Materials Corp.'s $150 million of 10-year secured notes (B2/B+), expected to price on Wednesday, via Citigroup and Deutsche Bank Securities.

In addition to those three tranches, the market anticipates hearing terms by the end of the week on Foundation Pa. Coal Co.'s $300 million of 10-year notes (B1/B), Loews Cineplex Theatres $415 million of 10-year notes (B3/CCC+) and Refco Finance Holdings $600 million of eight-year notes (B3).

Crompton starts marketing Tuesday

One roadshow start was heard during Monday's primary session, as Crompton Corp. headed to the starting line with a $600 million minimum refinancing deal that kicks off Tuesday via Deutsche Bank Securities and Citigroup.

The company stated in a Monday press release that it may issue the securities in more than one series.

In addition the Middlebury, Conn.-based producer and marketer of specialty chemicals and polymer products and equipment announced it will obtain a new $200 million credit facility.

Deutsche sees subdued junk market

In last Friday's edition of Deutsche Bank's high yield strategy organ, the One-Stop Weekly, David Bitterman and Andrew W. Van Houten, the investment bank's co-heads of high yield research, reported seeing a new issue market that continues to move slowly, with returns, fund flows and issuance at "fairly quiet levels."

"Following five straight weeks of gains, The Deutsche Bank Global High Yield Index was down 0.57% during the seven-day period between July 8-15, reducing the year-to-date return to 1.53%," Bitterman and Van Houten write.

"While all major ratings classes were down, CCC's had the best relative performance losing only 0.35%. BB's and single B's were down 0.58% and 0.63%, respectively. With these results, CCC's have assumed the lead once again, returning 1.7% year to date, compared to 1.31% for BB's and 1.59% for single B's.

"The Western European sub-index outperformed its U.S./Canada counterpart, losing only 0.27%. If the currency exposure was hedged this loss would have been even smaller at 0.11%. Year to date, the Western European index is up 2.8% (3.26% on a fully hedged basis).

"...Finally, new issuance was once again slow with only $1.03 billion in new bonds pricing (since previous seven-day reporting period).

"To put things in perspective, this is approximately one-third of the average pace we saw during the first half of this year. The continued build up of the forward calendar to one of the highest levels in recent months, however, points to more primary market activity over the coming weeks."

Freescale holds high levels

The new Freescale Semiconductor Inc. bonds were seen continuing to cling to levels above 101 bid that they had held going home on Friday.

While the fixed-rate tranches - the 6 7/8% senior notes due 2011 and 7 1/8% notes due 2014 - were seen up slightly, at 101 bid, 101.5 offered, up about a quarter point on the bid side, while the floating-rate Libor-based notes due 2009 pushed up to 102 bid, 102.5 offered, up at least half a point on the session.

"In this environment, certainly there is very good interest in floating -rate notes," a trader said. "No shocker there."

But apart from the interest in the new Freescale deal - particularly the variable-rate component - "activity was minimal," said the trader, and not just high yield, but all marketplaces, as the markets wait for [Federal Reserve Board Chairman Alan] Greenspan," who is slated to give Capitol Hill testimony Tuesday and Wednesday.

Auto-linked names better

Another trader put it a bit differently - "a listless Monday in the summer," although he did see some selective pockets of activity, among them automotive-linked issues such as Goodyear Tire & Rubber Co., which "continued strong," he said. He quoted the Akron, Ohio-based tiremaker's benchmark 7.857% notes due 2011 pushing as high as 95 bid from prior levels at 94 bid, 94.5 offered.

Also up, he said, was truckmaker Navistar International's 7½% notes due 2006, rising half to 5/8 point to around 103.75.

"That whole sector was up," he noted, pegging Collins & Aikman Products Corp,'s 11½% notes at par, up half a point.

Indeed, he continued, "all of the basic industry names were firm," such as AK Steel Corp., whose 7 7/8% notes due 2009 were about half a point better at 98 bid, albeit on "pretty listless trading."

The trader also saw Great Atlantic & Pacific Tea Co.'s 9 1/8% notes due 2011 a point better to 89 bid and its 7¾% notes due 2007 up half a point at 96.75 bid, "firm in the face of [upcoming] earnings" for the recently underperforming Montvale, N.J - based operator of the venerable A&P supermarket chain. The bonds, he said, "have been on a pretty decent roll" of late

Mohegan up a point

Mohegan's 8 1/8% notes due 2006 pushed up to 106.5 bid, a point better, while its 8 3/8% notes due 2011 were better than a point ahead, at 111 bid, a market source said, on the news that the $350 million of bonds will be tendered for.

At another desk, however, the 8 1/8% notes were seen as high as 107.5 bid, while the 8 3/8s got as good as 113.75 on the tender news.

Flextronics gains ahead of earnings

Other upsiders, a trader said, included Flextronics International's 6½% notes, up a point-and-a-half to 99.5 bid, par offered head of the release, right after the market closed Monday, of quarterly numbers for the Singapore-based maker of high-tech goods for brand-name companies.

Flextronics reported net income for its first fiscal quarter ended June 30 of $74.3 million (13 cents a share), versus a year-ago net loss of $289.7 million (56 cents a share), when it had been weighed down by restructuring charges.

Delta down

Delta Air Lines Inc.'s bonds were seen having fallen back after the Atlanta-based airline released its second-quarter numbers - showing a nearly $2 billion loss against a year-ago profit (see related story elsewhere in this issue).

A trader quoted Delta "a little weaker, its 8.30% notes due 2029 down a point at 38.5 bid, 39.5 offered, although he saw Delta's 7.70% notes due 2005 actually up half a point at 64.5 bid. 65.5 offered.

Another trader saw the 8.30s push as high as 42 bid, before settling in at 38 bid, 39 offered "actually a little weaker on the day."

He speculated that perhaps the bonds got an initial bounce because Delta hadn't lost as much money as some in the market were expecting, but then fell back as the truth sank in - that Delta is continuing to bleed money at an alarming rate, especially with unrestricted cash falling to $2 billion from $2.2 billion the quarter before and $2.7 billion at the end of last year.

He saw the 7.70s at 63 bid, 65 offered, down half a point to a point.

Refiners rise

Back on the upside, petroleum refiners were stronger, as gas prices remain near high levels and Giant Industries stock jumped more than 12% to $24.85, near its 52-week high. No news was seen out on the company, and the stock gain was generally attributed to technical factors.

Giant's 11% notes due 2012 gained a point to 113 and its 8% notes due 2014 were likewise a point better at 102.

Sector peer Premcor was also on the upside, its 7½% notes due 2015 up a point at 106.5 bid, and its 6 7/8% notes due 2014 up better than a point at 103.

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