Station Casinos bonds fall on buyout news; United Auto prices add-on

By Paul Deckelman and Paul A. Harris

New York, Dec. 4 - Station Casinos Inc.'s stock sizzled but its junk bonds fizzled as debtholders reacted negatively to the news Monday that the Las Vegas-based operator of locally-oriented casinos had received a $4.7 billion buyout offer from its founding family and an affiliate of Colony Capital LLC.

Standard & Poor's downgraded the company's ratings in response, and Moody's Investors Service put Station under scrutiny for a possible ratings cut, citing the possibility that such a buyout could mean a major increase in the company's outstanding debt.

Elsewhere, auto names seemed to be better, led by General Motors Corp. and Ford Motor Co., whose bonds each firmed about a point in response to news reports that Cerberus Capital Management LP was in talks to buy some plants from bankrupt Troy, Mich.-based parts maker Delphi Corp., a former GM subsidiary.

Traders said that while the market was generally quite firm, activity was somewhat restrained, with many portfolio managers and other buyside decision-makers off at a Banc of America Securities credit conference in Orlando, Fla.

In the primary market, United Auto Group pulled in with a $50 million add-on offering to its existing 7 ¾% notes. And Williams Partners was heard getting ready to shop a $600 million offering of 10-year notes.

Station buyout bid rattles bondholders

Back on the secondary side, "Station Casinos - that was the game today," a trader said, quoting the company's 6½% notes due 2014 down 4½ points to 88.5 bid, 89.5 offered.

A trader at another desk said that the company's 6 5/8% notes due 2018 fell to 86 bid, 87 offered, from prior levels around 91 bid, 91.75 offered.

"There was a big move on those," he said, with some degree of understatement, while also quoting Station's 6½% notes due 2012 at 94 bid, 95 offered, down 1¼ points.

He said that it was likely that the company's "whole curve [of outstanding bond issues] got beaten down - with investors spooked at the prospect that the any deal to acquire Station will result in an leveraged buyout-type loading up of new debt on Station's balance sheet.

Such concerns caused S&P to cut Station's ratings to BB- from BB previously, while Moody's put its ratings, including Ba2 for its senior notes and Ba3 from its senior subordinated notes, on watch for a possible downgrade.

Besides the $4.7 billion the prospective owners will pay for the company's shares, the deal includes the assumption of about $3.4 billion of debt.

While Station's bondholders were reacting negatively, its shareholders felt that Lady Luck had come a calling on them; the company's New York Stock Exchange-traded shares jumped $15.80 (22.87%) to $84.90. Volume of 9 million shares was about seven times the norm.

A trader said that there seemed to be little carryover into the trading levels of other gaming bonds.

GM gets jump start from Delphi

Another trader saw General Motors bonds up about a point on news reports saying Delphi was in talks to sell some of its plants in the United States and Europe to Cerberus. The reports did not attach a price tag to the possible deal, and the information that such talks were going on was attributed to unidentified sources said to be close to the discussions.

Delphi refused to comment on the reported negotiations.

Delphi has been in talks with former parent GM and with the United Auto Workers union for months, trying to find ways to restructure its operations and, especially, cut labor costs. News that the troubled company may be able to unload a few plants on Cerberus helped push GM's benchmark 8 3/8% notes due 2033 up a point to 91.25 bid, 91.75 offered, and that in turn helped to tow Ford's bonds higher as well, with the Number-Two carmaker's 7.45% notes due 2031 up a point at 79.25 bid, 79.75 offered.

However, the trader did not see very much movement in the bonds of Delphi itself, which are already trading at very tight levels - its 6.55% notes that were to come due this year were at 105 bid, 106 offered, while its 7% notes due 2029 were unchanged at 103 bid, 104 offered.

However, a trader at another shop said, the Delphi bonds were "better," with the 6.55s quoted at his shop up ¾ point at 105.75 bid,106.75 offered, while Delphi's 6½% notes due 2013 were a point better at 103.5 bid, 104.5 offered.

That trader saw strength in other auto names, notably Metaldyne Corp., whose 11% notes due 2012 were seen trading firmly around the 99.25 bid, 100.25 offered level - now that the Plymouth, Mich.-based automotive parts maker's bondholders have given their consents to allow the company to proceed with its previously announced acquisition by Asahi Tec Corp.

Metals keep market firm

A trader said that "the whole market felt very, very firm across the board, with almost no exceptions" with metals "leading the charge."

He saw AK Steel Corp.'s 7¾% notes trading up to 101 bid, "a level it has not seen in many moons," from 99.5 bid, 99.75 offered previously, given a boost, he said, by recent consolidation moves within the steel industry.

However, he said that the Middletown, Ohio-based specialty steels producer's 7 7/8% notes were not much changed around the 100.25 bid, 100375 offered level. He noted that those bonds are callable at par early next sear, and so are "call constrained. They're not going anywhere."

Another name he said getting a boost from all of the takeover buzz in the metals industry was Century Aluminum. Its 7½% notes were seen at 101 bid and, as was the case with the AK bonds, "they haven't seen those prices in a long time."

It's not just that the price is up - but the name is now in vogue," he said.

Corrections Corp. locks in gains

Apart from the metal-makers, he saw another name "up strongly" after making a presentation at the Banc of America conference was Corrections Corp. of America. He saw its 6¾% notes up ½ to ¾ point at 101.125.

He said that the name "looks like it's headed towards investment grade." Even as is, the name is "almost a little too high grade for us."

The firm market is by no means across the board he said, but was largely confined to "better quality stuff that is interest rate-sensitive." He cited the Corrections Corp. bonds, which market participants are starting to increasingly quote on a spread-versus-Treasuries basis.

Speaking generally, he opined that "people want to put money to work," by investing in secondary bonds - even in the wake of gigantic huge recent new issues.

"Even though you have a huge calendar," he concluded "the market seemed pretty frisky."

United Auto prices $50 million add-on

The first full week of December 2006 began quietly in high yield, according to a syndicate official who added that the broad market was firmer on the session.

Monday's sole new issuance came from United Auto Group, which priced a $50 million add-on to its 7¾% senior subordinated notes due Dec. 15, 2016 (B3/B) at par.

JP Morgan ran the books for the debt refinancing and general corporate purposes deal from the Bloomfield Hills, Mich.-based automotive retailer.

The original $35 million issue priced at par on Nov. 30, 2006, bringing the total issue size following Monday's add-on to $375 million.

Calendar continues to build

At Monday's close the Prospect News High Yield Daily forward calendar contained just slightly less than $6 billion of pending new issues believed to be in the market and slated to price before the end of the year.

During the Monday session Williams Partners LP stepped forward.

The Tulsa natural gas company will begin a brief roadshow on Tuesday for its $600 million offering of 10-year bullets (Ba3/BB-), an acquisition and general corporate purposes deal via Citigroup, Lehman Brothers and Merrill Lynch which is expected to price later this week.

According to data in the Prospect News archives, as the Monday session got underway, year-to-date issuance was only $1.5 billion shy of the 2004 record for dollar-denominated issuance.

So far this year the primary market has seen $140.876 billion of dollar-denominated issuance compared to $142.378 billion seen in 2004 to the Dec. 4 open.

With regard to global issuance, the 2006 year-to-date issuance of $153.573 had already topped the $151.601 billion seen in 2004.

NewMarket to sell $150 million

In Monday's only other primary market news Richmond, Va., chemical producer, NewMarket Corp., disclosed plans to sell $150 million of 10-year senior notes.

A market source told Prospect News that Credit Suisse will run the books for the B2/BB+ rated debt refinancing.

At press time, Monday, no timing on the deal had been heard, the source added.

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