Primary pauses, but Ameristar slates; Goodyear, others off highs; buyers eye less known names

By Paul Deckelman and Paul Harris

New York, May 8 - After a wild week which saw nearly $8 billion of new junk bonds price - the most since last June - the high yield primary market finally took a seat on Friday. No new deals were heard to have priced during the final session of the week although Ameristar Casinos, Inc. announced plans for a half-billion-dollar bond offering. Syndicate sources said the Las Vegas-based gaming company - which, oddly, has none of its eight casinos anywhere remotely near the glittering gambling capital - will hit the road starting Monday to market the deal to potential investors.

The secondary market meantime continued to digest the giant glut of new debt which made its debut during the week - a total of nine deals, consisting of 11 tranches.

Traders reported that some of the deals which had performed strongly in their initial aftermarket action, notably Wednesday's Goodyear Tire & Rubber Co. mega-deal, have since backed off their initial highs, or as one trader put it, have "come back to reality."

Even the week's most notable pricing - Teck Resources Ltd.'s multi-part, $4.25 billion behemoth - seems to fall into that category, with at least two of the Vancouver, B.C.-based energy and natural resources company's three tranches of bonds having come down from the par-plus peak levels they hit about a day or so after Tuesday's pricing.

However, the new Crown Americas and Nalco Holding Co. deals seem to be holding onto the gains they notched after each pricing at a discount and then moving up.

Among outstanding bonds, MGM Mirage - which firmed over the previous several sessions on investor relief that some of the gaming giant's problems may finally have run their course - was seen mixed. Bon-Ton Department Stores Inc. - whose bonds were the clear winners in Thursday's session, jumping more than 10 points on the day - spit back some of those gains.

A trader saw some impressive recent gains in some lesser-traded credits like Park Ohio Holding Corp., Sinclair Broadcast Group Inc. and ArvinMeritor Inc., theorizing that such "second-tier" names might be coming into vogue with portfolio managers looking to put excess cash to work - but not wanting to pay the lately increased prices commanded by bonds of the larger, more liquid and more popular "go-go" names like MGM, Rite Aid Corp. Freeport-McMoRan Copper & Gold Inc. and the like

Ameristar launches $500 million

No issues priced on Friday.

Hence the curtain came down quietly on the busiest week of the year to date in the new issue market.

News of one future offering surfaced.

Ameristar Casinos will run a Monday to Wednesday investor roadshow for a $500 million sale of five-year senior notes.

An investor call is scheduled for noon ET on Monday.

Pricing is set for Wednesday.

Banc of America Securities LLC, Wachovia Securities and Deutsche Bank Securities are joint bookrunners.

Proceeds will be used to prepay and permanently retire the Las Vegas-based gaming and entertainment company's revolver.

Decent even in the downturn

It's possible that the Ameristar deal is driven entirely by reverse inquiry, a high-yield mutual fund manager said on Friday afternoon, shortly after the deal was announced.

"It should go pretty well," the investor said, adding the expectation that the Ameristar deal could come with a yield in the 9% to 9½% range.

"Ameristar has had decent numbers, even since the downturn," the investor said.

"They have some pretty good facilities that haven't lost all that much money, in terms of the top line."

Biggest week in 20 months

Driven by a deluge of cash inflows - high-yield mutual funds have enjoyed an eight-week run of inflows totaling $5.5 billion, as reported by AMG Data Services - the primary market saw its biggest week in 20 months.

Nine issuers priced a face amount of $7.9 billion in 11 tranches.

Excluding bridge loan-to-Rule 144A bond rolls, this was the biggest week since October 2007 - a week during which TXU Corp. priced $7.5 billion of notes in three tranches, an investment banker noted.

The past week also had a massive three-part deal.

Canada's Teck Resources Ltd. priced $4.225 billion of senior secured notes (Ba3/BB+) in three tranches.

The Teck deal came priced to sell, said sources on the buy-side and the sell-side.

And the bonds have been trading at smart premiums to issue prices, they add.

A mixed picture

Not all of the recent deals are trading as well as Teck, sources said Friday.

Owens-Brockway Glass Container Inc.'s new 7 3/8% senior notes due 2016, which priced Thursday in an upsized $600 million issue at 96.724 to yield 8%, were trading near that issue price Friday afternoon, according to a trader from a high-yield mutual fund.

Likewise Inverness Medical Innovations, Inc.'s new 9% senior subordinated notes due 2016 which also priced Thursday - at 96.865 to yield 9 5/8% - in an upsized $400 million issue, the trader said.

Also hovering around issue price are the new Crown Americas 7 5/8% senior notes due 2017, which priced Tuesday at 97.092 to yield 8 1/8% in an upsized $400 million issue, the trader added.

The group also includes Silgan Holdings Inc.'s new 7¼% senior notes due 2016 which priced Tuesday at 97.28 to yield 7¾% in an upsized $250 million issue, according to the source.

Also aboard the "trading-at-issue-price" train are the new Host Hotels & Resorts, LP 9% notes due 2017 which priced Tuesday at 96.599 to yield 9 5/8%, in an upsized $400 million issue.

"They are increasing the deal sizes and tightening the talk," the trader remarked.

"As a result they are just trading fair.

"You're not getting that 2 point or 3 point pop that everyone has been expecting."

With the dealers becoming more aggressive, investors may become more hesitant to jump into deals, the source suggested.

"There is a lot of money out there," the trader allowed.

"But there is no need to buy marginal credits at marginal prices because more deals will be coming tomorrow."

However an asset manager at a different mutual fund, conceding that some of the above-mentioned deals are hovering near issue price, seemed to regard it as a fact of life in a junk market that is red hot.

"It's hard to tell where it goes from here, because there are a lot of problems out there," the buy-sider conceded.

"But the stuff that doesn't have problems seems to be returning to normal."

The week ahead

At Friday's close the above-mentioned Ameristar deal was the only offering on the calendar as business to price during the week ahead.

However sources are anticipating a flurry of deals during the May 11 week.

One investment banker expects as many as 10 deals, and has visibility on three of those.

Other than Ameristar, no names surfaced during the latter part of the May 4 week.

However syndicate sources were willing to volunteer sectors: energy/power, natural resources, industrial and homebuilding.

In the energy/power context, the name TXU surfaced once again on Friday.

"They need to term out some bank debt," a fund manager remarked.

You can't rule out HCA or Chesapeake Energy, either, the buy-sider said.

Also Sprint Nextel could come, the source added.

New deals 'back to reality'

A trader said that one of the trends that he noticed on Friday was that "the new issues aren't exploding - some of them are coming back to reality."

He said, for instance, that Goodyear's 10½% notes due 2016 - $1 billion of which had priced on Wednesday at 95.846, to yield 11 3/8%, and had then moved up smartly when the bonds were freed for aftermarket dealings - had come well down from the nearly-par levels that they had reached.

He said that the Akron, Ohio-based tiremaking giant's new issue had gotten as good as par at one point during Thursday's session, but even then had begun to come down from those levels. They ended below 99 on Thursday and then retreated further Friday, he said, finally coming to rest at 98¼ bid.

Teck takes a step back

Even more compelling is Teck Resources' aftermarket saga.

The company's three big tranches of bonds - $1.315 billion of 9¾% notes due 2014, $1.06 billion of 10¼% notes due 2016 and $1.85 billion of 10¾% notes due 2019 - had each priced on Tuesday well below par, at levels of 95.27, 94.654 and 94.893, respectively. When they broke, each of the issues surged explosively upward, tacking on an easy 4 or 5 points in frantic trading. The 10-year bond breached par and the other two issues approached it. Then over the following two sessions they expanded upon those gains, with the 10-year trading up to around the 101½ bid level, while the five-year and the seven-year bonds finally made it to par levels.

However, a trader said, by Friday Teck's bonds had mostly eased from their highs.

While the 10-years continued to hang onto their gains and hang in there around 101¼ bid, 101¾ offered, the five-years backed down from their par bid level to end at 99½ bid, par offered, while the seven years pulled back to 99¾ bid, 100½ offered, down from 100½ bid, 101½ offered earlier.

The Teck bonds, he opined, "kinda died" after they hit their highs. He said there "had not been nearly as much activity" in the two shorter issues as there had been in the 10-year, which at one point Friday had gotten up to the 101½ peak level.

Nalco, Crown deals hang in there

But by no means were all of the new deals in retreat. For instance, a trader saw Nalco's 8¼% notes due

2017 clinging to the par bid, 100¾ offered level to which the Naperville, Ill.-based water treatment and process improvement services provider's $500 million of bonds had reached after having priced at 97.863 on Wednesday to yield 8 5/8%.

Crown's $400 million offering of 7 5/8% notes due 2017 continued to hover at 99 bid, 99½ offered. That is the level to which the Philadelphia-based packaging company's bonds had risen after having priced on Tuesday at 97.092, to yield 8 1/8%.

New Inverness, Owens deals go nowhere

A trader saw Inverness Medical Innovations's new 9% senior subordinated notes due 2016 at 96¾ bid, 97 offered, adding that the bonds "kind of died after their pricing" on Thursday.

The Waltham, Mass.-based healthcare technology provider had priced its $400 million of notes - doubled in size from the originally shopped $200 million - at 96.865 to yield 9 5/8%.

The trader said that the bonds "aren't going anywhere - just like Owens Brockway."

The latter company - a Perrysburg, Ohio-based subsidiary of Owens Illinois Inc. - priced $600 million of 7 3/8% notes due 2016 on Thursday at 96.724, to yield 8%. The trader saw the issue - doubled in size from the originally planned $300 million - little changed at 96½ bid, 97 offered.

Market indicators gain again

Back among the established issues, a trader saw the CDX Series 12 High Yield index - which had risen ½ point on Thursday - stay at the same 81 3/8 bid, 81 7/8 offered level at which it had finished that session.

Cash was a little better, according to a high-yield mutual fund manager, who added that the market seemed to be taking a little bit of a breather on Friday.

The KDP High Yield Daily Index, which had jumped by 52 basis points on Thursday, meantime added on another 10 bps on Friday to end at 60.84, while its yield tightened by 5 bps to 11.14%.

Advancing issues easily led decliners for an eighth straight session, continuing to top them by a three-to-two margin.

Overall market activity, measured by dollar-volume totals, fell by 30% from Thursday's levels.

Big gainers back off

Some of the big gainers from Thursday's session were seen having gone nowhere on Friday.

One of those was MGM, whose bonds had been seen "going through the roof," in the words of one trader. But on Friday, its 6 5/8% notes due 2015 were seen down a point at 65 bid, while its 6% notes coming due Oct. 1 were off fractionally to close below 90 bid, in busy dealings.

The 9 3/8% notes due 2010 of the MGM-owned Mandalay Resort Group eased slightly to 79 bid, a market source said.

The Las Vegas-based gaming giant's bonds had lately been on a roll, given a boost by the company's report of a first-quarter profit - even though this was attributable to a one-off event, the sale of one of its many casinos, rather than any fundamental improvement - although company executives also hopefully said that the disastrous downturn in advance bookings that has played havoc with the company's finances may finally be subsiding.

Investors were also buoyed by the recent news that the company had reached agreement with lenders on providing the financing that will be needed to complete its nearly-finished City Center real estate development project on the Las Vegas Strip, thus forestalling any possibility that the joint-venture with Dubai World would default on its loan agreements and possibly drag 50% parent MGM down with it.

Bon-Ton eases after rise

An even bigger gainer Thursday, Bon-Ton Department Stores' 10¼% notes due 2014, surrendered some of the 10-point gains which it had notched that session, finishing down about 3 points to the 42 mark.

Those bonds had jumped to 45 bid, 50 offered Thursday from prior levels in the mid-30s after the York, Pa.-based department store operator reported a smaller-than-expected drop in April in same-store sales, the retailing industry's key performance metric, and reassured investors about its liquidity status. The retailer saw its comparable store sales fall 5.1% for the four weeks ending May 2, versus year ago sales. Total sales dropped 4.7% to $199.4 million, compared to $209.2 million in 2008.

For the quarter, comparable sales were seen declining 8.6%, while total sales fell 8% to $644.5 million from $700.2 million.

Investors seek out 'ignored' issues

A trader noted that ArvinMeritor Inc.'s bonds had gone up "a minimum 7 or 8 points in the last five days," though on no news; instead, he saw the sudden popularity of the Troy, Mich.-based automotive components maker as part of a buying binge by accounts looking for bargains among the less-publicized or visible "second-tier names" that are remain relatively affordable compared to the big "go-go" names that have been rising steadily over the last few weeks.

"The portfolio managers say they have to put money to work - and now they have another $800 million

[the $822 million inflow to high yield mutual funds reported Thursday] to deploy. So the second-tier names that were being ignored are now getting picked up."

He saw ArvinMeritor's 8¾% senior notes due 2012 having pushed up to the 43 bid level from recent positions around 343/4. At another desk, a market source saw those bonds doing even better, lifted as high as 47, although on only one or two smaller trades late in the session.

The trader also saw ArvinMeritor's 8¼% senior subordinated notes due 2015 left bid at 35, "or maybe even higher," versus their recent 29 level.

The trader said that another such credit was Park-Ohio Holdings' 8 3/8% notes due 2015, which he saw at 50 bid, "and looking for an offer". He said that was well up from recent levels in the lower 30s, which the Cleveland-based logistics supply-chain company's bonds held until they began moving up, on no news, but rather on investor enthusiasm.

At another desk, a market source was more restrained, seeing the bonds instead in the mid-40s.

Yet another credit in that same vein, the trader said, was Sinclair Broadcast Group's 8% notes due 2012. These were trading around 64.5 bid, when "a week or two ago, before earnings, you couldn't give them away" at 55-53.5

No Williams impact from Venezuela move

A trader active in energy credits told Prospect News that he saw no impact on the bonds of Williams Cos. Inc. from the news that Venezuela's state oil company, Petroleos de Venezuela, had seized two Williams assets in that country.

He noted that the $241 million charge relating to those assets, which Tulsa-based Williams said it would take, is "a very small percentage of the company's overall portfolio - so it's not the end of the world."

Further, he pointed out, "both credit and equity markets were strong today, which overshadowed any potential weakness in WMB."

The trader opined that "overall, Venezuela continuing to steal assets can only help oil prices. They are the fifth or sixth-largest oil producer, I think - and falling fast."

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