Upsized MGM mega-deal, Spectrum price; some new deals struggle; funds see $487 million inflow

By Paul Deckelman and Paul A. Harris

New York, March 15 - MGM Resorts International came to market on Thursday with an offering of 10-year notes that was upsized to $1 billion. It was the latest in a long line of quickly shopped bond deals that have priced this week.

However, the giant gaming and hotel company's big new deal appeared too late in the session for any kind of an aftermarket.

High-yield syndicate sources meantime heard that Spectrum Brands Holdings, Inc. - a consumer products company known for such iconic products as Rayovac flashlight batteries, Remington electric shavers and the George Foreman grills - did a quick-to-market $230 million eight-year deal, which moved up in the secondary market when it was freed to trade.

Chemical manufacturer Kraton Performance Polymers, Inc. dropped by with a $100 million add-on to its existing bonds, but that new deal didn't trade around.

There was a pricing out of Europe. Spanish construction firm Obrascon Huarte Lain SA did a €300 million eight-year deal.

Back in the domestic market, price talk emerged on alarm service company Monitronics International, Inc.'s $460 million of eight-year notes, which could price during Friday's session.

As for recently priced bond deals, traders saw some of them continue to struggle, particularly those higher-quality issues with relatively low coupons, including this week's deals from CIT Group Inc. and International Lease Finance Corp.

Away from the new deals, it may have been the dreaded Ides of March, but there was no reason for holders of Caesars Entertainment Corp. bonds to "beware." The casino powerhouse's bonds were seen higher in busy trading, apparently helped by the news that it plans to do an equity offering and could use some or all of the proceeds to take out existing debt.

On the downside, Rotech Healthcare Inc.'s bonds and shares were anything but healthy, falling sharply after the provider of medical products and services reported surprisingly bad fourth-quarter results.

Statistical measures of junk market performance were mixed to lower.

But high-yield mutual funds - considered a good proxy for overall junk market liquidity trends - notched the latest in a long string of recent inflows.

AMG posts $487 million inflow

As Thursday's session was winding down, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $487 million more came into those weekly reporting funds than left them.

It was the 11th consecutive gain so far this year, coming on the heels of the $957 million cash injection seen by Arcata, Calif.-based AMG - a unit of Thomson Reuters' Lipper/FMI division - in the week ended March 7.

There have been no outflows so far in 2012, and net inflows have totaled about $14.8 billion, according to a Prospect News analysis of the numbers, up from around $14.3 billion the week before.

It was also the 15th consecutive inflow overall, a streak that dates back to early December. Over that more than three-month stretch, net inflows have totaled $16.9 billion, according to the Prospect News analysis.

EPFR sees $818 million inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG, also reported a 15th straight week of inflows.

About $818 million more came into those funds than left them during the week ended Wednesday. That followed a $1.1 billion cash addition the previous week.

On a year-to-date basis, with no outflows seen so far in 2012, inflows are approaching the $24 billion mark, EPFR said.

EPFR's figures and those of AMG generally point in the same direction, although their actual numbers usually differ because they calculate their respective fund-flow totals very differently. EPFR, for instance, includes results from non-U.S. domiciled funds as well as the domestic funds and counts exchange-traded funds excluded from the more narrowly focused AMG tally.

Cumulative fund-flow estimates, whether of the AMG numbers from Lipper/FMI or those from EPFR, may be revised upward or downward or be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

Analysts say the continued flow of fresh cash into junk - and the mutual funds represent but a small, though observable and quantifiable percentage of the total amount of money coming in - fueled the record new-deal borrowing binges seen in both 2009 and then in 2010, as well as the robust secondary market seen both years, and continued to be the driver behind 2011's near-record issuance.

Those fund flows are also seen as the key element behind the high-yield secondary market's fairly strong performance so far this year and relatively active new-deal developments.

MGM Resorts massively upsizes

Quick-to-market action dominated the Thursday session. A trio of issuers tapped the dollar market for $1.4 billion. Each issuer brought a single tranche.

MGM Resorts International priced an upsized $1 billion issue of 10-year senior notes (/B-/) at par to yield 7¾%.

The yield printed at the wide end of the 7 5/8% to 7¾% yield talk.

Bank of America Merrill Lynch, Barclays Capital Inc., J.P. Morgan Securities LLC and Wells Fargo Securities LLC were the joint bookrunners for the debt refinancing, which was upsized from $750 million.

Spectrum Brands prices

Spectrum Brands Holdings subsidiary Spectrum Brands, Inc. priced an upsized $300 million issue of eight-year senior notes (B1/B-/) at par to yield 6¾%, at the tight end of the 6¾% to 7% yield talk.

Credit Suisse Securities (USA) LLC ran the books for the quick-to-market debt refinancing deal, which was upsized from $275 million.

Kraton taps 6¾% notes

Kraton Performance Polymers subsidiaries Kraton Polymers LLC and Kraton Polymers Capital Corp. priced a $100 million add-on to their 6¾% senior notes due March 1, 2019 (existing ratings B1/B+/) at 101.25 to yield 6.45%.

The reoffer price came at the rich end of the 101 to 101.25 price talk.

Bank of America Merrill Lynch, Credit Suisse, Goldman Sachs & Co., Macquarie Capital (USA) Inc. and Morgan Stanley & Co. LLC were the joint bookrunners for the quick-to-market add-on.

The Houston-based chemical company plans to use the proceeds for general corporate purposes, which may include funding for capital expenditures including, among other things, a portion of its proposed new manufacturing facility in Asia.

The original $250 million issue priced at par in February 2011.

Obrascon drives by

The European high-yield market also saw drive-by action on Thursday.

Spain's Obrascon Huarte Lain priced a €300 million issue of eight-year senior notes (Ba2//BB-) at par to yield 7 5/8%, in the middle of the 7½% to 7¾% yield talk

Credit Suisse, Bank of America Merrill Lynch, Citigroup, Credit Agricole, Banco Santander and Royal Bank of Scotland were the joint bookrunners.

Credit Suisse, the global coordinator, will bill and deliver.

The Madrid-based construction and engineering company plans to use the proceeds to fund a partial tender for its 7 3/8% notes due 2015.

Monitronics sets price talk

Monitronics talked its $460 million offering of eight-year senior notes (Caa1//) with a yield in the 9¼% area on Thursday.

The books close at 9 a.m. ET on Friday, and the deal is set to price thereafter.

Bank of America Merrill Lynch is the left lead bookrunner. Citigroup Global Markets Inc. and Credit Suisse are the joint bookrunners.

Proceeds, along with a new senior secured credit facility, will be used to repay all outstanding borrowings under the company's existing senior secured credit facility and to purchase, and terminate, notes under its existing securitization debt.

Spectrum Brands trades up

When the new Spectrum Brands eight-year notes were freed for secondary dealings, a trader saw the consumer products company's upsized $300 million offering at 101¼ bid, 101¾ offered, versus the par level at which the issue had priced.

A second trader saw the bonds at 101 bid, 101¾ offered but said there had been only "light trading" in the new credit.

Traders did not see the smallish Kraton Polymers add-on deal trading in the secondary market.

And the $1 billion MGM Resorts International issue came too late in the session for any kind of an aftermarket. The company's existing 6¾% notes that will come due on Sept. 1 were about one-eighth point easier at 101 7/8 bid on volume of over $6 million.

Recent new deals struggle

A trader, looking at some of the other new deals that have priced so far this week as well as in the recent past, was mostly unimpressed by the performance of those bonds in the current market.

"It's worth mentioning that clearly, the higher-quality stuff got hit," he declared, citing the back-up in Treasury bond prices and the corresponding rise in their rates. The 10-year government issue, seen as a reference bond for many of the high-yield credits, was yielding 2.28% on Thursday; a week ago, the 10-year Treasuries were yielding 2.01% and two weeks ago, 1.97%.

As a result, he said, "all of these '5-handle' bonds took it on the chin a little bit.

"You saw the stuff that's probably closest to Treasuries, in terms of spread, definitely finally reacting to the rise in interest rates."

For instance, he saw CIT Group's $1.5 billion drive-by offering of new 5¼% notes due 2018 at the 100½ level. The New York-based commercial lender, whose mega-deal priced at par on Monday and then moved modestly up, had been trading at 101¼ bid on Wednesday.

He also saw B/E Aerospace, Inc.'s 5¼% notes due 2022, which had been trading around 101 bid on Wednesday, down at the par level on Thursday. The Wellington, Fla.-based manufacturer of aircraft cabin interior components priced its quickly shopped $500 million issue - upsized from an originally announced $375 million - at par on March 8.

Host Hotels & Resorts, LP's 5¼% notes due 2022 "traded below issue all day today," he said, quoting the Bethesda Md.-based lodging industry REIT's new paper at 99¼ bid, 99¾ offered. That quick-to-market $350 million deal priced at par on Wednesday, after having been upsized from an originally announced $300 million, "but they never really got out of its own way. That one hadn't been up, even last night. It never really traded above issue."

Another underperformer, he said, was International Lease Finance's $1.5 billion two-part offering, which priced on Wednesday.

"That deal didn't do very well either," he opined.

He saw the Los Angeles-based aircraft leasing company's $750 million of 5 7/8% notes due 2019 "trading below issue," which was 99.28, to yield 6%.

At another shop, those seven-year bonds were quoted as low as 98 7/8 bid, on volume of about $6 million. However, the other half of that deal - the company's $750 million of 4 7/8% notes due 2015 - actually managed to nose above their issue price, to par bid. The bonds had priced at 99.65 to yield 5%.

He said the CIT deal and B/E "at least fell from trading well. Host, ILFC - those deals never traded well."

Another trader agreed that "these things are all softer."

He suggested that "a lot of the underwriters dropped their bids as soon as Treasuries started to sell off. They ran away pretty quick. But what can you do?"

Another factor holding down the performance of the new bonds, particularly those with the very low coupons, he said, is that "all of these deals are being priced right on the screws - not from a value standpoint, but an expected value standpoint, meaning they're pricing them at levels where people thought they would trade to and they're leaving very little on the table for investors."

He added that "they're pricing these deals really for the borrower" - to get the issuer the maximum amount of proceeds - "not for the buyer. Right now, it's still a borrowers' market, not a buyers' market."

DJO holds up

One of the few new deals continuing to do respectively well was DJO Global, Inc.'s $230 million 8¾% second-priority senior secured notes due 2018. A trader saw the San Diego-based orthopedic and prosthetic device manufacturer's bond trading at 101¼ bid, 101¾ offered.

He suggested that the higher-coupon bond "had done well," especially given the erosion of aftermarket support for other new issues with considerably smaller coupons.

He acknowledged that the quickly shopped deal - which had priced at par on Tuesday and then proceeded to zoom to the 102 bid, 102½ level in the secondary - "is definitely off some [from the peak levels] - but not like those others."

Market signs stay mixed

Away from the new deals, traders saw something of a mixed bag. Volume was relatively light - one estimated Thursday's turnover at $1.59 billion, up somewhat from Wednesday's levels but still well below the $2 billion or more that had traded in Junkbondland on Tuesday, when the market surged along with stocks.

Statistical measures of junk market performance were mixed for a second consecutive session on Thursday after having shot higher across the board on Tuesday.

A market source said that the CDX North American Series 17 High Yield index was about unchanged on Thursday at 97 7/8 bid, 98 1/8. It lose lost 3/16 point on Wednesday. That in turn had followed a jump of a full point on Tuesday.

The KDP High Yield Daily index meantime rose by 2 bps Thursday to close at 74.25, on top of the 7 bps gain seen on Wednesday. Its yield declined by 2 bps for a second straight day on Thursday to end at 6.51%.

But the widely followed Merrill Lynch High Yield Master II index saw its first loss after six consecutive daily advance, losing 0.109% on Thursday, versus Wednesday's 0.046% gain.

The loss dropped the index's year-to-date return to 5.102% on Thursday, down from 5.217% on Wednesday and down as well from its peak level for 2012 of 5.361%, which was recorded on March 2.

Caesars seen higher

Among specific names, one of the better performers on Thursday was Caesars Entertainment's 10% notes due 2018. A trader saw them rise to 78 bid, 79 offered, which he called up a half-point or so, on "very good volume" of $23 million, which actually put the issue high up on the high-yield most-actives list for the day.

A market source at another desk saw those bonds even better, pegging them at 79 bid, which he called up 1¾ points on the day.

The Las Vegas-based gaming giant was probably helped by its decision - disclosed in a Securities and Exchange Commission filing - to offer up to $500 million in stock.

It said that proceeds from the equity sale may be used for general corporate purposes - which the company said could include "the retirement of indebtedness," along with development projects and maintenance capital expenditures on its far-flung empire of hotels and casino properties

Rotech in retreat

On the downside, investors in Rotech Healthcare's bonds were no doubt gasping for air after the Orlando, Fla.-based supplier of oxygen tanks and other medical products and services reported sharply worse-than-expected quarterly results.

A trader saw Rotech's 10½% notes due 2018 fall to 63 bid, 64 offered after starting the day at 67 bid, 68 offered and trading Wednesday in the mid-70s, "so they're definitely down 11 or 12 points. They fell pretty hard."

He noted that the bonds had traded as high as 77 bid, 79 offered a week ago.

"There was not a lot of volume [recently], but that's where they had been in February - and here we are today."

A second market source saw the bonds drop to 64¼ bid, down several points, with volume topping $12 million, putting the bonds among the most actively traded high-yield issues of the day.

Another trader saw those unsecured bonds down at least 10 points on the session and said that the company's secured 10¾% notes, which had recently been above par, were trading Thursday at 97 bid, 98 offered, calling it at least a 5-point drop.

He said that the company had reported poor fourth-quarter numbers late in the day Wednesday, battering its bonds down several points at that time and continuing the carnage on Thursday.

The bonds moved lower in tandem with the company's over-the-counter-traded shares, which plunged by 41 cents, or 24.12%, to end at $1.29. Volume of 362,000 shares was more than seven times the norm.

The stock swooned after the company posted a loss of $8.4 million, or 33 cents per share, in the fourth quarter ended Dec. 31. It was more than double the $3.6 million, or 15 cents per share, loss seen in the year-earlier quarter and more than four times the 8 cents per share of red ink that Wall Street had been looking for.

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