Upsized Scientific Games prices, Apria could bring second deal; new Sealy, MGM stay above par

By Paul Deckelman and Paul Harris

New York, May 18 - Scientific Games International, Inc. priced an upsized, quickly shopped offering of senior subordinated notes on Monday, high yield syndicate sources said. That 10-year deal for the New York-based maker of lottery and other gaming systems was the third gambling-oriented bond sale in a week, following the recent successful offerings from MGM Mirage and Ameristar Casinos Inc. - a reflection of an increased investor comfort level with a sector that previously had been hard hit by the drying up of consumer discretionary spending.

Also on the new deal front, primaryside players were looking at the possibility that Apria Healthcare Group Inc. - which is expected to price a $600 million secured note issue this week - could follow that up with the sale of another tranche of bonds, depending on the level of investor demand.

Price talk was meantime heard Cellu Tissue Holdings Inc.'s pending five-year secured notes deal, with pricing now expected Tuesday afternoon.

Among the issues that came to market during the busy new-deal barrage last week, Friday's offering from Sealy Mattress Co. continued to trade at the levels north of par to which the Trinity, N.C.-based bedding maker's new bonds jumped after their pricing in the mid-90s.

Also hanging in at levels at or above par were MGM Mirage's two tranches of new paper, both of which had priced around 97 at mid-week and which had then firmed smartly on the break. The big gaming company's existing paper meantime was seen well bid for.

Friday's new deal from Regency Energy Partners LP, on the other hand, continued to struggle after its pricing in the mid-90s.

On Monday cash bonds were up ½ to 1 point on average, according to a high-yield syndicate source.

"The market was very quiet," the source remarked, giving color that was heard roundabout the market throughout the Monday session.

The reason: dealers are preparing a massive new issue calendar that will start to roll out six or seven hours after this edition of the Prospect News High Yield Daily is distributed.

As many as five deals could be announced on Tuesday, sources say.

Scientific Games drives through

Despite expectations that the Monday session would be rife with new deal announcements, only one previously unannounced offering materialized.

Scientific Games International priced an upsized $225 million issue of 9¼% 10-year senior subordinated notes (Ba3/BB) at 96.823 to yield 9¾% in a Monday drive-by.

The yield was printed on top of yield talk while the issue price came within the 96.50 to 97.00 price talk.

The deal was upsized from $200 million.

J.P. Morgan, Banc of America Securities, Credit Suisse and Goldman Sachs were joint bookrunners.

Proceeds will be used for general corporate purposes, including the repurchase of a portion of outstanding debt.

The transaction clearly went well, said an informed source.

Technically the new 9¾% senior subordinated notes due 2019 came at a 62.5 basis points concession to the New York-based lottery services provider's existing paper, the source said.

However if you reckon the longer-dated maturity the concession would likely be more like 50 bps, the source added.

Cellu Tissue talks notes

Meanwhile Cellu Tissue Holdings set yield talk for its $230 million offering of five-year senior secured notes (B2/B) at the 12½% area, on Monday.

The notes are expected to price with 4 to 5 points of original issue discount.

Books close at noon ET on Tuesday, with pricing expected to follow on Tuesday afternoon.

JP Morgan has the books for the debt refinancing and general corporate purposes deal from the Alpharetta, Ga.-based converted tissue and tissue hard roll producer.

The Tuesday buzz

Market sources were somewhat amazed that Monday's session produced only one new deal announcement.

Tuesday, however, will be different, they added.

Buy-side and sell-side sources profess visibility on at least five deals to be rolled out on Tuesday.

Although the information was far from complete, here is the buzz:

• An $800 million to $1 billion energy deal, likely out of JP Morgan;

• A $500 million energy deal via Morgan Stanley;

• A $500 million deal from the TMT (telecommunications, media and technology) sector, with Goldman Sachs running the books (a pending press release could hit the tape as early as 11 p.m. ET, on Monday, sources say), and

• A $150 million energy deal.

Sources also are expecting imminent deal announcements from the media and energy sectors.

However only one name surfaced during Monday's conversations:

Memphis-based coated papers company, Verso Paper Corp. is expected to show up with a deal this week, via Credit Suisse.

The backdrop for this anticipated burst of primary market activity is favorable, sources say.

The most oft-cited reason: the technical rally in junk continues.

Last week high-yield mutual funds saw $981 million of inflows, according to AMG Data Services.

That extends to $6.5 billion the inflows that the weekly reporting funds have seen over the past nine weeks.

Also the stock market, which high yield tracks closely, rallied on Monday, a syndicate official pointed out. The Dow Jones Industrial Average climbed 2.85%, while the Nasdaq and the S&P 500 were both up by more than 3% on the session.

Gaming sector keeps investors busy

Scientific Games' new issue of 9¼% subordinated notes due 2019, which priced well after 5 p.m. ET, when most of the day's activity had ended, saw no aftermarket action.

Market participants meantime wondered whether the new bonds might see similar upside to that which occurred with two other recent gaming-oriented deals - last Tuesday's offering from Ameristar Casinos and Thursday's two-part mega-deal from MGM Mirage.

The trifecta is notable because it represents a return to the marketplace of a sector that had pretty much fallen out of favor for some months due to the heavy losses which many casino companies had suffered as the economic downturn forced consumers to tighten their belts and do away with discretionary spending on luxuries like pricy vacations to gaming resorts. The two casino operators and the gaming technology company are not only the first issuers from that sector this year - they are the first in almost a year, since Scientific Games itself last brought a deal to market last June.

After Las Vegas-based regional casino operator Ameristar's $500 million offering of 9¼% notes due 2014 priced last Tuesday at 97.097 to yield 10%, the new bonds moved up to trading levels just below par, and were being quoted as still hovering there as last week ended.

Meanwhile, traders saw both tranches of MGM Mirage's new secured bonds, which each priced Thursday around 97, holding at levels above par.

One quoted the company's 10 3/8% notes due 2014 "continuing strong," and "hanging in there pretty well" at 100¾ bid, 101 offered, although another trader pegged those bonds at 99¼ bid, 100¼ offered - still well above Thursday's issue price at 97.184, which resulted in the $650 million issue yielding 11 1/8%. The second trader also saw the company's $850 million of 11 1/8% notes due 2017 at 100½ bid, 101½ offered. Those bonds had priced at 97.344 to yield 11 5/8%.

The first trader meantime said the company's unsecured bonds also "keep getting a little stronger too," quoting its 8½% notes due 2010 trading around 90 and saying "people are starting to look at that - they're thinking it might be a little cheap." The paper, he said, "has been up for a week."

Market-watchers theorized that such a level was pretty good for the unsecured bonds of a gaming company which was being talked about in some quarters as a possible bankruptcy candidate just a few weeks ago, before it lined up guaranteed financing to complete its CityCenter project and keep it from defaulting on its loans.

Another market source saw the Las Vegas-based casino giant's 6¾% notes due 2012 up nearly 4 points on the session to just below the 69 level. MGM's 8 3/8% notes due 2011 were seen at 77 bid, on busy trading of about $10 million.

In that same gaming sector, a trader saw Harrah's Operating Co. Inc.'s 10¾% notes due 2016 up 2 points on the day at 48 bid, on $13 million traded. Harrah's 5½% notes due 2010 were seen up as much as 6 points on the session at the 82 level, while its 5¾% notes due 2017 were up nearly a point to 38 bid. A market source at another desk said that several issues of Harrah's paper, including the 103/4s, were among the most actively traded issues on the day. No fresh news was seen out on the Las Vegas-based gaming operator, considered the world's largest.

New mattress bonds remain comfortable

Elsewhere among recently priced bonds, a trader said that Sealy Mattress' new 10 7/8% notes due 2016 "maybe put people to sleep - they're trading around 101 right now," about the level at which the bedding maker's bonds went home Friday, after having priced earlier in the session at 95.976, to yield 11¾%.

Another trader said the bonds had taken "quite the jump," quoting them Monday at 100½ bid, 101½ offered. He said that the fact that the new issue was senior secured "may have been the key" to the solid rise. "Whenever you have an issue that's secured, it enables a whole another group of bond buyers to get involved." He also noted that the Sealy deal was relatively small at $350 million, "so it was probably way over-subscribed," boosting aftermarket demand for the bonds.

Sealy's existing 8¼% notes due 2014 were meantime seen as much as 4 points better at 78 bid.

Regency bonds remain near issue

While one of the traders saw Sealy and MGM hanging onto the handsome gains which those issues notched in secondary, he added the caveat that "the rest of the stuff is by no stretch of the imagination running away." For instance, he opined, the Regency Energy deal "didn't do too well."

He saw the Dallas-based natural gas company's new 9 3/8% notes due 2016 staying "right around" 94½ bid, 94¾ offered, little changed from the 94.496 level at which the $250 million issue priced on Friday to yield 10½%.

At another desk, Regency's existing 8 3/8% notes due 2013 also were in the 94 area, down as much as 2 points on the session from recent levels around 96.

Market indicators bounce back

Back among the established issues with no new-deal connections, a market source saw the CDX Series 12 High Yield index - which had lost ¾ point on Friday - recover by a full point on Monday, finishing at 79 bid, 79¼ offered.

The KDP High Yield Daily Index, which eased by 5 basis points on Friday, rose by 6 bps on Monday to end at 59.86, although its yield widened by 2 bps to 11.50%.

Advancing issues, after having trailed decliners for the previous three sessions, moved back out in front of them, although by only a relatively narrow margin. Overall market activity, measured by dollar-volume totals, rose by 12% from Friday's levels.

But it certainly didn't feel that much busier, according to one trader, who said that although the market "clearly had a better tone" than it had last week, when market indicators were going down all week and it felt like the market might be choking on the glut of new-issue paper from the previous several week, "it seemed like volume was pretty light."

Another trader concurred that "it seemed pretty quiet. I don't think much was going on."

Market benchmarks firmer

The first trader saw popularly followed market barometer issues firmer, with First Data Corp.'s 9 7/8% notes due 2017 - bouncing back a little from the sharp drop the Greenwood Village, Colo.-based financial transaction processor's bonds took last week on disappointing numbers - moving up to 64¼ bid from 63½ previously, on $12 million traded.

He saw Franklin, Tenn.-based hospital operator Community Health Systems Inc.'s 8 7/8% notes due 2015 gain ½ point to end at 971/4, on $8 million traded, while the 8½% notes due 2015 of Aramark Corp., the Philadelphia-based uniform provider and food-service operator, were perhaps ¼ point higher at 93½ bid, on $2 million traded.

Sinclair seen stronger

A trader said that Sinclair Broadcast Group Inc.'s bonds "have been generating a lot of attention" lately, in the wake of the Hunt Valley, Md.-based television station group owner's favorable first-quarter numbers earlier this month.

He said that the company's 8% notes due 2012 "have been on a pretty good run here," quoting them at 66 bid, 67 offered, up another ½ point to a full point on the session. "Every day, there's just a lot of activity in them," he said. He also said the company's convertible debt issues were stronger as well.

"I guess people liked their earnings."

On May 6, Sinclair posted a first-quarter a net loss of $85.7 million, or $1.06 a share, versus year-earlier net income of $15.0 million, or 17 cents a share, a year ago. However, on an adjusted basis, excluding unusual items such as the after-tax goodwill impairment and other intangible assets charge of $100.8 million which the company took, Sinclair reported a profit of 19 cents per share on revenue of $154.7 million - much better than Wall Street's expectations of a loss of about a nickel a share on slightly over $140 million of revenue. Sinclair's adjusted income even beat the company's own previous earnings projections.

Energy names mostly easier

Among energy operators and power generating companies, a trader saw El Paso Corp.'s 6.80% notes due 2015 about unchanged at 100½ bid, on $20 million traded, and saw Energy Future Holdings Corp.'s 10 7/8% notes due 2017 ease to 70 bid, from 703/4, on $18 million of turnover.

He further saw Chesapeake Energy Corp.'s 7 5/8% notes due 2013 off by 1¼ points at 921/4, on $15 million traded.

Another market source saw Edison Mission Energy's 7 5/8% notes due 2027 off by 3 points at 61 bid, while its 7% notes due 2017 eased to 72 bid. Dynegy Inc.'s 8 3/8% notes due 2016 lost more than a point to end at 78.5 bid, while its 7¾% bonds due 2019 were seen down a deuce at 72 bid.

Bank preferred issues trade actively

A trader, in noting that Citigroup Inc.'s split-rated (Baa3/CC) 8.30% preferred securities due 2057 were among the most active junk - or in this case, partly junk - issues, with $25 million traded on the day, quoted them as rising to a round-lot level of 86 from 83 on Friday.

He said of the whole trend of active trading by junk accounts in such hybrid bank issues - similar issues from investment-grade parent issuers Wachovia Bank, Wells Fargo & Co. Inc. and Capital One were seen trading around on Monday - that "especially when things seem oversold and people are jumping back in, it's a good time to look at the bottom of the cap structure, if you're comfortable with the parent. You'll get the most bang for the buck that way."

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