Pinnacle prices upsized deal, Arch slates offering; Nortel up on auction, CIT activity fades

By Paul Deckelman and Paul A. Harris

New York, July 27 - Pinnacle Entertainment Inc. brought an upsized, quickly-shopped offering of eight- year notes to market on Monday, high yield syndicate sources said. The Las Vegas-based gaming concern's new deal priced too late for any kind of aftermarket activity.

The sources meantime heard price talk emerge on a two-part offering from another casino concern - Dubuque, Iowa-based riverboat operator Peninsula Gaming, LLC, whose deal, combining senior secured and senior unsecured notes, is expected to price on Tuesday.

Also in the primary arena, Arch Coal Inc. was heard to be shopping around a $500 million issue of seven-year notes.

In the secondary realm, while there was still some activity in CIT Group Inc. paper, the stranglehold which the troubled New York-based lender held for the previous two weeks seems to have been effectively ended, as participants focused on other names and situations.

One of these was Nortel Networks Corp., whose bonds firmed smartly following the successful auction of the Canadian telecommunications equipment manufacturer's valuable wireless operations on Friday

Another was Beazer Homes USA Inc., whose bonds rose solidly, along with other building-sector names, after the government reported a big rise in June new-home sales versus a year ago.

Meanwhile the CDX High-Yield 12 index closed around 5/8 point higher on Monday, according to a syndicate official.

One force thought to be in play in the index's recent strength is short covering.

Sources see evidence of it in the recent strength of the bank loan-based LCDX 12 index, as a lot of players who are long the LCDX and short high yield move to cover their shorts in the face of the rally in high yield.

"All the bears are hoping the high yield falls, and it hasn't yet, so there is some short covering," a bank loan trader explained on Monday.

The LCDX has very little exposure to the troubled financial and home-builder sectors, the source added.

Also there has lately been a revival seen in the DIP (debtor-in-possession loan) market, providing an upward force on recovery rates. And that impacts the LCDX favorably.

"The high-yield CDX has more hair, in the longer term," the trader said.

"So the long LCDX, short high yield trade is losing money, right now. But over the remainder of the year there is a good chance it will make money."

Meanwhile a high-yield syndicate official who spotted the junk bond-tracking CDX High-Yield 12 index 5/8 point higher on the day at 88 5/8 bid, confirmed that short covering is believed to be a significant force at play in the junk bond index's recent strength.

Pinnacle upsizes

Two drive-by deals, one each from Pinnacle Entertainment and Arch Coal, rolled out on Monday.

Before the Friday close there could be four to five additional quick-to-market deals, according to syndicate officials.

On Monday Pinnacle Entertainment priced an upsized $450 million issue of 8 5/8% eight-year senior notes (BB) at 98.597 to yield 8 7/8%.

The yield was printed in the middle of the 8¾% to 9% price talk. The issue price came rich to the discount talk of approximately 2 points.

JP Morgan, Bank of America Merrill Lynch, Barclays Capital and Deutsche Bank Securities were joint bookrunners for the issue, which was upsized from $375 million.

The company intends to use a portion of the proceeds to purchase all of its existing 8¾% senior subordinated notes due 2013, of which $135 million are outstanding, and to repay approximately $206 million of its revolver.

The company expects to draw upon its revolver to fund development projects in the future. Remaining proceeds from the new notes will be used for general corporate purposes, including funding development projects.

Arch Coal for Tuesday

Arch Coal plans to price its $500 million issue of seven-year senior notes on Tuesday.

Bank of America Merrill Lynch, Citigroup, Morgan Stanley and JP Morgan are joint bookrunners.

Proceeds, together with a 17 million share offer expected to raise approximately $300 million, will be used to fund the acquisition of the Jacobs Ranch mining complex.

Peninsula Gaming sets talk

Peninsula Gaming set price talk for its $530 million two-part high-yield notes offering on Monday.

The Dubuque, Iowa-based gaming firm talked $215 million of six-year senior secured notes (Ba2/BB) at 8 7/8% to 9 1/8%, to be priced with a small amount of original issue discount. The six-year notes come with three years of call protection.

Meanwhile Peninsula Gaming talked $315 million of eight-year senior unsecured notes (B3/B) at 11% to 11¼%, also to be priced with a small amount of original issue discount. The eight-year notes have four years of call protection.

The books close 9 a.m. ET on Tuesday. The notes are expected to price after that.

Jefferies & Co. is the left bookrunner. Wells Fargo Securities is joint bookrunner.

Proceeds will be used to fund the acquisition of the Amelia Belle Casino, located near Morgan City, La.

Interest in the deal appears to be clustered in the secured tranche, market watchers said during the waning hours of the Monday session.

Pinnacle bonds unseen, other gamers firm

The new Pinnacle Entertainment 8 5/8% notes due 2017 priced too late in the session Monday for aftermarket activity, a market source said.

Out of that same sector, MTR Gaming Group Inc.'s new 12 5/8% senior secured notes due 2014 were being quoted bid at 961/2, about unchanged from the levels to which the Chester, W.Va.-based gaming company's $250 million issue had moved up to on Friday, after having priced earlier in the session at 95.248 to yield 14%.

Among the more established gaming issues, Harrah's Operating Co. Inc.'s bonds were seen better, riding the momentum from Friday's release of second-quarter numbers - even though those results were something of a mixed bag.

A market source saw its 5¾% notes due 2017 up nearly 2 points on the day at just under 44, while at another desk its 10¾% notes due 2016 were at 62 bid, 63 offered, up from opening levels around 61 and well up from last week's levels around 57. Harrah's 6½% notes due 2016 were seen trading at 40 bid, 41 offered.

Late Friday, Harrah's - considered the world's largest gaming company - released its second-quarter results, which showed a profit of $2.273 billion, a sharp turnaround from its year- earlier loss of $97.6 million, although it should be noted that the Las Vegas-based company managed to get back in the black chiefly because of a one-time gain of $4.279 billion that came from debt extinguishment. Operating profit, on the other hand, slipped to $416.7 million from $460.8 million, and revenues dropped 12.7% to $2.271 billion from $2.602 billion, while Las Vegas-based revenue slid 19.2%, to $705.2 million from $873.1 million the year before.

Cross-town rival and Number-Two industry player MGM Mirage, meantime, also moved up, its 6 5/8% notes due 2015 up 1½ points to 69 bid, while its 7½% notes due 2016 firmed to 69 bid and its 8½% notes due 2010 to 93¼ bid.

MGM's shares, as well as those of Wynn Resorts Ltd. and Las Vegas Sands Corp., were all firmer on the session on hopes that China may lift its visa restrictions that have curbed the flow of visitors from the mainland to the southern enclave of Macau - the "Las Vegas of China." MGM, Wynn and Sands all operate casinos there. News reports speculated that with the upcoming installation of a new administration in Macau - Fernando Chui has been endorsed by a 300-member electoral panel, whose recommendation now goes to China's central government for expected approval - Beijing could decide, as a goodwill gesture to the new administration, to end the visa restrictions on the mainland visitors, Macau's biggest gaming customers.

While most casino names were better on the day, Isle of Capri Casinos Inc.'s 7% notes due 2014 fell nearly a point to the 85 level. There was no fresh negative news seen out on the St. Louis-based gaming company.

CapitalSource seen better

Away from the gaming names, a trader saw CapitalSource Inc.'s 12¾% senior secured notes due 2014 trading at 98 bid, 99 offered. That was up from Friday's levels around 96 bid, 97 offered, and well up from the 93.966 price at which the Chevy Chase, Md.-based commercial lender and money manager's $300 million deal priced to yield 14½% last Tuesday.

The company announced Monday afternoon that it had reduced the balance of its syndicated bank facility by $300 million, which satisfies the condition for extending that facility to March 31, 2012. CapitalSource used proceeds from the recent bond deal as well as an equity offering to reduce the facility commitment amount to $600 million - a move which it said will leave it "well positioned to get to the other side of this credit crisis with a greater market share" among the small and mid-size businesses which make up its customer base.

Market indicators move higher

Back among the more established issues, the CDX Series 12 High Yield index - which had been essentially little changed on Friday, -- was seen by a market source to have gained about ½ point on Monday to end at 88¼ bid, 88¾ offered.

The KDP High Yield Daily Index, which gained 14 basis points on Friday, was up another 32 bps on Monday to end at 65.15, while its yield tightened by 13 bps to 9.64%.

In the broader market, advancing issues - which had led declining issues for a sixth straight session on Friday - were in seventh heaven on Monday, maintaining an edge of about nine to five.

Overall market activity, measured by dollar-volume totals, fell by 14% from Friday's level.

A trader called Monday's session "a very boring day today, lethargic," although he foretold that he expects busy dealings from out of the new-deal sphere, starting with ubiquitous New York drugstore chain powerhouse Duane Reade Inc.'s upcoming two-part offering, as well as the Peninsula Gaming two-parter.

"The bottom line is, there's just a lot of cash around that has to be put to work."

But among the purely secondary names, he said, "I don't see anything that really stands out."

CIT circus folds its tent

A trader said that CIT Group's bonds were "just like, hangin'." They "inched a little higher, but by no means [was there] the type of activity" seen over the previous two weeks, when "hundreds of millions [of dollars worth of CIT bonds] were trading." On Monday, "some issues barely traded."

He saw "virtually no volume" on the floating-rate notes coming due on Aug. 17, the busiest CIT issue most days over the past two weeks when the bonds gyrated wildly on positive and negative news developments. He said "they traded around 80 once, and that was it." He drew an analogy to "a crap table - last week it was 'place your bets, place your bets,' and today were no more bets."

Another market source said there had been a couple of round-lot trades that left the bonds at about 80.

A trader said that "generically" speaking, CIT's short paper coming due anytime this year to 2012 was trading in the lower 60s, paper maturing from 2013 to 2022 was in the mid 50s and maturities of 2022 and further out were converging in the 40s.

Unlike the situation a week ago, when CIT's issues completely dominated everybody's Most Active list, the bonds were few and far between on Monday. Although a market source saw them firmer - CIT's 5.40% bonds due 2013 gained 3 points to the 57 mark, while at another desk, its 5% notes due 2015 gained nearly 2 points to the 56 level - CIT, yet another declared, was "yesterday's news."

Nortel has nice move

A trader said that Nortel Networks "showed some good numbers today, in activity," following its asset auction on Friday. He saw its bonds ending up in a 41-43 range. He saw the 10 1/8% notes due 2013 mostly trading in a 43-43¼ context, "so that's up 5 points from last week."

He saw the 10¾% notes due 2016 around 43-44, up 4 points on the day, on "good volume."

The auction results, he said "were positive," with Swedish telephone maker Ericsson putting in the winning $1.1 billion for the Nortel wireless assets and technology.

A market source at another desk saw the 103/4s as perhaps the busiest junk bond issue, with around $20 million having changed hands at mid-afternoon. Those bonds were up about 4 points at 43.

Ericsson beat out bids from Nokia Siemens Networks and MatlinPatterson Global Advisers LLC with its $1.13 billion offer. Ericsson said the cash deal is expected to garner a "positive effect" on earnings within a year from closing.

Nortel filed for bankruptcy earlier this year and has since looked to stabilize by selling off certain assets. An auction for its corporate-networking business is expected later in the quarter.

NXP extends gains

Also in the tech sector, a trader saw NXP BV's 7 7/8% notes due 2014 around 64-65, closing out at 64½ bid, which he called up 1½ points, "but not as much activity" as on Friday, when the Eindhoven, Netherlands-based computer chip maker reported better second-quarter results and considerable progress in cutting its sizable debt load.

"Most of the action was on Friday, size-wise." He said. "They were in the [upper] 40s and ended up in the [lower] 60s on Friday, and so they're sort of maintaining that range today. "

Ford upside ride rolls on

A trader saw Ford Motor Co.'s bonds move up to the lower 70s, quoting its 7.45% notes due 2031 in a 71-73 range.

"The trades were right in the middle of that, for the most part, today," he said. There were "not a lot of trades, but some trading."

The bonds were "definitely up a couple of points. The mood is positive," as the Dearborn, Mich.-based Number-Two domestic carmaker's bonds continued to ride the momentum generated from last week's report of second-quarter numbers, which saw Ford report a $2.3 billion second-quarter net profit, or 69 cents per share - a far cry from its year-earlier $2.7 billion ($3.89 per share) loss. Excluding unusual items, Ford lost 21 cents per share - less than half the 50 cents per share of red ink Wall Street expected.

Ford credited the gains to the success of its debt-cutting and cost-reduction programs.

Another trader said that Ford "has been moving up," and said it was "very difficult to find any sellers of short paper."

For instance, he said that its Ford Motor Credit Co. 7 3/8% notes due 2011 were hovering at 99½ bid, 100½ offered, while its 7 3/8% notes due 2011 hung in at 96 bid, 97 offered. The Ford Credit 8% notes due 2016 gained more than 3 points to end at 87.

Besides the continuing positive impact of the numbers, Ford investors were heartened Monday as Standard & Poor's changed its outlook on Ford to "developing" from "negative", while affirming its credit ratings for the carmaker, including its CCC+ issuer credit ratings on Ford and Ford Credit.

S&P cited Ford's progress in reducing automotive operations cash use and stabilizing its U.S. market share.

"In our view, there is now potential for us to raise Ford's ratings in the next year or so, although the possibility for a downgrade remains significant," S&P concluded.

Beazer leads builders higher

A trader saw Beazer Homes USA Inc.'s bonds trading up by as much as 5 points on Monday, while "usually, you just see them quoted up."

He saw the Atlanta-based builder's 8 5/8% notes due 2011 move up to around 80-82, a 5 point gain, helped by the 11% raise in June new-home sales announced by the government, versus a year earlier. "There was not a lot of trading, but there was some trading. Some days they don't trade at all," but it did trade on Monday, "up to the low 80s, while there were quotes in the 70s last week. So I would say Beazer was definitely up."

He saw no trading in some of the longer Beazer paper, like its 8 1/8% notes due 2016. "It seems like the shorter ones are where the activity was."

He also saw Red Bank, N.J.-based builder Hovnanian Enterprises Inc.'s bonds "moving also," with its 6¼% notes due 2016 quoted in the lower 50s -- a 51-52 context. "They're quoted higher. There were some trades at that 52 level - but not a lot." So those two homebuilders were a little better.

"Obviously, Beazer was a lot better."

Los Angeles-based builder KB Home's 5 7/8% notes due 2015 were seen up better than 2 points to the 90 level.

Stephanie N. Rotondo contributed to this report.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.