Mandalay bonds off on MGM Mirage offer; Huntsman sets deal

By Paul Deckelman and Paul A. Harris

New York, June 7 - Mandalay Resort Group bonds were unchanged to somewhat lower Monday, as noteholders mulled over MGM Mirage's unsolicited offer to buy the Las Vegas-based gaming company for a total of more than $7 billion, including the assumption of nearly $3 billion of outstanding Mandalay debt.

In the primary market, terms emerged on a small $40 million offering of payment-in-kind notes sold Friday in a private transaction. Information appeared from Range Resources about a planned $100 million offering while Huntsman was heard to be hitting the road Tuesday to market a $400 million eight-year deal.

MGM Mirage's announcement late Friday that it would offer to acquire fellow Las Vegas casino operator Mandalay Resort Group in a $7.65 billion deal, including debt assumption (see related story in this issue), sent the latter's shares soaring Monday - but bondholders, apparently concerned about the leverage implications should the whole acquisition would be financed with new debt, as is likely, were much more wary.

Bonds of both companies were heard unchanged to lower in very quiet trading.

"It's not yet summer - but summer Mondays are here," a trader said, while another said that he had "talked to people - but nothing was going on on the Street, I saw no more than 10 trades," and most of these didn't even take place until around midday.

Mandalay "came in a little bit," a market source said, pegging the company's 10¼% notes a point lower at 111.75 bid, while its 9 3/8% notes were likewise a point down at 110.5.

He said that "those were only the more active names," while such issues as the 6.45% and 6½% notes "didn't even trade."

He said that on Friday "they had been bid up a bit after earnings," which surprised analysts; for the quarter, analysts were looking for per-share earnings of $1.12 and the company blew right through that to record $1.30, causing the stock to jump and the bonds to firm a bit as well.

But all of the bond gains were given back on Monday.

A trader saw the 9 3/8% notes left bid at 111.125, while the 6 3/8% notes hung around par bid, with "no substantive change or movement" in response to the news.

At another desk, Mandalay's 7 3/8% notes due 2013 were seen down almost 2½ points at 99.63.

A market observer meanwhile saw MGM Mirage's bonds likewise lower, with the company's 5 7/8% notes due 2014 falling to 90 bid from 91.25 on Friday, while its 8½% notes due 2010 "moved the most," dipping to 107.75 bid from 109.75 on Friday.

The MGM Mirage bonds, he said, "dropped in the last few days - not so much on Friday, but last week, down a bit, maybe in anticipation of something." They resumed the retreat on Monday, "down a point to a point and an eighth in spots."

He saw the MGM Mirage 6% notes due 2009 at 97.25 bid, down from 98.5 offered, while the company's 7¼% notes due 2017 were pegged at 95, down a point, and its 6¾% notes due 2008 were at 102.125, also a point lower.

The MGM Mirage 8½% notes due 2010 were quoted off a point-and-a-half at just below 108.

"The bonds were all trading in their recent context," the trader said, although at the lower end of those ranges. Where they go - or don't go - next "all depends on how the deal gets accomplished," he added.

Key Energy dips on default notice

Elsewhere, Key Energy Group's 8 3/8% notes due 2008 and 6 3/8% notes due 2013 were both lower, after the Midland, Tex.-based independent energy operator said that the holders of those bonds had served the company with a notice of default because of its failure to make timely filings of its results with investors and the Securities and Exchange Commission.

The 8 3/8% notes dropped to 103 bid from 104.25 on Friday while the 6 3/8% notes dipped to 92.75 bid from prior levels a point higher.

In addition to announcing the default notice, Key said that it was also withdrawing its fiscal 2004 earnings guidance.

Key earlier this year missed an extended deadline to file its annual report because of a pending restatement to correct previously reported write-downs.

The company said that under the terms of the notice it has 90 days in which to cure the default. Key asserted that the notice "may be defective in certain respects and [it] intends to engage in discussions with the trustee about the notice. If the notice is effective and is not withdrawn, the company intends to seek waivers of the default from the holders of each series of notes."

Should it not receive the waivers or fail to cure the default, Key warned that it faced the possibility that holder might try to accelerate that debt - and the company would not have the money to pay the obligations.

Calpine gains

On the upside, Calpine Corp.'s bonds seemed firmer, with the San Jose, Calif.-based independent power producer's 8 5/8% notes due 2009 a point better at 82.25 bid. Calpine's 8½% notes due 2008 were more than a point better at 62.25 bid, with no news on the company reported.

Levi Strauss & Co. bonds - which had firmed smartly on Thursday and again on Friday after the CEO of another apparel company made some offhand remarks about perhaps being interested in Levi's Dockers unit, currently for sale - were seen little changed on Monday. The San Francisco-based blue jeans company's 11 5/8% notes due 2008 were unchanged at 96 bid, its 7% notes due 2006 half a point lower at 93 bid, and its 12¼% notes due 2012 half a point higher at 94.5 bid.

Primary slow

A slow Monday in the primary found more than a few sources talking about this Friday's pending market close in commemoration of former U.S. president Ronald Reagan, who died on Saturday.

However Salt Lake City chemical-maker Huntsman LLC did manage to pull the stopper on a $400 million offering, which investors will begin to assay on Tuesday.

And terms were heard on a PIK note that was priced late Friday by Morton's Holding Co.

Yields up 50-75 bps in recent weeks

"Activity was low today but nothing was really weaker," an investment banker commented late in Monday's session.

"Everything was firm from Friday's close," the source added. "We didn't see much trading today."

Asked to sum up the present situation in the new issue arena, the banker said that it seems to be a market that is open to a narrower range of issuers than had been the case in the early part of 2004.

And the issuers in that range should expect to pay higher interest rates, the sell-sider added.

"It seems that issuers can expect to pay 50-75 basis points more right now than they would have paid when we had the hot market in February and March," the banker said.

"We may be seeing what amounts to a clean up of the calendar. A lot of the deals that we saw in the January through March time frame were real bull market deals, which would not see the light of day in a normal market.

"But it was a very hot market and those guys came through.

"Now I think we will see companies that the market is familiar with, with slightly better credit ratings.

"A lot of the smaller deals that we previously saw getting done won't be in the market."

Huntsman hits the road

True to the sell-side source's color, one ultra-familiar name in the junk market, Huntsman LLC, showed up with a $400 million offering of eight-year senior notes (B3/CCC+), which it will start roadshowing on Tuesday.

Credit Suisse First Boston, JP Morgan, Citigroup, Deutsche Bank Securities and UBS Investment Bank will be joint bookrunners for the debt refinancing deal from the Salt Lake City-based petrochemical company.

Huntsman LLC's most recent previous appearance came early last December, when it priced a $75.4 million add-on to its 11 5/8% senior secured notes due Oct. 15, 2010 (B2/B) at 99.50, resulting in an 11.722% yield to worst.

Cadmus to host call

Meanwhile Cadmus Communications, a Richmond, Va. provider of graphic communications and content processing services, will market an offering of $125 million 10-year senior subordinated notes (existing ratings B2/B) with an investor conference call set for 11 a.m. ET Tuesday. Pricing is expected on Thursday.

Wachovia Securities and Banc of America Securities will be joint bookrunners for the debt refinancing deal.

And Fort Worth, Texas, independent oil and gas company Range Resources announced a $100 million offering of senior subordinated notes in a 424B3 filing for a stock sale with the U.S. Securities and Exchange Commission on Monday.

"The deal has not been finalized," Rodney Waller, senior vice president of capital markets for Range Resources, told Prospect News.

Waller added that if the company does elect to issue the bonds as part of its financing for its Great Lakes Energy acquisition it will likely be a Rule 144A transaction.

The company is presently in the market with an approximately $116 million IPO, which is expected to close during the present week via bookrunners JP Morgan and Friedman Billings Ramsey.

Morton's completes true private

Late Friday, according to primary market sources, Morton's Holding Co. Inc. priced $40 million of six-year senior secured PIK notes in a "private-private" transaction via Jefferies & Co.

The subsidiary of New Hyde Park, N.Y. restaurant owner-operator Morton's Restaurant Group, Inc. priced the PIK for life notes at par to yield 14%.

May not merry, Citi says

Meanwhile in the June 4 edition of Citigroup's U.S. fixed income strategy organ, Bond Market Roundup, Terry Benzschawel, Dennis Adler and their colleagues in that institution's department of fixed income research reflect that the month of May 2004 was far from a merry one in the junk market.

"May was a difficult month for the high-yield sector as spreads widened 42 basis points and the underperformance relative to Treasuries gave back roughly half of the gains achieved during April," the Citigroup strategists commented.

"Volatility in the Treasury market finally pushed money out of high yield, with reported fund outflows of $4.1 billion in May. With the backup in Treasury rates, new issuance in May slowed to $9.8 billion, and we expect that the higher rates will continue to dampen supply going forward. Virtually all sectors posted negative returns on the month, led by airlines at -8.59% as the combination of market conditions as well as rising fuel costs pressured the sector. The telecom sector managed positive returns as both Level 3 and Qwest were up on the month.

"We continue to see pressure from Treasury volatility and suspect that high-yield spreads have another 25-50 basis points of widening before investors view the market as attractive.

"Meanwhile, diminishing new supply is encouraging, but we do not anticipate new money coming into high yield in the near term. Solid fundamentals continue to support the market. We remain neutral in high yield for asset allocation accounts.

"While near-term pressure will continue to weigh on the market, we believe that there will be an improving technical picture once stability reaches the market."

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